UK: A Question of Construction

A point of principle arising in the recent case of Melville Dundas v Wimpey was sought to be addressed by the court in Pierce Design International Ltd v Mark Johnston and Another. In Pierce, the debate essentially turned on the interpretation of the proviso to Clause 27.6.5.1 of the relevant JCT contract, and whether an Employer, who has failed to pay sums due to the Contractor under the contract, can resist a Contractor’s claim for payment by relying on its subsequent determination of the Contractor’s employment.

The Facts

Pierce entered into a contract with Mr and Mrs Johnston to carry out construction works at their property in London. The contract incorporated the JCT Standard Form of Building Contract (With Contractor’s Design), 1998 edition, incorporating certain Amendments. The Johnstons failed to make interim payments to Pierce and no withholding notices were served. Pierce therefore sought payment of the outstanding sums, together with interest. Works, however, were not completed by the contract completion date. The Johnstons complained of defects and incomplete works, and served a notice of default on Pierce. The Johnstons alleged the defects were not remedied and therefore sought to determine the employment of Pierce.

The Issues

Clause 27.6.5.1 prevents an Employer from relying on the clause as a defence to a Contractor’s enforcement of any rights "in respect of amounts properly due to be paid by the Employer to the Contractor which the Employer has unreasonably not paid and…which have accrued 28 days or more before the date of determination of the employment of the Contractor".

There were therefore two issues for the court to address:

  1. Does Clause 27.6.5.1 fall outwith section 111 of the 1996 Act because it seeks to allow sums to be withheld in the absence of a withholding notice?
  2. Assuming Clause 27.6.5.1 does comply with section 111, did the operation of Clause 27.6.5.1 entitle Pierce to payment of the outstanding sums on the basis these had been "unreasonably not paid" by the Johnstons?

The Decision

Judge Coulson held that, as a majority in the House of Lords in Melville Dundas had already ruled that Clause 27.6.5.1 was not at odds with section 111 of the Act, he was bound by that decision. He did not think it advisable to suggest that a clause of a standard form contract may comply with the 1996 Act on one set of facts, whilst on another set of facts it may not. All that therefore remained was to address the construction of the proviso to clause 27.6.5.1.

The court decided that the proviso could be broken into three parts, all which would require positive answers if Pierce were to succeed:

  1. Were the amounts properly due to be paid by the Johnstons to Pierce?
  2. Did Pierce’s right to those amounts accrue 28 days or more before the date of determination?
  3. Had the Johnstons "unreasonably not paid" those amounts?

In response to points 1 and 2, the judge ruled that the sums were properly due under the contract and that Pierce’s right to the amounts had accrued more than 28 days prior to the determination. As regards to point 3, it was decided that sums would be unreasonably withheld if no valid withholding notice had been served. As this was true in the present case, the final part of the proviso was satisfied and any arguments in favour of a different construction were dismissed, primarily on the basis that a different construction may allow an Employer to use determination as a way of avoiding his responsibility to make interim payments. Judge Coulson accordingly found in favour of Pierce, awarding the sums claimed plus interest.

Disclaimer

The material contained in this e-update is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

© MacRoberts 2007

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