The recent decision of William Hare Limited v Shepherd Construction Limited [2009] EWHC 1603 (TCC) serves as a stark reminder that bespoke contracts need to be revised regularly rather than seen as a finished product and never revisited.
The Enterprise Act 2002 has provided that an insolvent company can go into administration through a self-certification process. This was not a procedure recognised under the Insolvency Act 1986.
Shepherd had entered into a sub-contract with William Hare to supply and erect steelwork on a development project in Wakefield. Shepherd attempt to rely upon a pay when paid provision as is permitted by the Housing Grants, Construction and Regeneration Act 1996 in cases of insolvency.
However, in the sub-contract, the definition of "insolvent" referred only to insolvency as defined under the Insolvency Act 1986 and did not refer to the self-certification route. The rub, as Shepherd found, was that the concept of self-certifying administration was introduced under the Enterprise Act 2002; there is no provision for it whatsoever under the Insolvency Act. The sub-contract was made 5 years after the Enterprise Act came into effect, but Shepherd's bespoke contract had not been updated to accommodate the change in law.
The Court held that Shepherd was not entitled to withhold monies as the clause referred neither to self-certifying administrations nor to the Enterprise Act. Shepherd was therefore required to pay William Hare a substantial sum of money (accrued over 2 valuations) with little prospect of recovery from the Employer. Although not addressed in this case, it is highly likely that the same reading would be given to termination provisions where a party wishes to terminate a contract on the grounds of a third party's insolvency through a self-certifying administration.
Although standard forms of contract are clearly extremely useful, they should be seen as live documents which need to be revisited so as to keep abreast of changes in the law (whether case law or statute) otherwise contracting parties may only find out when it is too late that they do not have the rights they think they have.
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