Emcor Drake and Scull Ltd. v Sir Robert McaLpine Ltd.

A series of interim orders for design, procurement and site works does not become a contract for the whole project merely because the parties expect to execute a formal subcontract. Where the documents show that the formal agreement is intended to supersede the interim orders, the interim arrangement governs until that agreement is properly offered and executed. A party is not bound to execute a proposed subcontract that materially departs from the agreed terms. For payment purposes, a certificate makes a sum due only where the contract gives certification that legal effect. Where the obligation arises from work done, the amount stated in a payment certificate is not necessarily the amount due.

The claimant, a mechanical and electrical specialist, carried out work for the defendant on a hospital project. The parties negotiated a full subcontract, but the defendant issued successive limited-value orders pending execution of a formal agreement. The claimant worked under those orders until the relationship ended, when the defendant alleged repudiatory breach and issued a withholding notice concerning an unpaid payment application.

The court had to determine whether the parties had concluded a subcontract for the whole mechanical and electrical works, the scope and payment terms of any binding arrangement, and whether the withholding notice was necessary or effective. It also considered whether the certified sum was contractually due.

1. Nature of the contractual arrangement. The order of 3 July 2001 and the claimant’s letter of 20 August 2001 did not create a subcontract for the whole mechanical and electrical works. The letter was, at most, an undertaking to enter into a formal subcontract when called upon to do so. It did not immediately impose the obligations of that subcontract. The defendant was required to offer a subcontract conforming, at least in all important respects, with the letter. No such subcontract was ever offered. [2004] EWHC 1017 (TCC), paras 18–24.
2. The documents and the parties’ conduct showed that the interim orders were intended to remain in force pending execution of the formal subcontract. Important discrepancies concerning design responsibility, liquidated damages, completion dates, liability caps and transferred main-contract obligations also supported the conclusion that no sufficiently certain whole-works contract had been formed. The claimant was therefore under no obligation to complete the whole of the mechanical and electrical works. [2004] EWHC 1017 (TCC), paras 29–33, 42, 50.
3. Scope and payment. The operative contract was the order of 15 August 2002, accepted by performance. The claimant was obliged to carry out design, procurement and site works consistently with the construction contract, but limited in value to £14 million. Terms were implied that the work would be carried out in a good and workmanlike manner. The claimant was entitled to a reasonable sum for work carried out, subject to that limit. [2004] EWHC 1017 (TCC), paras 55, 68 and answers to preliminary issues.
4. Payment certification. A payment notice under section 110 of the Housing Grants, Construction and Regeneration Act 1996 does not, merely by stating an amount, establish that amount as contractually due. The relevant question is whether the contract makes certification the event giving rise to the payment obligation. Applying the distinction discussed in Rupert Morgan Building Services (LLC) Limited v David Jervis and Harriet Jervis [2004] BLR 18, and the reasoning in Clark Contracts v The Burrell Co [2002] SLT 103, the court held that the work itself, rather than certification, made any sum due. The withholding notice was unnecessary, but the amount payable remained to be determined at the quantum hearing. [2004] EWHC 1017 (TCC), paras 66–72.

First-instance decision. No prior or appellate decision is stated in the judgment.