| Date | 17 May 2006 |
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| Judgment | Melville Dundas Ltd v George Wimpey UK Ltd [2005], Inner House Court of Session, 15 December 2005 |
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| The Issue | The effect of the HGCRA on the JCT insolvency provisions. |
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| Implication |
Sections 109-111 of the HGCRA will continue to apply if the contractor’s employment is determined under the contract so that the parties are not free to withhold payments that have already passed the final date for payment. |
printOn 7 and 26 March 2002, George Wimpey, acting as the developer, entered into a contract with Melville Dundas for the design and construction of a residential development in Glasgow. The form of contract was the JCT 1998 ‘With Contractors Design’ edition. On 2 May 2003, Melville issued an application for interim payment and on the same day Wimpey’s representatives issued a valuation certifying the sum of £396,630. Under the terms of the contract, the payment was required to be made 14 days from receipt of the contractor’s application. This gave a final date for payment of 16 May 2003. Wimpey did not make the payment before or after the final date for payment and on 22 May 2003 Melville went into receivership. On 30 May 2003, Wimpey terminated Melville’s employment and completed the works using its own resources. Under the terms of the JCT contract, if the contractor becomes the subject of insolvency proceedings the employer is entitled to determine the contractor’s employment. The employer is also entitled, under clause 27, to cease making interim payments provided those payments were not accrued more than 28 days prior to the insolvency proceedings. After completion of the works (and making good defects), an account of the employer’s costs in completing the works is required to be prepared and deducted from what would have been paid to the contractor. If this calculation results in a positive sum being due to the contractor, then that sum would fall due to be paid in accordance with the normal payment terms. Melville’s receivers brought an action against Wimpey for payment of the sum contained in the valuation and the matter was brought before Lord Clarke in the Court of Session in Scotland. Melville claimed that, under the contract, the final date for payment of the invoice was 16 May 2003 and nothing which happened after that date could affect Melville’s right to payment. Wimpey argued that the sum had accrued within 28 days of the insolvency proceedings and, under clause 27, the sum (whatever that may eventually be) would not fall due until some time after the completion of the works. Wimpey went on to argue that the statutory provisions contained within the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) left the parties free to determine what sums were due under the contract and, more importantly, when they were due. Wimpey claimed that the parties had agreed those terms and even if a sum was due before the receiver was appointed, the period for payment would be amended once insolvency proceedings were commenced. Lord Clarke agreed with Wimpey and found that sections 109, 110 and 111 of the HGCRA were only concerned with cash-flow ‘arising during the course of a continuing, non-determined construction contract.’ He contrasted this requirement with clause 27 which dealt with the ‘quite different’ situation where a contract had been legitimately determined by the employer. In rejecting Melville’s claim, Lord Clarke stated that the parties were free to agree that the original date for payment could be altered in the event of the contract being determined. Melville appealed the judgment and the matter was referred to the Inner House. Before this court, Melville contended that Lord Clarke had fallen into error regarding the parties’ freedom of contract in relation to the HGCRA. Melville submitted that if freedom to contract were to remain uninhibited as Lord Clarke suggested, contractors would simply ‘opt-out’ of the provisions and the Act would be pointless. Wimpey maintained that the Act provided no obstacle to the parties agreeing the period for payment in the event of receivership and Lord Clarke had correctly decided the matter. Lord Nimmo Smith, Lord Mackey and Lord MacLean considered all the recent authorities (SL Timber v Carillion 2002, Clark Contracts v The Burrell Co 2002 and Rupert Morgan v Jervis 2003) but were unable to concur with Lord Clarke’s findings. They found that, even if the HGCRA permitted it, the contract would require very clear provisions to retrospectively alter the final date for payment. Lord Nimmo Smith stated that: “What these provisions appear to us to purport to do is to permit the employer to withhold, in certain circumstances, an amount due after the final date for payment thereof, not to alter retrospectively the final date for payment.”The Lords also considered Lord Clarke’s comment that the provisions of the HGCRA were not intended to regulate the situation where the contract had been legitimately determined by the employer. In considering this question they found that clause 27 did not, in fact, provide for the determination of the contract but it only provided for the determination of the contractor’s employment under the contract. They found a number of provisions within clause 27 which demonstrated not only that the contract is intended to remain in force after the contractor’s employment has been determined, but also that clause 27 was intended to regulate the parties’ rights and obligations after that event. Lord Nimmo Smith went on to consider the intent of Parliament, finding that: “In our opinion Parliament has provided quite clearly that in circumstances such as the present the losses should be borne by the defenders as the employer under the contract, hence the provisions of section 111(1). The final date for payment of the sum sued for under the contract had passed without any effective notice of intention by the defenders to withhold payment, so the defenders were prohibited from withholding payment thereafter.”The Lords concluded that the final date for the payment had passed without an effective withholding notice being issued. Accordingly, Wimpey were ordered to pay the interim payment, plus interest from 16 May 2003.
CJ-0619
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