PC Harrington Contractors Ltd v Multiplex Constructions (UK) Ltd

Interim payment provisions in a construction subcontract must be construed as a mechanism for determining the amount to be paid, rather than as a determination of the parties’ ultimate rights. A certificate may include positive valuation items which are necessary to explain the calculation, without accepting that those sums are presently payable. Deductions, set-offs, abatements and withholdings form part of the calculation of the interim sum due.

Where the contract requires notice of the amount withheld and the grounds for withholding, the notice must identify the aggregate amount and its constituent grounds with sufficient clarity. A party cannot treat a positive figure in an interim certificate as an admitted debt while ignoring the deductions and withholdings forming part of the same calculation.

The claimant subcontractor was engaged on concrete works for the construction of Wembley Stadium. The defendant main contractor issued an interim payment certificate following the claimant’s application for payment. The certificate showed positive valuation items of approximately £2.3 million, but deducted and withheld substantially larger sums, resulting in no net payment.

The defendant later commenced an adjudication seeking payment for allegedly defective concrete floors. The claimant sought a declaration that the certificate had established £2.3 million as due and payable, so that the defendant could not obtain a monetary award in the adjudication. The court had to construe the subcontract’s interim payment machinery consistently with sections 109 to 111 of the Housing Grants Construction and Regeneration Act 1996.

1. Application dismissed. The declaration sought by the claimant was refused. The claimant could not begin the adjudication on the basis that approximately £2.3 million had been certified or accepted as presently due and payable.
2. Clause 21 was an interim payment scheme directed to cash flow. It was not a mechanism for establishing the parties’ final financial position. The amount which became due was the amount produced by the certificate after the relevant calculations, including deductions and withholdings.
3. The positive figure in the certificate represented the aggregate of positive items in the contractor’s calculation. It did not constitute an acceptance that the subcontractor was entitled to receive that sum. Positive credits could be included to avoid overstating the contractor’s damages and to explain the calculation required by the contract and the Housing Grants Construction and Regeneration Act 1996.
4. A deduction under clause 21.10 did not require the subcontractor’s agreement. In any event, a withholding under clause 21.11 could be made without agreement, provided the contractual notice requirements were met.
5. The statutory purpose of sections 110 and 111 was to ensure that the subcontractor knew the payment calculation, the amount proposed to be withheld and the grounds for withholding. The relevant amount was the aggregate sum of £13,048,219, together with its constituent elements, rather than merely the positive balance of approximately £2.3 million.
6. Within the adjudication, the claimant could raise payment claims or challenge the validity of deductions, subject to the applicable contractual time limits. If it wished to recover a monetary sum independently, it would need to commence its own adjudication.