| Date | 19 December 2001 |
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| Judgment | Isovel Contracts Limited (in Administration) -v- ABB Building Technologies Limited CD 30 November 2001 |
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| The Issue | Whether the cancellation of a cheque can be justified by subsequent interim valuations showing lesser amounts due. |
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| Implication |
Cheques are to be treated as cash and the revaluation of amounts due under subsequent payment certificates cannot justify the countermanding of a cheque properly due and payable under an earlier payment certificate. |
printIn 1997, Mid-Sussex District Council entered into a main contract with Miller Construction for the construction of the Burgess Hill Leisure Centre in Sussex, under a JCT 81 Design & Build Form of Contract. Miller entered into a sub-contract with ABB Building Technologies for the mechanical and electrical works under a DOM/2 sub-contract, and ABB in turn entered into a sub-sub contract with Isovel Contracts. Isovel and ABB ended up in court in dispute over payments due under the sub-sub contract. The sub-sub contract incorporated the provisions of the DOM/2 Form, but at Clause 3 provided that amounts due to the sub-sub contractor "shall be paid or allowed not later than 24 days after any amounts are paid under the sub-contract, which shall be condition precedent to the sub-sub contractor's right to receive payment". In compliance with those provisions, Isovel submitted interim payment applications to ABB, who in turn incorporated these applications within its own interim payment applications to the main contractor. Upon receipt of ABB's application, the main contractor ascertained and certified the value of sub-contract work carried out by ABB. ABB then applied this certified value (after making an agreed 11.5% discount) to Isovel's application. In July 1998, the main contractor certified a gross sum to ABB, which gave rise to a payment due from ABB to Isovel of approximately £76,000. As a result, a cheque for that amount was issued by ABB to Isovel. Isovel duly presented the cheque for payment, but it was dishonoured, payment having been countermanded by ABB. Isovel soon learned why. In the subsequent two payment applications, the main contractor had reduced the certified amount by £55,000 by reference to a "schedule of mechanical services non-compliant with the employer's requirements or approved drawings", and by £86,000 in respect of what ABB identified as "incomplete work or works not carried out but claimed for". ABB's position was that, instead of Isovel being due £76,000, in fact Isovel owed ABB some £65,000. Not entirely happy with this proposition, Isovel applied to the court under the Civil Procedure Rule Part 24 for summary judgment against ABB, on the grounds that ABB had no real prospect of successfully defending the claim for payment of the dishonoured cheque, ABB defended that Isovel was not entitled to a Part 24 Order, and that even if it was entitled, the Order must be stayed (postponed) pending the determination of ABB's counterclaim. A twist to the story that should be pointed out here is that by the time these matters came to court an administration order had been placed on Isovel under Section 8 of the Insolvency Act 1986. Mr Simon Berry QC, sitting as a deputy judge in the Chancery Division of the High Court commenced by noting that it is a well settled principle of law that a cheque is to be treated as cash. He cited the House of Lords in the 1977 case of Nova (Jersey) Knit -v- Kammgarn Spinnerei; "A seller may demand payment in cash; but if the buyer cannot provide this at once, he may agree to take bills of exchange payable at future dates. These are taken as equivalent to deferred instalments of cash . . . . and it is for this reason that English law . . . does not allow cross claims or defences, except such limited defences as those based on fraud, invalidity or failure of consideration, to be made". ABB argued that there had indeed been a failure of consideration. It argued that, as revealed by the subsequent payment certificates, no money at all was due at the time that the cheque had been made as a result of the defective and incomplete work carried out by Isovel. ABB relied on the fact that Condition 21.4.1.1 of DOM/2 provided that the valuation which is required to be made should be of the total value of the sub-contract works on site "properly executed" by the sub-contractor. Judge Berry rejected this notion. It was an essential element of the payment scheme prescribed by the sub-sub contract that errors in evaluation on which a certificate was founded could be taken account of in later certificates. This was quite inconsistent with the notion that such errors could be used to justify the countermanding of a cheque issued in payment of an earlier certificate. The quantifications reflected in the subsequent certificates were for the purposes only of those later certificates. For those reasons, Isovel ws entitled to succeed in its application for a Part 24 Order for payment in the amount of the dishonoured cheque. Judge Berry was not prepared to allow a postponement of that Order. Clause 4.90 of the Insolvency Rules 1986 would allow ABB to make a set-off against Isovel, if Isovel were in liquidation. Such a rule, which has been severely criticised as a major invasion of the rights of other creditors to be paid equally out of the assets of the company in liquidation, did not apply to companies in Administration. Under such circumstances, ABB was not entitled to secure an advantage over other creditors, simply because it had managed to cancel its cheque.
CJ-0150
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