Pierce Design International Ltd v Johnston & Anor

Where a construction contract permits sums to be retained following determination, the provision may comply with section 111 of the Housing Grants Construction & Regeneration Act 1996, even though no withholding notice was served, where binding authority so establishes.

A proviso preserving the contractor’s right to enforce earlier unpaid sums requires three questions: whether the sums were properly due; whether the right to them accrued at least 28 days before determination; and whether the employer unreasonably failed to pay. In an interim payment regime, payment without a valid withholding notice is prima facie unreasonably withheld. Subsequent cross-claims do not defeat that right where the proviso is intended to provide a prompt interim remedy.

The claimant contractor sought summary judgment for unpaid interim payments under a JCT Standard Form of Building Contract, 1998 edition. The defendants had later purported to determine the claimant’s employment and relied on cross-claims exceeding the unpaid sums.

The application raised two issues. First, whether clause 27.6.5.1 was incompatible with sections 110 and 111 of the Housing Grants Construction & Regeneration Act 1996. Secondly, whether the proviso to that clause prevented reliance on the determination and cross-claims where the interim sums had accrued more than 28 days earlier and had not been paid.

1. The court was bound by the House of Lords decision in Melville Dundas Ltd (In Receivership) v George Wimpey (UK) Ltd [2007] UKHL 18, [2007] 1 WLR 1136. That decision established that clause 27.6.5.1 complied with section 111 of the Housing Grants Construction & Regeneration Act 1996, notwithstanding the absence of a withholding notice. The court declined to limit that conclusion to the insolvency and impossibility facts present in that case.

2. A standard-form clause of this kind either complies with the statutory scheme or it does not. Making compliance depend on fine factual distinctions would undermine commercial certainty and generate continuing disputes.

3. The proviso to clause 27.6.5.1 raised three cumulative questions:

   1. whether amounts were properly due to the contractor;
   2. whether the contractor’s rights accrued 28 days or more before determination; and
   3. whether the employer had unreasonably not paid those amounts.

4. The first two requirements were satisfied because the employer’s agent had certified the interim sums under clause 30.3.3 and the rights to payment had accrued many months before determination. The third requirement was also satisfied. Under the contract, non-payment could be justified only by a valid withholding notice under clause 30.3.4. Without such a notice, the amounts remained due and had been unreasonably withheld.

5. The court rejected the defendants’ submission that reasonableness had to be assessed by reference to all cross-claims existing at the date of determination. That construction would deprive the proviso of any practical benefit, duplicate the accounting exercise under clause 27.6.5.2, and allow a later determination to defeat an earlier breach of the payment obligation.

6. The proviso operated in favour of the claimant and prevented the defendants from relying on their cross-claims to defeat enforcement. Summary judgment was entered for £93,460.33 plus interest.