| Date | 3 December 2003 |
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| Judgment | Rupert Morgan Building Services (LLC) Ltd v David Jervis, CA 12 November 2003 |
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| The Issue | The operation of section 111 withholding notices. |
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| Implication |
An architect or engineer's certificate of interim payment will establish the amount due under a construction contract. Where the paying party intends to dispute that amount it must serve a section 111 withholding notice regardless of the nature of the complaint raised by the paying party. |
printThe recent Court of Appeal decision in the case of Rupert Morgan Building Services Ltd v David Jervis examined the purpose behind the Section 111 notice requirement of the Construction Act. Section 111(1) states "a party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment". The decision of the Court of Appeal provides a reminder of the importance of the withholding notice in certain circumstances, notably where an independent certifier, such as an architect or engineer, has certified amounts due under the contract. Jervis had engaged Morgan as a builder for works to be carried out on his cottage. The form of contract was the Architecture and Surveying Institute's standard form and in accordance with its provisions, Jervis had retained the services of an architect who, coincidentally, happened to be the brother of a director of Morgan. The architect had certified interim certificates but by the 7th certificate Jervis was complaining that a significant amount was not due for payment. Jervis was unaware of his rights or obligations under the Construction Act, and did not recognise the need to give a notice of intention to withhold payment. Morgan contended that it followed, by virtue of section 111 of the Act, that Jervis could not withhold payment, and applied to the court for summary judgment for the entire amount certified by the architect. In defence to that claim Jervis contended that no withholding notice was required because "one cannot withhold what is not due". Jervis argued that it was open to him by way of defence to prove that items of work included in the certificate for payment were not done at all or were duplicates of items already paid. The intended effect of the section 111 withholding notice has been examined in a number of cases in both Scottish and English jurisdictions, including principally VHE Construction v RBSTB Trust, KNS Industrial Services v Sindall, Whiteways Contractors v Impressa Castelli, Woods Hardwick v Chiltern, SL Timber Systems v Carillion and Millers Specialist Joinery v Nobles. The conclusion in all of those cases (with the exception of Whiteways which appears now to be clearly wrong) is that the absence of a withholding notice would not preclude the paying party from arguing that the sum claimed is not necessarily the correct sum due under the contract. Lord Macfadyen put this clearly in the S L Timber case as follows: "I would have been inclined to say that a dispute about whether the work had been done, or about whether it was properly measured or valued, or about whether some other event on which a contractual liability to make payment depended had occurred, went to the question of whether the sum claimed was due under the contract, therefore did not involve an attempt to "withhold a sum due under the contract" and therefore did not require the giving of a notice to withhold payment". It is noticeable, however, that none of these cases concerned a situation where an architect or engineer had certified a sum for payment. In the one later case where an architect's certificate had been issued, Clark Contracts v The Burrell Company, a different approach was taken. Sheriff Taylor held that Clark became entitled to payment of the sum stated in the interim certificate within 14 days of it being issued. That was an entitlement to payment of a sum due under the contract. If Burrell wished to avoid liability to make such payment because the works did not conform to the contract or because it disputed the certification made by the architect, it would be withholding a sum due under the contract and it would therefore be required to give a withholding notice in accordance with section 111. Sheriff Taylor understood that the interim certificate was not conclusive evidence that the works had been carried out in accordance with the contract. That did not, however, preclude that the sum stated as due in the interim certificate was the "sum due" under the contract. Returning to the Court of Appeal and the Morgan v Jervis case, Lord Justice Jacob was clear that that was the correct analysis. In a situation where an independent certifier had certified an amount due under a contract there were clear advantages to the position that a withholding notice would have to be given if the certified amount was to be disputed by the paying party. Firstly, it removed arguments about whether the complaints concerned set-off or abatement. Secondly, it provided a fair solution which preserved the builder's cash-flow but did not prevent the paying party from arguing the proper amount in later proceedings. (Admittedly, however, that would be of no comfort to the paying party where the builder, having been overpaid, became insolvent). Thirdly, it required the client to be specific in his notice about how much he intended to withhold and why. Finally, it dealt with, as far as Lord Justice Jacob was concerned, the mischief which the Act was aimed at, namely that main contractors were abusing their position to wrongfully withhold payment from sub-contractors who were in no position to make any effective protest. In conclusion, the appeal was dismissed. Jervis was obliged to pay the amount certified but he would have a remedy elsewhere if as a result he could prove he had overpaid.
CJ-0346
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