Payment On Contractor's Insolvency
Introduction
You may be aware of the important case of Melville Dundas Limited (in receivership) v George Wimpey UK Limited which was heard by the House of Lords on 25 April 2007.
Melville Dundas went into receivership. They had been carrying out works for George Wimpey UK Limited under a JCT Standard form of Building Contract with Contractor's Design 1998 edition. Melville Dundas applied for an interim payment in the sum of just under £400,000.
However, before payment was made by Wimpey but after the payment was due Melville Dundas went into receivership and Wimpey determined Melville Dundas' employment pursuant to clause 27 of the Contract.
Wimpey did not pay the £400,000 that was due as an interim payment and the Receivers of Meville Dundas brought proceedings against Wimpey to recover the monies. Wimpey relied on clause 27.6.5.1 of the contract which it argued provided that the interim payment was no longer payable. Clause 27.6.5.1 provides that the provisions of the contract which require any further payment or any release or further release of retention to the contractor shall not apply such that no further payment is to be made until the works have been completed.
The Court held that the words "any further payment" in clause 27 meant "require the employer to pay any more money" and as such this extended to an interim payment which the employer was already liable to pay under the contract before determination of the contractor's employment.
The court then considered whether the provision in JCT clause 27 was contrary to the Construction Act and, in particular, whether Wimpey was entitled to withhold the monies despite the fact that it had not served a notice of withholding in accordance with s111(1) of the Act.
The House of Lords held that section 111 was not meant to interfere with the normal rules for payment on insolvency and must be construed in a way compatible with clause 27 of the contract so that the absence of a notice of withholding did not prevent Wimpey from relying on clause 27.
As such, the Receivers of Meville Dundas were not entitled to the monies and Wimpey was not required to make payment even though the monies had fallen due to the contractor before it went into receivership.
Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.
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