William Hare Ltd v Shepherd Construction Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,Lord Justice Rix,Sir Scott Baker |
| Judgment Date | 18 March 2010 |
| Neutral Citation | [2010] EWCA Civ 283 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A1/2009/1526 and 1962 |
| Date | 18 March 2010 |
[2010] EWCA Civ 283
[2009] EWCH 1603 (TCC)
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Mr Justice Coulson
Before: Lord Justice Waller
Vice President of the Court of Appeal, Civil Division
Lord Justice Rix
and
Sir Scott Baker
Case No: A1/2009/1526 and 1962
Sean Brannigan QC (instructed by Addleshaw Goddard LLP) for Respondent (1)
Alexander Nissen QC and Glen Davis (instructed by Gosschalks) for Respondent (2)
Stephen Furst QC and Krista Lee (instructed by Wragge & Co LLP) for the Appellant
Hearing date : 4 th March 2010
Lord Justice Waller :
This is an appeal from the judgment of Coulson J in the Technology and Construction Court handed down on 25 th June 2009. He held in favour of a subcontractor William Hare Limited ( Hare) that the main contractor Shepherd Construction Limited (Shepherd) could not refuse payment of £996,683.35 in reliance on a “pay when paid clause” following the going into administration of the employer Trinity Wakefield Limited (Trinity). It was accepted as between the parties that the judge's decision also covered a similar dispute between another subcontractor C R Reynolds (Construction) Limited (Reynolds) and Shepherd and it is for that reason both subcontractors are parties to the appeal. The point I would understand to affect a number of other subcontractors as well.
The judgment is a model of clarity and I would like at the outset to pay tribute to it, and indeed reveal a strong inclination simply to say that for the reasons the judge gives the appeal should be dismissed. But because I would have been less inclined to explore construction by reference to slightly unreal, albeit perfectly permissible, assumptions and been inclined to put at the forefront what seems to me the straightforward answer to this appeal, I shall set out as shortly as I can why, in my view, this appeal was bound to fail in my own words.
The detail of the statutory provisions can be found in the judge's judgment. The essence can be put shortly as follows. Section 113 (1) of the Housing Grants (Construction and Regeneration) Act 1996 (the 1996 Act) outlawed “Pay when paid” clauses in the construction industry unless it could be shown that the third party employer was insolvent. Subsection (2) provided “For the purposes of this section a company becomes insolvent—(a) on the making of an administration order against it under Part II of the Insolvency Act 1986”, i.e. by order of the court. [Subsections (b), (c) and (d) identify other processes whereby a company becomes insolvent two of which, it is right to say, do not require an order of the court. The wording will appear from the clause of the contract with which the appeal is concerned set out in paragraph 6 below].
By the Enterprise Act 2002, the Insolvency Act 1986 (the 1986 Act) was amended retaining Part II in its then form in relation to a few special types of company, but substituting a different Part II for all other companies through schedule B1. Schedule B1 provided for three different types of administration – still one by virtue of a court order, and two without a court order conveniently labelled “self certifying options”.
That led to an amendment to section 113 of the 1996 Act by the Enterprise Act 2002 (Insolvency) Order 2003, which substituted the above wording of (a), with “when it enters administration within the meaning of Schedule B1 to the Insolvency Act 1986”, thus clearly including both administration through court order and “self certifying”. [Other subsections remained the same].
In about 1998 Masons, the former solicitors for Shepherd, had drafted a form of “pay when paid clause” for insertion into a standard form of subcontract which followed the then terms of section 113 of the 1996 Act. Thus it provided as follows [it may not always have been 32 but it will be convenient to number it as such.]:—
”32.1 Notwithstanding anything to the contrary elsewhere in this Sub-Contract if the Employer or any such person as is responsible for discharging payment to the Contractor under the Main Contract, as the case may be, is insolvent as defined in Clauses 32.2, 32.3 and 32.4, the Contractor shall not be obliged to make any further payment to the Sub-Contractor or any amount which is due or may become due to the Sub-Contractor unless the Contractor has received payment in respect thereof from the Employer or such other person, as the case may be and then only to the extent of such receipt.
32.2(sic) For the purposes of clause 32.1 a company becomes insolvent:
32.2.1 on the making of an administration order against it under Part II of the Insolvency Act 1986;
32.2.2 on the appointment of an administrative receiver or a receiver or manager of its property under Chapter 1 of Part III of that Act or the appointment of a receiver under Chapter 2 of that Part;
32.2.3 on the passing of a resolution for voluntary winding up without a declaration of solvency under section 89 of that Act; or
32.2.4 on the making of a winding-up order under Part IV or V of that Act.”
Precisely how we have no real explanation, but in 2008 Shepherd, as the main contractor for the employer, Trinity, used the same clause in the same terms without reflecting the amendment to section 113 in 2002, as clause 32 in their sub contracts with amongst others Hare and Reynolds.
Trinity went into administration by a self-certifying route. Shepherd sought to rely on clause 32 in refusing to pay the subcontractors the very substantial sums otherwise clearly due.
As the judge records at paragraph 4 of his judgment, Mr Brannigan QC for Hare, supported by Mr Nissen QC for Reynolds, submitted before him that Trinity was not insolvent within the meaning of clause 32. It obviously did not come within Clause 32 (2) (b), (c) or (d), and it did not come within clause 32 (2) (a) because there was no “order” of a court. Mr Furst QC did not contest that the ordinary meaning of the words envisaged an “order “of the court but maintained it was “absurd” for the sub-contract to be construed without taking into account the subsequent amendments to the 1986 Act and that this was one of those cases where it was so clear something had gone wrong with the drafting, the court should construe the clause as covering all routes to administration. In effect he argued that since clause 32.2 reflected the...
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