UK: Wembley: "Entire Contracts" And The Right To Be Paid

Last Updated: 9 October 2008
Article by Julian Bailey

The main judgment was given last Monday in the Wembley case. The dispute between Multiplex and Cleveland Bridge raised a number of important legal issues. One was whether Cleveland Bridge, who walked off the project, were entitled to be paid for work they performed prior to abandoning it.

  • Under the contractual arrangements, Cleveland Bridge was entitled to be paid £12m for performing certain "lump sum" work.
  • Part-payment of the £12m was to be made monthly, as the work was performed. The amount due was that which was certified for the particular month.
  • Cleveland Bridge walked off the job in early August 2004. But just before doing so they submitted a claim for payment for the work performed up to 27 July 2004.
  • Multiplex were not contractually obliged to issue a payment certificate once Cleveland Bridge abandoned the project.
  • Were Cleveland Bridge entitled to payment for the work performed in July, even though they didn't have a payment certificate?

Mr Justice Jackson said "no". He said that because the contract was an "entire contract", money wasn't due until all of the work was performed by Cleveland Bridge. In addition, the contract contemplated Cleveland Bridge only being paid once it received a payment certificate from Multiplex. Multiplex wasn't required to issue a payment certificate once Cleveland Bridge walked off site, so Cleveland Bridge was not entitled to be paid.

This result may seem a little unfair. Should a contractor be entitled to no payment for work performed, even if it abandons the works? Centuries ago the courts saw no problem with a contractor remaining unpaid if it walked off site without excuse. The logic was that an employer was only required to pay for work once the contractor had entirely done what it promised to do. So if a builder builds half a house and then abandons the job, he isn't entitled to half the contract price - or anything at all. Building contracts were traditionally regarded as "entire contracts", where the owner wasn't obliged to make payment until all of the work is done.

Over time contracting arrangements became more sophisticated. Contracts were drafted so that the contractor would be entitled to interim or progress payments, but usually the right to payment was linked to a payment certificate being issued - as it was in the Multiplex / Cleveland Bridge subcontract. This is also essentially what the Construction Act requires. But a contract can still be an "entire contract" even if it contemplates interim or progress payments. Result: the owner can refuse to make payment if the contractor fails to perform all of the contract work, and the contractor does not have a payment certificate which entitles it to payment.

However, the harshness of the law concerning "entire contracts" is heavily affected by another legal doctrine called "substantial performance". This doctrine operates so that if a contractor has substantially performed what it promised to do, and the owner can and does take the benefit of that work, the owner is required to pay a reasonable amount for the work performed. Not the full contract price, just a reasonable amount. There could have been an argument in the Wembley dispute that Cleveland Bridge was entitled to be paid for the work it performed in July 2004. It had performed the work, and made its payment claim, yet all that was missing for its payment rights to accrue was a payment certificate. Multiplex wasn't required to issue a payment certificate, but if Cleveland Bridge had substantially performed its work for July, it should have been entitled to some payment.

Looked at in the context of the Multiplex / Cleveland Bridge litigation, where there were large claims on both sides, and every single legal point was taken, denying Cleveland Bridge the right to payment for the work it performed just prior to abandoning the project may not seem that harsh. But there will be other cases where it would clearly be unjust to deny a contractor any payment for work performed, even if the contractor has done the wrong thing by abandoning the works. A couple of decades ago the Law Commission recommended that the law be changed to this effect. The government of the day didn't adopt its recommendations, and there are no current plans for the law to change. "Entire contracts" have been with us for some time. And it looks like they're here to stay.

Reference: Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd (see Chapter 19).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 07/10/2008.

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