William Hare Ltd v Shepherd Construction Ltd

A contractual reference to statutory insolvency events must be construed according to the words used and their commercial context. There is no presumption that a reference incorporates legislation as amended. Where the statutory change preceded the contract, the parties’ failure to update the wording may indicate a deliberate choice. A court should not rewrite a negotiated term merely to extend its operation to later statutory procedures, particularly where the term is a pay when paid or exclusion clause. Commercial common sense cannot justify departing from clear and workable language. Any genuine ambiguity in such a clause may be resolved against the party who introduced and benefits from it.

Hare, a steelwork subcontractor, sought declarations and payment from Shepherd, the main contractor. Shepherd withheld sums under clause 32, which made payment conditional on the employer’s insolvency and defined insolvency by reference to specified events under the pre-2002 Insolvency Act 1986.

The employer had entered administration through the company-and-directors filing procedure introduced by the Enterprise Act 2002. That procedure was not one of the four events expressly identified in clause 32. The central issue was whether the clause should be construed as covering all routes to administration under the amended legislation.

1. Construction of clause 32. The reference to the making of an administration order under Part II of the Insolvency Act 1986 retained a coherent and commercially sensible meaning. It covered the court-order route, including the route under paragraphs 10 to 13 of Schedule B1, but did not automatically extend to the self-certifying routes.
2. The court applied the ordinary meaning of the words used. The proposed alternative construction would require substantial rewording, replacing the reference to an administration order with a reference to the appointment of an administrator under Schedule B1. There was no claim for rectification and no evidence of mistake justifying that departure.
3. The clause was a pay when paid provision and, in substance, an exclusion clause. It transferred to the subcontractor the risk of insolvency higher in the contractual chain. Such a clause should be kept within its four corners and construed narrowly against the party seeking to rely on it.
4. The timing of the contract was significant. The subcontract was made more than five years after the statutory amendments. The parties were taken to know of the three available routes to administration, yet clause 32 identified only one. The omission was therefore treated as a deliberate contractual choice.
5. The Interpretation Act 1978 and Schedule 17 to the Enterprise Act 2002 did not apply directly because the contract was made after the statutory changes. Even if the wording were amended, only the court-order route would be covered on the facts.
6. The declarations were granted. Trinity was not insolvent within clause 32.2, Shepherd’s withholding notices were invalid, and Hare was entitled to the certified sums. No order was made in the separate Reynolds dispute.