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Minding your Contractual P’s and Q’s!

This dispute between William Hare Limited and Shepherd Construction Limited concerned a “pay when paid” provision contained within a standard-form sub-contracting agreement. The inclusion of this provision meant that the contractor, Shepherd, could avoid payment to a number of sub-contractors on the basis that it had not been paid by the employer due to their insolvency. The wording of the “pay when paid” provision was a reflection of section 113 of the Housing Grants, Construction and Regeneration Act 1996. 

The Enterprise Act of 2002 amended section 113 to allow a company to self-certify its own insolvency rather than use the standard court-approved process. However, the standard form contract used by Shepherd, originally drafted in 1998, had not been amended to reflect this change when they entered into contract with the sub-contractor, William Hare. The employer, Trinity, subsequently entered administration via the self-certification route and Shepherd attempted to withhold payment on the basis of the “pay when paid provision”.  

The Court of Appeal agreed with Mr Justice Coulson, sitting in the Technology and Construction Court, that the wording of a “pay when paid “ provision must be clear if it is to be enforced.  It was the opinion of the Court that Shepherd was unable to rely upon the provision based on the ambiguity of the wording and the fact that the new option had not been included in the express terms of the provision.

This case demonstrates the importance of updating all forms of contract to mirror any changes in the law. It also highlights the need for all provisions, particularly exclusion clauses, to be drafted in precise terms. 

 

At Kerrigans we can assist you with any contract drafting and checking requirements – a little time spent at the start of a contract will help you avoid a world of problems should things go wrong. 

 
The information provided in this article is not a comprehensive analysis of the law and must not be treated as a substitute for legal or professional advice.  To the extent permitted by law, Kerrigans will not accept or otherwise be held liable for any loss or damage incurred in relying upon the contents of this article. Should you require any legal or professional advice about any of the topics covered in this article we recommend that you contact Kerrigans.

07/12

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