Reinwood Ltd v L Brown & Sons Ltd

The House of Lords considered the effect of notices under the JCT 1998 contract provisions designed to implement sections 109–111 of the Housing Grants, Construction and Regeneration Act 1996. The court held that a valid notice of intention to withhold under clause 30.1.1.4 (and the related clause 24.2 notice) is "effective" when served and does not become ineffectual simply because the architect subsequently fixes a later completion date before the final date for payment, provided the cancellation of the architect's earlier certificate is not given retrospective effect.

The court construed clause 24.2.3 as preserving the employer's written requirement unless withdrawn, and treated the statutory concept of an "effective" notice in section 111 as one on which the employer may rely at the time for payment unless the contractor refers the issue to adjudication. The grant of an extension of time cancelled the earlier non-completion certificate only prospectively; the employer was therefore not in default under clause 28.2.1 for withholding the notified amount, but was obliged under clause 24.2.2 to pay or repay any deducted liquidated and ascertained damages within a reasonable time after notification of the extension.

Background and parties:

• Reinwood Ltd (employer) and L Brown & Sons Ltd (contractor) were parties to a JCT Standard Form of Building Contract 1998 (Private with Quantities) for construction of residential units. OMI Architects was the architect.

Procedural posture:

• The contractor appealed to the House of Lords from the Court of Appeal ([2007] EWCA Civ 601). The dispute concerned whether the employer had defaulted in failing to pay the full sum shown in an interim certificate by the final date for payment after the employer had deducted liquidated and ascertained damages (LADs) pursuant to notices served under the contract.

Nature of the claim and relief sought:

• The contractor contended that the employer was in default under clause 28.2.1 for not paying the entirety of the interim certificate by the final date for payment and sought to rely on that default (including the right to determine the contract).

Issues framed by the court:

• Whether a withholding notice served under clause 30.1.1.4 (and the related clause 24.2 notices implementing sections 110–111 of the 1996 Act) remains effective if the architect grants an extension of time before the "final date for payment".
• Whether the architect's subsequent fixing of a later completion date cancels the earlier certificate with retrospective effect so as to render the employer in default for withholding sums previously notified.
• What remedies or obligations arise if an extension subsequently reduces the LADs claimed.

Reasoning and conclusion:

• The court placed the contractual provisions in the statutory context of the 1996 Act (sections 108–111) which aim to give parties clarity about stage payments and deductions and to encourage rapid adjudication. The statutory concept of an "effective" notice was central.
• The court read clause 24.2.3 as preserving an employer's written requirement once stated unless withdrawn and concluded that the cancellation of a certificate by a later fixing of the completion date is not retrospective. Accordingly, a withholding notice valid when served remains something the parties can rely on at the time of payment unless the contractor disputes it by adjudication.
• The employer was not in default under clause 28.2.1. The contractor is protected by clause 24.2.2, which requires repayment of any LADs recovered or deducted if a later completion date is fixed; that repayment must be made within a reasonable time and, in default of an express contractual time, the Scheme for Construction Contracts provides timing rules.

Appeal dismissed. The House of Lords agreed with the Court of Appeal that a withholding notice validly given under the contract and the 1996 Act may be relied on when payment is made and that an architect's subsequent grant of an extension of time does not retrospectively invalidate that notice. The employer was not in default under clause 28.2.1, but clause 24.2.2 required repayment of any LADs recovered when the extension was notified, within a reasonable time (and subject to the Scheme where timing is unspecified).

On appeal from the Court of Appeal, Civil Division: [2007] EWCA Civ 601.