黑洞社区

This Provident 黑洞社区 Services Ltd vs Hexagon Housing Association Ltd case is one hell of a palaver. It鈥檚 all about one thing鈥� employer Hexagon didn鈥檛 pay the builder on time. In 32 interim accounts, 19 of them were paid late 鈥� paid yes, but on time, no. In the end the builder packed his whole kit and caboodle and quick marched away forever. This wasn鈥檛 a mere pause or work suspension; it was divorce.

Forgive me if I reminisce at this point. I recall falling out big time with my boss when I was a mere lad. I announced that all we had to do, as the employer, was pay the amount due to the contractor on time. 鈥淣ever鈥� never鈥︹�� 鈥� my boss sounded here like Ian Paisley at the top of his voice 鈥� 鈥淣EVER鈥�. Paying up was a yes. Paying on time was a 鈥渘ever鈥�. But, said little me, that鈥檚 what the contract says: just pay on time. My boss and I never did see eye to eye on that simple burden on the employer.

Hexagon and the builder, Provident, entered into a JCT design and build contract for 32 flats in Purley, near Croydon, price 拢7.2m. Monthly interim accounts were the norm. By interim #27 the builder was fed up with late payment and sent a note saying so. The note didn鈥檛 label itself a 鈥渄efault notice鈥�; it doesn鈥檛 have to, but that doesn鈥檛 stop it being one.

A fortnight went by and the 拢264,000 turned up. My boss would have gleefully said, 鈥淭hat keeps the buggers in line.鈥� The Court of Appeal in Hexagon said something different; they said the employer that pays late is 鈥渟kating on thin ice鈥�. Then interim #32 was late, this time to the tune of 拢366,000. That鈥檚 when the builder reached the end of its tether, and walked.

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Hexagon called for its lawyers, who looked up the rules in the JCT contract for 鈥渢ermination by the contractor鈥�. Then they called for the adjudicator. The referring party (Hexagon) and responding party (Provident) argued the clauses and subclauses. The adjudicator decided that the builder had put its foot in it. The termination was wrong 鈥� ouch! So the builder went to the High Court and rehearsed the JCT rules all over again. The judge agreed with the adjudicator: builder in the wrong. So Provident went to the three-judge Court of Appeal. This court reversed the earlier decisions. The builder was, after all, entitled to walk away for good and forever. Pause to note: it would have been far easier, for the employer, to just pay the bills on time.

The JCT contractual mechanism for termination for late payment drew an aside remark from the Court of Appeal, 鈥淚 would accept that the drafting could have been of better quality.鈥� Yes, well鈥� er, no comment.

Hexagon is taken to have been warned by the interim #27 default 鈥� call it a yellow card. interim #32 was the second yellow card, and there is no leeway, no time lapse to make good; it鈥檚 all over

Bear with me while we cut through the thicket of the document. Look at late payment in two parts; the first being the first time it happens, then the contractor has a whinge. It should complain within 28 days of the final date for payment. Then, if still no cash turns up, it has 21 days to press the nuclear button and terminate. The next time there is late payment, the palaver is truncated. It is immediately open to the aggrieved builder to give notice of termination and pack up.

That鈥檚 what happened in Provident 黑洞社区 Services Ltd vs Hexagon Housing Association Ltd. That late payment #27 was the first specified default. It doesn鈥檛 matter that the employer paid up interim #27 within days. Interim #32 was a repeat of the default. Hexagon is taken to have been warned by the #27 default 鈥� call it a yellow card. Then #32 was the second yellow card, and there is no leeway, no time lapse to make good; it鈥檚 bang all over if the contractor elects for that.

Hexagon argued that the termination idea by the builder鈥檚 lawyers was too brutal. After all, there is a right to suspend; there is a right to penal interest on the sum due; there is a right to adjudicate. Yes, yes, said the Court of Appeal, but there is also the standalone right to clear off altogether. This ice is mighty thin!

It wouldn鈥檛 be a surprise if Hexagon Housing had no intention to deprive the builder of cash flow. Instead, it is probably in a regime of 鈥減ay when paid鈥�. Its website explains that its development programme is 400 new homes over a four-year period 鈥渦tilising a grant from the government (the Greater London Authority) together with a moderate shared-ownership programme鈥�. My suspicion is that Hexagon鈥檚 funds are dependent upon the cash coming down from some steep government mountain.

It is exactly the same, wrongful behaviour that arose in the late 1980s when the developer at Canary Wharf went bust. The big builders were deprived of money owed and so refused to pay the hundreds of small subcontractors by pointing to that naughty device, 鈥減ay when paid鈥�. The government of the day witnessed many a one-man plasterer, roofer and floorer go bust, losing their pension and savings too. That鈥檚 how, eventually, we got the Construction Act and 鈥減ay up, pay now, argue later鈥�.

Hexagon would do well to ring-fence the money due before it builds. And if you don鈥檛 like that鈥� then don鈥檛 build.

Tony Bingham is a barrister and arbitrator at 3 Paper 黑洞社区s, Temple