Lovell Partnerships Ltd & Anor v Merton Priory Homes

On the proper construction of an insolvency termination clause in a partnering contract, a provision stating that the client is not bound to make any further payment removes the contractor’s entitlement to use the contractual interim-payment machinery. It does not extinguish accrued rights and obligations existing at termination. Those rights may be pursued through adjudication, arbitration or litigation. The clause must be read with the contract’s separate provision preserving accrued mutual rights and with the provisions dealing differently with client and contractor insolvency. The court should not imply words limiting that preservation clause where the contract contains no such limitation.

The claim was brought under Part 8 for a declaration concerning clause 13.9 of an ACA Standard Form of Contract for Term Partnering 2005, amended in 2008. The clause provided that, following termination because of the service provider’s bankruptcy or insolvency, the client was not bound to make any further payment. Clause 13.10 provided that termination did not affect mutual rights and obligations accrued at the termination date.

The issue was whether clause 13.9 extinguished accrued payment rights or merely suspended the contractual payment machinery, leaving the service provider to pursue accrued claims separately.

1. Declaration granted. The reference in clause 13.9 to “any further payment” meant further payment otherwise arising under the contractual payment provisions in clause 7. It did not prevent the service provider from pursuing rights or obligations accrued by termination through adjudication, arbitration or litigation.
2. Clause 13.10 was a freestanding provision. The court declined to read into it a limitation excluding accrued rights to payment. The absence of words such as “subject to clause 13.9” was significant.
3. Clauses 13.8 and 13.9 had to be read together. Clause 13.8 addressed client insolvency and preserved payment under the contractual machinery. Clause 13.9 addressed service-provider insolvency and removed the benefit of the swift payment machinery, including the consequence that the client would not lose its ability to raise an appropriate cross-claim or set-off.
4. The construction was supported by insolvency considerations. Treating clause 13.10 as excluding accrued payment rights could require the client to pay sums directly into the insolvent service provider’s assets, thereby preferring other creditors over the client.
5. The court also treated the principle that a party should not benefit from its own breach as a rule of construction. That supported avoiding a construction under which persistent undervaluation by the client’s representative could eliminate liability for sums properly due.

Merton’s contrary construction was rejected. The precise form of the declaration and costs were reserved for further submissions.