Pierce Design International Ltd v Mark Johnson and Anor
Case reference:
[2007] EWHC 1691 (TCC)
Tuesday, 17 July 2007
Key terms: Withholding notices - Interim Payment - Section 111 - Clause permitting withholding - Contractor default
This case is the first to consider the recent decision of Melville Dundas v George Wimpey - the first HGCRA case to reach the House of Lords. Here, the principle dispute between the parties was whether an employer, who had not paid sums due, could prevent the contractor from enforcing its right to payment of those sums by relying on its subsequent determination of the contractor's contract.
The defendants, Mr. and Mrs. Johnston, owned a house in southwest London and engaged the claimant, Pierce Design International, under a 1998 JCT Standard Form of Building Contract (With Contractor's Design) to carry out construction works to the property. During the course of the contract, the defendants failed to make several interim payments to the claimant. Withholding notices had not been served in accordance with the HGCRA, and the total unpaid sums amounted to approximately £93,500. Subsequently, the works were not completed by the completion date and the defendants complained that Pierce was not proceeding regularly and diligently with the work. After serving a notice of default pursuant to Clause 27.2.1 of the JCT Conditions, the defendants purported to determine the employment of the claimant. Pierce sought summary judgment for the unpaid sums plus interest.
The claimant contended that as clause 27.6.5.1 of the contract allowed the employer not to pay a sum which was due, despite the absence of a withholding notice, it failed to comply with s.111 of the HGCRA and should therefore be struck down. The claimant also submitted that even if the clause was in accordance with s.111, the proviso to this clause operated to prevent the defendants from resisting the claimant's application for the sums due under the contract on the basis that those sums have been "unreasonably not paid".
HHJ Coulson first considered the Melville Dundas case and held that the court was bound by the House of Lords decision such that clause 27.6.5.1 complied with the HGCRA, regardless of the facts of the case. He held that it would be 'a recipe for uncertainty and endless dispute' if a clause in a standard JCT contract complied with the HGRCA based on one set of facts, yet on another set of facts it did not comply.
The judge then considered the proviso to clause 27.6.5.1 and held that as there were clearly amounts due to be paid to the contractor prior to the date of determination, the employer had "unreasonably not paid" these amounts and accordingly, as a matter of construction, this non-payment amounted to a breach of the contract. The clause therefore operated and Pierce was owed the sums due.
HHJ Coulson, quoting Lord Hoffmann, stated that:
The defendants, Mr. and Mrs. Johnston, owned a house in southwest London and engaged the claimant, Pierce Design International, under a 1998 JCT Standard Form of Building Contract (With Contractor's Design) to carry out construction works to the property. During the course of the contract, the defendants failed to make several interim payments to the claimant. Withholding notices had not been served in accordance with the HGCRA, and the total unpaid sums amounted to approximately £93,500. Subsequently, the works were not completed by the completion date and the defendants complained that Pierce was not proceeding regularly and diligently with the work. After serving a notice of default pursuant to Clause 27.2.1 of the JCT Conditions, the defendants purported to determine the employment of the claimant. Pierce sought summary judgment for the unpaid sums plus interest.
The claimant contended that as clause 27.6.5.1 of the contract allowed the employer not to pay a sum which was due, despite the absence of a withholding notice, it failed to comply with s.111 of the HGCRA and should therefore be struck down. The claimant also submitted that even if the clause was in accordance with s.111, the proviso to this clause operated to prevent the defendants from resisting the claimant's application for the sums due under the contract on the basis that those sums have been "unreasonably not paid".
HHJ Coulson first considered the Melville Dundas case and held that the court was bound by the House of Lords decision such that clause 27.6.5.1 complied with the HGCRA, regardless of the facts of the case. He held that it would be 'a recipe for uncertainty and endless dispute' if a clause in a standard JCT contract complied with the HGRCA based on one set of facts, yet on another set of facts it did not comply.
The judge then considered the proviso to clause 27.6.5.1 and held that as there were clearly amounts due to be paid to the contractor prior to the date of determination, the employer had "unreasonably not paid" these amounts and accordingly, as a matter of construction, this non-payment amounted to a breach of the contract. The clause therefore operated and Pierce was owed the sums due.
HHJ Coulson, quoting Lord Hoffmann, stated that:
"Employers should be 'discouraged from retaining interim payments against the possibility that a contractor who is performing the contract might become insolvent at some future date (which may well be self-fulfilling)'. … It is not a determination of their rights. All it does is to require them to pay, on an interim basis, the sums, which, pursuant to the contract, they ought to have paid months ago."
Summary judgment was granted to the claimant.