REMEDIES OF BUILDING SUB‐CONTRACTORS AGAINST EMPLOYERS
| Date | 01 July 1983 |
| Published date | 01 July 1983 |
| DOI | http://doi.org/10.1111/j.1468-2230.1983.tb02525.x |
REMEDIES
OF
BUILDING SUB-CONTRACTORS
AGAINST
EMPLOYERS
AN employer employs
a
building contractor. All or part of the work
is sub-contracted. What remedies are available to sub-contractors
against the employer if the contractor defaults on payment?
1.
DIRECT
PAYMENTS
The J.C.T. Standard Form of Building Contract’ contains two pro-
visions empowering employers to pay sub-contractors direct. Clause
27
(c) reads:
“
Before issuing any certificate under clause
30
of these Conditions
the Architect/Supervising Officer
may2
request the Contractor to
furnish him reasonable proof that all amounts included in the
calculation of the amount stated as due
on
previous certificates in
respect of the total value of work, materials or goods executed or
supplied by any nominated sub-contractor have been duly dis-
charged, and if the Contractor fails to comply with any such request
the Architect/Supervising Officer shall issue a certificate to that
effect and thereupon the Employer
may2
himself pay such amounts
to any nominated sub-contractor concerned
.
.
.
and deduct the
same from any sums due
or
to
become due to
the
C~ntractor.”~
This power may only be exercised in favour
of
nominated sub-
contractors
;
direct payment is discretionary provided the architect has
requested and not received proof of payment by the contractor of
previously certified sums.4
Clause
25
(4)
(b)
only applies
on
determination of the contract on,
inter
alia,
the bankruptcy or liquidation
of
the contractor, and reads:
“
.
.
.
the Employer may pay any supplier or sub-contractor for
any materials or goods delivered or works executed for the purposes
of this Contract (whether before or after the date of determination)
in
so
far as the price thereof has not already been paid by the
Contractor. The Employer’s rights under this paragraph are in
addition to his rights to pay nominated sub-contractors as provided
in clause
27
(c) of these Conditions and payments made under this
paragraph may be deducted from any sum due or to become due to
the Con tractor
.’’6
References in the text as to the 1963 Edition, JuIy 1977 Revision. This is still in
Emphasis added.
C1. 35.13.5.3 of the 1980 Edition requires the employer to make direct payment if the
architect/supervising officer’s certificate is given and the employer has entered into
Agreement NSC/2
or
NSC/2a with the sub-contractor. In other cases, direct payment is
discretionary (cl. 35.13.5.1). Deductions for direct payment may be made from the
retentionfund(cl.30(4)(a)ofthe
1963 Edition,cl. 30.1.1.2ofthe 1980Edition).
CI. 35.13.3 of the 1980 Edition requires the contractor to furnish reasonable proof
of
ayment if Sub-contract NSC/4 orNSC/4a
is
used.
The
1980 Edition does not contain a corresponding provision, the right
to
deduct
direct payments terminating on liquidation.
409
widespread
use
despite the introduction ofa new Edition in 1980.
410
THE
MODERN LAW REVIEW
[Vol.
46
Direct payment is again discretionary but may benefit any sub-
contractor, nominated or otherwise. It is immaterial whether the
outstanding payment has been the subject of
a
previous certificate.
Insolvency apart, as between the employer and the contractor direct
payments properly made bind the contractor,e although
“
a condition
which enables the building owner to pay someone other than the
contractor must be strictly construed.”’
If the employer pays the contractor and includes payment for work
done by sub-contractors in one certificate, he may not thereafter be
able to pay sub-contractors direct for work comprised in the earlier
certificate and deduct this from subsequent payments if the contractor
has not paid sub-contractors for the earlier work. The architect, having
issued
a
certificate in favour of the contractor, cannot issue
a
further
certificate in favour of a sub-contractor after a dispute has arisen.
Maugham
J.
stated in
British
S.S.
Investment Trust Ltd.
v.
Foundation
Co.
Ltd.e:
“
. .
.
when
a
tradesman selected or appointed by the architect
for the purpose of the execution of works for which a provisional
sum or prime cost amount is included in the contract has executed
the work, the railway company has an option either to pay that
tradesman direct and to deduct the amount from the certificate
or to pay the proper percentage of the whole amount appearing
due on the certificate to the contractor. If he takes the latter
course and pays the contractor, in my judgment it is too late to
claim a right to pay to the tradesman direct the sum due to the
tradesman included in the certificate
. . .
The effect of the payment
to the contractor, in my opinion,
is
an election not to exercise
the right to pay the tradesman direct to the extent of the percentage
due to the tradesman paid to the contractor.”
The above decision may not apply to clause
27
(c) of the
J.C.T.
condition^,^
which permits direct payment
if
the amounts due under all
previous certificates have not been paid. Deductions are permitted from
“
any sums due or to become due,” indicating that payment to the
contractor on previous certificates which included payments due to
sub-contractors does not prejudice the right to make direct payments
if
the architect subsequently certifies non-payment. However, if the
employer elects to pay the contractor despite such
a
certificate, it is
likely that this election will prevent the employer from subsequently
deducting a later direct payment made in respect of the non-payment
previously certified.’O
6
A direct payment will not bind the contractor in the absence of a contractual provision
permitting this: see
Re
Holt,
exp. Gray
(1888) 58
L.J.Q.B.
5.
7
J.
A.
Milestone
&
Sons
Ltd. (In Liqiiidation)
v.
Yates Castle Brewery
Ltd.
I19381
2
All
E.R.
439, 443,
per
Singleton
J.
8
Unreported. Cited in the
Milestone
case.
9
C1.
35.13.5.3
of the
1980
Edition, which refers to direct payments being deducted
from
I‘
any future payment otherwise due to the Contractor under this Contract.”
10
The reference to deductions from sums to become due may merely permit deductions
from subsequent certificates if the sum due on the interim certificate following certification
by the architect is insufficient
to
cover the total non-payment
so
certified, rather than
permitting future deductions if the right to make a deduction is not exercised at the
earliest available opportunity.
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