Melville Dundas Ltd v George Wimpey UK Ltd

JurisdictionScotland
Judgment Date15 December 2005
Docket NumberNo 18
Date15 December 2005
CourtCourt of Session

Court of Session Inner House Extra Division

Lord Nimmo Smith, Lord Mackay of Drumadoon, Lord MacLean

No 18
Melville Dundas Ltd
and
George Wimpey UK Ltd

Contract - Construction contract - Determination of employment of contractor under contract - Whether date for payment of interim payment alterable by agreement by parties - Housing Grants, Construction and Regeneration Act 1996 (cap 53), secs 109, 110, 111

Part II of the Housing Grants, Construction and Regeneration Act 1996 contains provisions relating to construction contracts. Section 109 provides, inter alia, that 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 the contract specifies that the duration of the work is to be less than 45 days or it is agreed between the parties that the duration of the work is estimated to be less than 45 days; the parties are free to agree the amounts of the payments and the intervals at which or circumstances in which they become due; in the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply; and references to a payment under the contract include a payment in virtue of sec 109. Section 110, inter alia, provides that every construction contract shall provide an adequate mechanism for determining what payments become due under the contract and when and for a final date for payment in relation to any sum which becomes due, the period between the sum becoming due and the final date for payment may be agreed between the parties. Every construction contract shall provide for the giving of notice by a party not later than five days after the date on which a payment becomes due by him under the contract or would have become due if the other party had carried out his obligations 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 and the basis of calculation. In the event of the contract failing to contain such provision the relevant provisions of the Scheme for Construction Contracts apply. Section 111 provides, inter alia, that a party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment, such notice specifying the amount proposed to be withheld and the ground for withholding payment or if multiple grounds those grounds and the amount attributable to each and must be given not later than the prescribed period before the final date for payment as agreed by the parties or where not agreed that provided for by the Scheme for Construction Contracts.

The JCT 1998 took account of the provisions of the 1996 Act and provided in cl 27 for the eventuality of a company as the contractor going into liquidation and termination of employment of the contractor under the contract.

The pursuers were appointed contractors under a construction contract and duly commenced the works due to be carried out under the contract. On 2 May 2003 they submitted to the defenders' agents an application for interim payment for works completed from the time of a previous application for interim payment to 30 April 2003. The defenders' agents issued a valuation of the works done at £396,630, exclusive of VAT. The valuation was issued to the pursuers who invoiced the defenders for payment. No notices were issued by the defenders or anyone on their behalf in terms of JCT cl 30.3.3 (specifying the amount of payment proposed to be made and its calculation) or 30.3.4 (specifying any amount proposed to be withheld and the grounds for withholding). The final date for payment was 16 May 2003. On 22 May 2003 the pursuers' board of directors invited the Bank of Scotland to appoint a receiver of the pursuers' whole property and undertaking and the bank did so that day. Thereafter the defenders determined the employment of the pursuers.

Before the Lord Ordinary, the pursuers maintained that the final date for payment was 16 May 2003 and that nothing that happened thereafter could affect their right to receive payment or create entitlement in the defenders to withhold payment. The defenders maintained that the payment sought by the pursuers had accrued within the period of 28 days before the receivership and by virtue of the determination provisions in cl 27 the sum sued for was not due. The Lord Ordinary held in favour of the defenders and dismissed the action on the basis that the parties were free to agree that the original date for payment of sums due under the contract could be altered in the event of the contract being determined so that the final date of payment had not arrived, and sec 111 was irrelevant to this question.

The pursuers reclaimed and argued that the statutory provisions heavily restricted the freedom of contract of the parties who were not in a position to simply waiver the provisions of the 1996 Act. The cl 27 provisions related to payment on completion of the works. The defenders submitted that once the employment of the contractor was determined following receivership the final date for payment was changed to a date on which a positive balance was found to be due to the contractor, if ever. It was open to the parties to agree that the original date for payment of sums due under the contract could be altered.

Held that sec 111(1) of the 1996 Act being a provision regarding cash flow which applied regardless of determination of the employment of the contractor under the contract, it provided for the losses sustained to be borne by the employer (paras 33, 34); and appeal allowed.

SL Timber Systems Ltd v Carillion Construction Ltd 2002 SLT 1997 distinguished.

Rupert Morgan Building Services (LLC) Ltd v Jervis etcUNK [2003] EWCA Civ 1563 approved.

Melville Dundas ltd (in receivership) and the Joint Receivers thereof brought an action for payment in the Commercial Court against George Wimpey UK Ltd. Norwich Union Insurance ltd were called as third parties. Following debate, the Lord Ordinary (Clarke) dismissed the action. The pursuers reclaimed.

The appeal called before the Inner House, comprising Lord Nimmo Smith, Lord Mackay of Drumadoon and Lord MacLean.

Cases referred to:

Clark Contracts Ltd v The Burrell Co (Construction Management) Ltd (No 1) 2002 SLT (Sh Ct) 103

Rupert Morgan Building Services (LLC) Ltd v Jervis etcUNKWLRUNKUNK [2003] EWCA Civ 1563; [2004] 1 WLR 1867; [2004] 1 All ER 529; [2004] BLR 18

SL Timber Systems Ltd v Carillion Construction LtdUNK 2002 SLT 997; 2001 SCLR 935

Textbooks etc. referred to:

Joint Contracts Tribunal, Standard Form of Building Contract with Contractors Design 1998 (1998, RIBA Publishing, London)

Joint Contracts Tribunal, Standard Form of Building Contract with Contractors Design 1998: Amendment 1 (1999, RIBA Publishing, London)

Joint Contracts Tribunal, Standard Form of Building Contract with Contractors Design 1998: Amendment 2 (2000, RIBA Publishing, London)

Scottish Building Contract Committee, Scottish Building Contract with Contractors Design: Sectional Completion Edition (Jan 2000 Revision) (2000, Scottish Building Contract Committee, Edinburgh)

At advising, on 6 February 2006, the opinion of the Court was delivered by Lord Nimmo Smith-

Opinion of the Court-

Reclaiming motion

[1] This is a reclaiming motion by the pursuers against a decision of the Lord Ordinary dated 22 October 2004. The pursuers conclude for payment to them by the defenders of a sum of money and interest. They aver that they are entitled to receive payment from the defenders of this sum in terms of a contract between them. The Lord Ordinary, however, having considered the relevant provisions of the contract and of the Housing Grants, Construction and Regeneration Act 1996 ('the 1996 Act'), in the circumstances which had occurred, held that the pursuers are not entitled to claim payment of this sum and accordingly dismissed the action as being irrelevant. The question for us to consider is whether the Lord Ordinary's interpretation of the statutory and contractual provisions was correct.

[2] On 7 and 26 March 2002 the first-named pursuers (who are now in receivership, but whom for convenience we call 'the pursuers', although the receivers are also pursuers) entered into a contract with the defenders for the design, construction and completion of a residential development at Ayr Road, Whitecraigs, Glasgow ('the contract'). The form of contract was the Scottish Building Contract with Contractor's Design Sectional Completion Edition (Jan 2000 Revision), issued by the Scottish Building Contract Committee ('SBCC'). In terms thereof the rights and duties of the pursuers as the employer and the defenders as the contractor thereunder were regulated by, inter alia, the conditions of the Standard Form of Building Contract with Contractor's Design 1998 Edition, issued by the Joint Contracts Tribunal Ltd ('JCT 1998'), amendments thereto made by the JCT Amendment 1 dated June 1999 and JCT Amendment 2 dated January 2000, and the amendments and modifications contained in the Scottish Supplement for Sectional Completion issued by the SBCC.

[3] In furtherance of the project the defenders entered into a contract performance guarantee bond with the third parties. The third parties were convened to the proceedings by the defenders on the basis that, esto the defenders are liable to the pursuers for the sum in question, they are entitled to recover payment of it from the third parties. The third parties contest the liability of the defenders to pay the pursuers this sum. It is a matter of agreement among all the parties that the third parties have an interest in the subject-matter of this action, and it is accepted accordingly that they had been properly convened.

1996 Act

[4] Part II of the 1996 Act...

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1 cases
  • Melville Dundas Ltd v George Wimpey UK Ltd
    • United Kingdom
    • House of Lords
    • April 25, 2007
    ...contractual provisions, he was not in a position to contradict the construction of clause 27.6.5.1 that was contended for by the employer: 2005 SLT 24, para 7. He renewed this concession in the Inner House. Lord Nimmo Smith, who delivered the opinion of the Extra Division, said that the co......

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