The judgment in the first case to go to the House of Lords in relation to the Housing Grants Construction & Regeneration Act 1996 was issued today – Melville Dundas (In Receivership) v George Wimpey & Norwich Union. The House of Lords has overturned the decision of the Inner House of the Court of Session and reinstated that of Lord Clarke in the Commercial Court.
The case concerned the liability to make an interim payment under a building contract. The court had to consider the interaction of the payment and determination provisions of the building contract with the 1996 Act.
The contract was a standard form JCT With Contractors Design, 1998 edition.
The contractor, Melville Dundas, applied for an interim payment on 2 May 2003. The final date for payment was 16 May 2003. No notice of withholding was served and no payment was made by Wimpey. On 22 May 2003, Melville Dundas went into Receivership. This triggered Wimpey’s entitlement to determine the contract which they did on 30 May 2003. They then relied on the terms of clause 27.6.5.1. That clause provided that the contractual provisions requiring any further payment to be made to the contractor would no longer apply. This, Wimpey said, meant they no longer required to pay the sum contained in the interim certificate.
The court addressed firstly the interpretation of clause 27.6.5.1. This, all five judges agreed, means simply that the contractor cannot require the employer to pay any more money, pending the preparation of an account as provided for in clause 27.6.5.2. Reading the contract on its own, then, the position was clear.
The second issue was more complex. It related to the provisions of the 1996 Act. Clause 111, in particular, was relied upon by Melville Dundas. It requires a notice of withholding to be issued prior to the final date for payment if sums are to be withheld. That provision is mirrored in the standard form in clause 30.3. The majority of the judges were uncomfortable with effectively writing clause 27.6.5.1 out of the contract by making it subject to the notice requirements of section 111 because it was impossible for Wimpey to have given notice timeously, no grounds for that being in existence at the date the notice required to be given. They sought to interpret section 111 in a way compatible with the operation of clause 27.6.5.1.
Lord Hoffman stated that section 111(1) should not apply to a lawful ground for withholding payment where it was, in the nature of things, not possible for notice to have been given within the time limits.
Lord Hope considered the purpose of the 1996 Act to be to prevent payment of stage payments being withheld without notice. It was not to prevent an employer withholding sums already due in the event of determination of the contractor’s employment pending making up an account to identify the balance due to either party once the employer’s loss and damage caused as a result of the determination had been taken into account. He agreed with Lord Clarke that section 111(1) does not apply to the situation where the employer wishes to exercise the right of set off in clause 27.6.5.1 following determination of the contractor’s employment under the contract.
In reaching its decision the House of Lords gave consideration to the purpose of the 1996 Act, including reviewing the terms of the industry consultations and reports such as Constructing the Team and Fair Construction Contracts, and also to the balance of the rights of the employer, the contractor and the contractor’s creditors. Whilst the requirement for withholding notices will be strictly observed in relation to payments under an ongoing construction contract, thereby protecting the contractor, where a contractor’s employment is determined, the employer’s contractual protection within clause 27.6.5.1 is retained.
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