The defendants, Mr and Mrs Johnston, engaged the claimant contractor, Pierce Design International Limited, to carry out construction works at the property. The contract incorporated the JCT Standard Form of 黑洞社区 Contract (With Contractor鈥檚 Design), 1998 edition.
During the contract the defendants failed to make interim payments to the claimant in accordance with clause 30.3.3 of the contract. The unpaid sums totalled 拢93,460.33 plus interest.
The works were not completed by the contractual completion date and the defendants complained about defective and incomplete works. They served a notice of default, pursuant to clause 27.2.1 of the JCT conditions, notifying the claimant that it was not proceeding regularly and diligently with the construction work. The defendants alleged that the default was not remedied and purported to determine the employment of the claimant. That determination was disputed.
Before the court, the claimant contended that clause 27.6.5.1 of the JCT contract, which allowed the employer not to pay a sum due despite the absence of a withholding notice, fell outside section 111 of the Construction Act and that the case of Melville Dundas Ltd (In Receivership) v George Wimpey UK Ltd (2007) should be limited to its facts. Even if the clause was in accordance with section 111, the proviso in it operated to prevent the defendants from resisting the claimant鈥檚 application for sums due under the contract on the basis that it had been 鈥渦nreasonably not paid鈥� as there had been no appropriate withholding notice.
Two issues arose:
a) Whether, on the facts of the case, clause 27.6.5.1 fell foul of Section 111 of the act, because it purported to allow sums to be withheld without the serving of a withholding notice; and
b) Whether, assuming clause 27.6.5.1 was in accordance with section 111, the proviso in clause 27.6.5.1 operated to prevent the defendants from resisting the claimant鈥檚 application for the sums due under the contract on that basis that those sums have been 鈥渦nreasonably not paid鈥� by the defendants.
Reference
Judge Coulson QC held that he was bound by the House of Lords decision in Melville, and it was not open to the court to restrict the consequences of that decision. The argument that on one set of facts a clause in a standard JCT contract complied with the act, while on another set of facts, it did not, was not attractive and was a recipe for uncertainty. Accordingly the first basis of Pierce鈥檚 application failed.
In relation to the second issue, the sums were properly due and had accrued a sufficient time before the determination of the contract. As a matter of interpretation, the non-payment by the defendants amounted to a breach of the JCT contract, and the clause operated and prevented the defendants from relying on their cross claim to defeat the claimant鈥檚 claim for sums due. The claimant was therefore entitled to summary judgment.
*Full case details
Pierce Design International Limited v Mark Johnston & Another [2007] EWHC 1691 (TCC) Judge Peter Coulson QC, 17 July 2007
Contact Fenwick Elliott on 020 7421 1986 or ngould@fenwickelliott.co.uk.
Postscript
Under the terms of the contract, a sum due by way of an interim payment under clause 30.3.3 would reasonably have not been paid by the employer if there was a valid withholding notice in respect of that sum under clause 30.3.4. Conversely, if there was no withholding notice, the sum would unreasonably have not been paid by the employer.
This decision meets many of the concerns which have been expressed with the approach adopted in Melville Dundas to the effect that the decision might allow an unscrupulous employer to use determination as a way of avoiding his responsibility to make interim payments. Judge Coulson鈥檚 construction does not cause any permanent prejudice to the defendant. It is not a determination of their rights; all it does is require them to pay, on an interim basis, the sums which, pursuant to the contract, ought to have been paid months ago
