| Date | 6 November 2002 |
|
|
| Judgment | Aqua Design and Play International Limited and Fenlock Hansen Limited v Kier Regional Limited, CA 14 May 2002 |
|
|
| The Issue | The operation of pay when paid under the DOM/1 form of subcontract. |
|
|
| Implication |
In the published form of DOM/1, a pay when paid mechanism is not included, despite that the Construction Act will allow such provisions in the event of the insolvency of the Employer. The parties are of course free to amend the sub-contract to include a compliant pay when paid provision. |
printIn November of last year, I reported the case of Aqua Design and Play and Fenlock Hansen -v- Kier Regional which determined whether Kier would be entitled to rely on a pay when paid provision following the insolvency of its client. This case has now gone to the Court of Appeal, where the decision has been reversed in Kier's favour. A pay when paid clause in a sub-contract provides that the sub-contractor will not be paid unless the main contractor has received corresponding payment from its client. Such provisions have always been controversial and it is no surprise that the Construction Act introduced a measure of regulation to the practice. Pay when paid had become recognised as 'pay if paid'. Any dispute up the line was often used as a pretext for blocking payment to subcontractors. Main contractors have argued in their defence that such clauses validly protect their interests in the event of the employer's insolvency. Here, they argue, the financial effects of insolvency are shared between all those who have earned the right to be paid. To the dismay of all those who represented the interests of subcontractors, the government accepted this argument. The result is the requirement enshrined within the 1996 Act that pay when paid is outlawed except in circumstances where the employer has become insolvent. No surprise then that some main contractors who had hitherto abandoned the practice, sought to reintroduce clauses to provide protection in the event of their client's insolvency. No need to search for a clause that would do the trick. Amendment 10 to the DOM/1 form of subcontract, published by the Construction Confederation to meet the requirements of the Construction Act, included a Clause 32 as follows: "Notwithstanding anything to the contrary elsewhere in this subcontract, if the employer is insolvent as defined by clauses 32.2, 32.3, and 32.4, the Contractor shall not be obliged to make any further payment to the subcontractor of any amount which is due or may become due to the subcontractor unless the Contractor has received payment in respect thereof from the Employer and only to the extent of such receipt". Despite that it would comply with the Act, in the opinion of the subcontracting fraternity it was unacceptable to provide such a clause in a standard subcontract form. In fact, clause 32 should never have seen the light of day. Agreement had been reached that clause 32 should be deleted. In July 1998, a series of corrections to DOM/1 were printed and published along with the form which confirmed the deletion of clause 32 along with a footnote: "During the drafting of the revisions to the Domestic Subcontract DOM/1, clause 32 was drafted and was the subject of discussions with representatives of the National Specialist Contractors Council and Specialist Engineering Contractors Group. Although both subcontractors' representative bodies no longer approve DOM/1 in its present form, it was agreed that clause 32 should be deleted. Due however to a printing error, this did not take place and clause 32 should be deleted from the standard form". Confused? So too were Kier Regional and two of their subcontractors, Aqua Design and Fenlock Hansen, to the extent that they all ended up in the Technology and Construction Court, and more recently, in the Court of Appeal. Kier were main contractors for the fitting out of a health and fitness centre at Chelmsford in Essex for a company called Healthland. Aqua was engaged as subcontractor for the supply and installation of a swimming pool, sauna, steam room, and showers. Fenlock was subcontractor for glazed screens. Both commenced proceedings against Kier who had refused payment relying on clause 32 when its client, Healthland, went into administration. Aqua and Fenlock argued that when Kier had issued its subcontract to the parties, this had referred to the incorporation of the DOM/1 subcontract conditions 'as published'. This could only mean the conditions as corrected by the Construction Confederation in July 1998. Accordingly, those conditions did not include clause 32, inserted by mistake in the DOM/1 form. Kier argued that the sub-contract conditions, which applied between the parties, did not include the printed corrections issued by the Construction Federation, but instead comprised a series of bespoke amendments which had been prepared by Kier. These amendments made no mention of the deletion of Clause 32. In the Technology and Construction Court, His Honour Judge Richard Seymour disagreed with Kier and concluded that the sub-contract was based upon the terms and conditions published by the Construction Federation. These conditions included the corrections published at the date the sub-contracts were made. The Court of Appeal disagreed. Lord Justice Dyson was satisfied that the more natural interpretation was that Kier's own printed amendments applied. These amendments, which made no mention of the deletion of Clause 32, were significantly different from the corrections printed by the Construction Federation. This was a deliberate act, since the inclusion of Condition 32 was of considerable benefit to Kier. Accordingly, the sub-contract included Condition 32.1, such that Kier was entitled to rely upon the pay when paid provision afforded by that clause following the insolvency of its client.
CJ-0243
|
|||
|
© Brewer Consulting |
|||
 |
|||