Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd

CourtHouse of Lords
JudgeLord Reid, Lord Morris of Borth-y-Guest, Viscount Dilhorne, Lord Diplock, Lord Salmon
Judgment Date25 Jul 1973
JurisdictionEngland & Wales

[1973] UKHL J0725-4

House of Lords

Lord Reid

Lord Morris of Borth-y-Guest

Viscount Dilhorne

Lord Diplock

Lord Salmon

Gilbert Ash (Northern) Limited
and
Modern Engineering (Bristol) Limited

Upon Report from the Appellate Committee, to whom was referred the Cause Gilbert-Ash (Northern) Limited against Modern Engineering (Bristol) Limited, that the Committee had heard Counsel, as well on Monday the 25th as on Tuesday the 26th, Wednesday the 27th, and Thursday the 28th, days of June last, upon the Petition and Appeal of Gilbert-Ash (Northern) Limited whose registered office is situated at Albion House, Woking, Surrey praying, that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 18th of January 1972, might be reviewed before Her Majesty the Queen in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Modern Engineering (Bristol) Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 18th day of January 1972, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Judgment of His Honour Judge Fay of the 20th day of June 1972, thereby Reversed, be, and the same is hereby Restored: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Court of Appeal, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.

Lord Reid

My Lords,

1

The Appellants, whom I shall call the contractor, made a contract on 21st February, 1969, with the City of Bradford (the employers) to carry out building work. The contract was in the form issued by the R.I.B.A. for Local Authorities (1967 issue). It provided for nominated sub-contractors. The Respondents, whom I shall call the sub-contractor, were nominated to supply and erect certain steelwork. In accordance with the principal contract their contract was made with the contractor. It contained the contractor's printed terms and conditions.

2

The architect issued three interim certificates referable to this sub-contract in May, June and September, 1969, for sums amounting in all to £14,532. Ten thousand pounds were paid by the contractor to the sub-contractor but they retained the balance of £4,532 alleging that the sub-contractors were in breach of their contract in respect of delay and bad workmanship. In respect of the delay they claimed a set off of £3,137 and in respect of bad workmanship they alleged that they had had to spend £1,862 in doing work necessary to make the work satisfactory.

3

The sub-contractor issued a writ in August, 1969, and a defence was delivered in October, 1969. For some unexplained reason there was great delay and ultimately, on 20th June, 1972, the Official Referee gave unconditional leave to defend and ordered the trial as a preliminary issue of the question whether the sub-contractors were entitled to final judgment for the sum of £4,532. The real question was whether by contract the contractors had bound themselves to pay sums in interim certificate in full without any right to set off claims in respect of breaches of contract by the sub-contractors, leaving any such claims to be dealt with later.

4

Judge Fay decided the question in favour of the contractor. His judgment was reversed by the Court of Appeal. The contractors now seek to have that judgment restored.

5

At this stage it must be assumed that the contractors have valid claims in respect of breaches of warranty by the sub-contractor of the time of completion of their work and of the quality of the work for which payment is sought in this action. It is now admitted, and in my view properly admitted, that at Common Law there is a right of set off in such circumstances: but that right can be excluded by contract. So the sole question in the appeal is whether by their contract with the sub-contractors the contractors have agreed that sums which they receive from the employers earmarked as due to the sub-contractors on architects' interim certificates must be paid over immediately without any right of set off.

6

There has been much argument about the meaning and effect in this regard of the terms of the R.I.B.A. form of contract. That is not directly relevant because those terms are only incorporated in the sub-contract to a limited extent. By clause 17 of the contractors' conditions in the sub-contract, provisions in the principal contract "applicable to the works" are incorporated, but it has not been argued that that covers provisions which apply to payment for the works.

7

Nevertheless, I think that if any provision in the sub-contract is ambiguous in the sense that it is reasonably capable of having more than one meaning, one can go to the principal contract Not only is it provided in the sub-contract that the sub-contractor is deemed to have full knowledge of the provisions of the Principal Contract, but the Principal Contract contains a number of provisions regulating the duties of the contractor towards his sub-contractors.

8

The Principal Contract does not dictate the provisions of the sub-contractors. It merely says in clause 27 that the sub-contractor must be willing to accept certain terms. The sub-contractor is in a strong position with regard to any other terms which the contractor wishes to impose. He need not accept more onerous conditions. In particular he need not accept the contractor's printed or standard conditions; he can bargain on equal terms. But if he chooses to accept conditions more onerous than those in the Principal Contract he cannot complain later. And that is, I think, what has happened here.

9

There is no need to decide in this case whether under the R.I.B.A. form of contract the employer is bound to pay immediately to the main contractor sums in the architects' interim certificate without any right to set off claims of any kind against the contractor. This form of contract is notorious for its obscurities, and I find this question far from easy. I do not intend to set out all the relevant parts of the form or discuss the various considerations and arguments. But on the whole I am inclined to think that the Court of Appeal have reached the right conclusion in Dawnays v. Minter [1971] 1 W.L.R. 1205, and the half dozen subsequent cases in so far as they have held that under the R.I.B.A. form of contract the employer must pay at once to the contractor sums due under a valid architects' interim certificate without having any right of set off. But it may be that, if he attacks the certificate as not being in accordance with the conditions of the contract, he can have an arbitration on the matter under clause 35 and withhold payment pending a decision of that question.

10

But that would not assist the sub-contractor in this case. He has agreed to accept clause 14 of the contractors' conditions and the decision of this case must, in my view, depend ultimately on the proper constructions of the terms of that clause which are as follows:

"Payments (both interim and final) as stated overleaf will be made to the Sub-contractor as and when the value of such works under the terms of the Principal Contract is included in a certificate to the Contractor and the Contractor receives the monies due thereunder. All interim payments shall be on account only, and these shall not "be held to signify approval by the Contractor and/or Architect or the Engineer of the whole or any part of the Works executed nor shall any final payment prejudice any claim the Contractor may have under the terms of the Principal Contract against the Sub-contractor in respect of the Works, either for making good any defects appearing before the expiry of the defects liability period of the Principal Contract, or as may be otherwise provided therein.

If the Sub-contractor fails to comply with any of the conditions of this Sub-contract, the Contractor reserves the right to suspend or withhold payment of any monies due or becoming due to the Sub-contractor.

The Contractor also reserves the right to deduct from any payments "certified as due to the Sub-contractor and/or otherwise to recover the amount of any bona fide contra acccounts and/or other claims which he, the Contractor, may have against the Sub-contractor in connection with this or any other contract."

11

I think that this clause is intended to supersede and be substituted for the Common Law right of set off. The first sentence states the general rule that when the contractor receives from the employer money earmarked in the certificate for the sub-contractor, payment will be made to him. The second sentence has not been relied on by either party in argument. At first sight, the third and fourth sentences might seem mutually exclusive, the third dealing with withholding money pending the settlement of disputed claims, and the fourth dealing with deducting finally money due on liquidated or agreed claims.

12

One might expect this case to come within the scope of the third sentence. And so it would but for one point. This provision purports to entitle the contractor to "suspend or withhold payment of any monies due". There...

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