Hills Electrical & Mechanical Plc V. Dawn Construction Limited
| Jurisdiction | Scotland |
| Judge | Lord Clarke |
| Docket Number | CA98/02 |
| Date | 07 April 2003 |
| Court | Court of Session |
| Published date | 07 April 2003 |
| OUTER HOUSE, COURT OF SESSION | |
| CA98/02
| OPINION OF LORD CLARKE in the cause HILLS ELECTRICAL & MECHANICAL PLC Pursuers; against DAWN CONSTRUCTION LIMITED Defenders: ________________ |
Pursuers: Logan; Fyfe Ireland, W.S.
Defenders: Connal, Q.C., Solicitor Advocate; McGrigor Donald
7 April 2003
Introduction
[1]This action raises the question as to the interplay of contractual provisions in construction contracts and The Scheme for Construction Contracts (Scotland) Regulations 1998 (SI 1998 No. 687) enacted under the Housing Grants, Construction and Regeneration Act 1996. The pursuers seek payment of £93,364.93 with interest from 5 October 2000, as representing sums due to them under a construction contract entered into with the defenders. The contract is said to have been entered into on 2 June 2000. The pursuers were engaged by the defenders in the contract between them to carry out certain works as sub-contractors. It is a matter of admission that the employer under the main contract with the defenders entered into administration on or about 10 October 2000. The pursuers aver that the contract between the parties was formed by the incorporation of Minutes of a pre-incorporation meeting on 2 June 2000, a letter of that date and the defenders' standard terms and conditions headed "SUB-CONTRACT AGREEMENT". The pursuers' averments about what constituted the contract between the parties appear to be admitted by the defenders save for the fact that they refer to a pre-order meeting on 2 June and not a pre-incorporation meeting on that date.
[2]The pursuers, after setting out the provisions of their contract with the defenders regarding payment of sums for work carried out by them, aver in Article 3 of condescendence that:
"The contract between the pursuers and the defenders therefore failed to provide dates on which the sub-contractor (i.e. the pursuers) should make applications for payment so that they could be incorporated into the defenders' application for payment under the Main Contract. It also contained a 'paid when certified' stipulation relating to the Main Contract. Both and either of these conditions do not comply with the statutory requirements of Section 110(1) of the Housing Grants, Construction and Regeneration Act 1996 ('the 1996 Act'). In the absence of a contract provision which complies with the 1996 Act, [the 1996 Act] stipulates that payment of interim payments shall be regulated under The Scheme for Construction Contracts (Scotland) Regulations 1998 ('the Scheme'). The Scheme regulates payment in this case."
[3]The relevant statutory provisions in the 1996 Act are as follows. Section 109 provides:
"(1) A party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless -
(a) it is specified in the contract that the duration of the work is to be less that 45 days, or
(b) it is agreed between the parties that the duration of the work is estimated to be less than 45 days.
(2) The parties are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they became due.
(3) In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.
(4) References in the following sections to a payment under the contract include a payment by virtue of this section."
Section 110 provides:
"(1) Every construction contract shall -
(a) provide an adequate mechanism for determining what payments become due under the contract, and when, and
(b) provide for a final date for payment in relation to any sum which becomes due.
The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.
(2) Every construction contract shall provide for the giving of notice by a party not later than 5 days after date on which a payment becomes due from him under the contract, or would have become due if -
(a) the other party had carried out his obligations under the contract, and
- no set off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts,
specifying the amount (if any) of the payment made or proposed to be made, and the basis on which that amount was calculated.
(3) If, or to the extent, that a contract does not contain such provision as is mentioned in subsection (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply."
The Issue
[4]While the defenders do not accept that the provisions of the parties' contract failed to contain terms which are desiderated by the 1996 Act, with the result that the Scheme's provisions to any extent come into play, they aver that, in any event, the final date of payment of any sums due to the pursuers was a matter of agreement by the parties and is not to be substituted for by the provision in the Scheme relating to final date of payment. The pursuers' position is, however, that, on a proper reading of the 1996 Act's provisions, and the provisions of the Scheme itself, when a construction contract in any respect fails to contain a term or terms which comply with the requirements of Section 109 and 110 of the Act, the whole of the Scheme's provisions come into play in substitution for any agreed contractual provisions regarding payment. In the present case, the issue assumes its practical importance in the following way. The terms of the defenders' standard conditions, which the pursuers themselves aver form part of the contract between the parties, provided for the final date for payment of any payments due to be made under the contract as 28 days after the date on which the payment in question fell due. The pursuers accept that even if the Scheme's provisions regarding what payments are due and when they are deemed to be due, fall to be applied to the parties' contract, if the final date for payment of the sum sued for in the present case was 28 days after the date it fell due, then the pursuer's case is irrelevant. That is because, by that time the employer had gone into administration and by virtue of other provisions of the parties' contract, the defenders would not be liable to the pursuers for the payment in question. On the other hand, if the Scheme's provision relating to the final date of payment applied to the parties' contract, the final date would be 17 days from the date of the payment becoming due. That date would have pre-dated the administration of the employer and in that situation, (on the footing that the Scheme's other provision regarding payment apply, a matter not conceded by the defenders), the defenders would be liable to the pursuers for payment of the sum in question.
[5]Both parties sought a debate on the issue, the pursuers, as I have noted, accepting that if the defenders' construction of the relevant provisions of the Act and the Scheme were correct, then the whole basis of the pursuers' case fell and the action would require to be dismissed. I allowed a debate.
Discussion
[6]At the debate the defenders sought dismissal of the action. Mr Connal, Queen's Counsel, Solicitor Advocate, for the defenders, submitted that the 1996 Act, for present purposes, provided for two things. The first was a short form of decision making procedure during the currency of construction contracts. The second was that it imposed certain constraints on parties to such contracts in respect of the provisions in those contracts regarding payment. Section 108 of the Act deals with the first matter i.e. adjudication. Sections 109 to 113 provide for the second matter. The provisions of Sections 109 to 113 provide for the incorporation into a construction contract implied terms regarding payment, when those contracts themselves do not provide terms on the lines desiderated by the provisions of Sections 109 to 113. The defenders' basic position, in relation to the provisions of Sections 109 and 110, was that simply because a construction contract was deficient with regard to one or more of the matters regarding payment referred to in those Sections, it did not mean that the whole of the Scheme's provision regarding payment fell to be applied to the parties' contract with the effect of substituting all of the contractual provisions which the parties have expressly agreed in relation to payment. My attention was drawn by the Solicitor Advocate for the defenders to the following provisions. The use of the expression "relevant provisions" in Section 109(3) was, he submitted, significant. It showed that the statutory intention was not that once there was some deficiency, having regard to the requirements of the Act, in the agreed contractual terms regarding payment, then the whole of the statutory provisions regarding payment applied. It was only the relevant provisions which would apply. That point was re-enforced when one turned to the provisions of Section 110 regarding dates for payment. Sub-sections 1 and 2 of Section 110 set out what was required to be included in construction contracts relating to that matter. But the wording of sub-section 3 had to be attended to carefully and, in particular, its qualified terms when it states, "if, or to the extent, that a contract does not contain such provision as is mentioned in sub-section (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply." The Solicitor Advocate for the defenders emphasised the words "or to the extent" which he said went to the heart of the issue raised before me. By drawing my attention to Section 114(4) of the Act, he also reminded me of the legal effect of any of the statutory provisions coming into play. Section 114(4) states:
"Where any provisions of the Scheme for Construction Contacts apply by virtue of this Part in default of contractual provision agreed by the parties, they have effect as implied terms of the contract concerned."
The Solicitor...
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