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Circumstances 鈥� that鈥檚 an awfully big word. It looms large in the first Construction Act case to come to the House of Lords since we were given the act back in 1998. The case is Melville Dundas vs George Wimpey.

Do you remember those 1998 circumstances? Instead of being canny, instead of showing shrewdness and good judgment about paying contractors, one or two folk thought it was terribly smart to impose damn awful payment terms on the other bloke.

鈥淲ell,鈥� said some, 鈥渢hat鈥檚 what鈥檚 called freedom of contract.鈥�

鈥淣o, no,鈥� said others, 鈥渋t鈥檚 called 鈥榦ppressive bargaining power鈥�.鈥�

Anyway, the circumstances proved too embarrassing, especially when Sir Michael Latham鈥檚 Constructing the Team reported to parliament. The then Department of the Environment (DOE) neatly explained the 鈥渃ircumstances鈥� in a 1995 paper to parliament called Fair Construction Contracts. It was mentioned in this 2007 House of Lords judgment.

Credit: Simone Lia

鈥淎s Buddha said 鈥楨verything changes, nothing remains unchanged.鈥� 鈥�

鈥淵es but Buddha does owe me a large wad of money.鈥�

The DOE urged that 鈥渃ertain essential terms may not be omitted or substantially varied鈥�. These being (1) dispute resolution, (2) right of set-off, (3) prompt payment, (4) protection against insolvency. The paper also recommended a provision by parliament for 鈥渁 clearly defined period 鈥� within which interim payments must be made鈥� and 鈥渢hat any attempt to amend or delete鈥� such a provision 鈥渟hould be invalid鈥�.

The law-making machine whirred and whooshed. There was a balance to be struck between making people play fair, pay fair, and 鈥渇reedom of contract鈥�. A key payment rule came into the act. It said: 鈥淭he parties are free to agree the amount and interval at which, and circumstances in which, payments become due.鈥�

Now then, that鈥檚 harmless isn鈥檛 it? True, the act does demand that the payer tell the payee what is to be paid; true the payer can鈥檛 withhold from a sum that has 鈥渂ecome due鈥� unless a 鈥渨ithholding notice鈥� is issued in good time. And in the nine years of operating all this, two things are clear: (1) everyone knows about the 鈥渨ithholding notice鈥�, and (2) few understand what is meant when money 鈥渂ecomes due鈥�.

Let鈥檚 be clear. So long as there are interim payments and they are commercially realistic enough to fund the progress of the works, it is open to the parties to agree intervals for the cheques, and open to the parties to agree the circumstances in which the money becomes due or doesn鈥檛 become due.

In the JCT contract forms for example, the circumstance is the amount on the architect鈥檚 monthly certificate. It is beside the point that the amount is too much, or too little; the money due is the amount on the paper. So becoming due鈥漣s a circumstance, not a truth or evidence of correctly evaluating the work. Dear me, no!

Melville Dundas was built houses for Wimpey. Wimpey paid up on each certificate. A lump more money had become due and was to be paid on 16 May. But then administrative receivers were appointed to the builder.

So Wimpey held on to the lump of money that had become due according to the certificate. That鈥檚 because a rule in the JCT contract requires no further payments on the occurrence of such receivership.

Ah, said the builder in receivership, you can鈥檛 withhold any money because no 鈥渨ithholding notice鈥� was issued before the final date for payment. Nine judges later, the House of Lords ruled that a withholding notice was not required, so Wimpey does not pay.

The judges wrestled with the notion that if the payment certificate made the money due then the receivership rule made it undue. It was, by the time of receivership, too late to serve the withholding notice. So the majority of judges ruled that if it was impossible to serve a withholding notice then in those circumstances (big word) the rule about a withholding notice didn鈥檛 apply. Inelegant admitted one judge.

For me, the amount that 鈥渂ecomes due鈥� was first the certified sum, then circumstances arose that made that sum no longer due. And once nothing has become due, no withholding notice applies. The answer was all in the circumstances 鈥� an awfully big word.