CONTRACT — Construction — Interim payments — Whether clause providing for determination of contract and withholding of any further payments applying to outstanding interim payments — Whether employer required to give effective notice of intention to withhold — Housing Grants, Construction and Regeneration Act 1996, s 111(1)
Melville Dundas Ltd and others v George Wimpey UK Ltd and another [2007] UHKL 16
HL(Sc): Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Mance and Lord Neuberger of Abbotsbury: 25 April 2007
S 111(1) of the Housing Grants, Construction and Regeneration Act 1996, which provided 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 had given an effective notice of intention to withhold payment, did not apply to a lawful ground for withholding payment, such as the contractor’s insolvency, when it was not possible in the circumstances for notice to have been given within the statutory time frame.
The House of Lords so held (Lord Mance and Lord Neuberger of Abbotsbury dissenting) when allowing an appeal by the defender employer, George Wimpey UK Ltd, and the third party, Norwich Union Insurance Ltd, from the interlocutor of the Extra Division of the Inner House of the Court of Session (Lord Nimmo Smith, Lord Mackay of Drumadoon and Lord Maclean) (2006 SLT 95) on 15 December 2005 allowing the reclaiming motion by the contractor pursuer, Melville Dundas Ltd, and its receivers, Colin Peter Dempster and Thomas Merchant Burton, from the interlocutor of the Lord Ordinary (Lord Clarke) (2005 SLT 24) dated 22 October 2004 that the pursuers were not entitled to claim payment of the sum of £396,630 allegedly due under a construction contract.
LORD HOFFMANN said that the contract was for the construction of a housing development in Glasgow. The contract incorporated the conditions of JCT Standard Form of Building Contract with Contractor’s Design (1998 edition) which provided for monthly applications for interim payments, and the final date for payment of the amount due in an interim payment was 14 days after receipt by the employer of the application. On 2 May 2003 the contractor applied for an interim payment of £396,630 and the final date for payment was 16 May. The employer did not pay on that date and on 22 May administrative receivers of the contractor were appointed by its bank. Clause 27.3.4 of the contract provided that if the contractor had an administrative receiver appointed, the employer might determine the employment of the contractor. The employer exercised that right on 30 May 2003. That brought into effect clause 27.6.5.1 which stated that the provisions of the contract which “require any further payment ... to the contractor” should not apply. His Lordship said that “require any further payment” meant require the employer to pay any more money. The next question was whether the effect of clause 27.6.5.1 was invalidated by Part II of the House Grants, Construction and Regeneration Act 1996. The contractor relied on s 111(1) of the Act and said that the employer was not entitled to withhold the interim payment because it did not serve a notice earlier than the prescribed period, which the JCT conditions fixed at five days before the final date for payment on 16 May 2003. It would not have been possible for the employer to serve such a notice by 11 May. The earliest they could have been known that they were entitled to withhold the interim payment was when the receivers were appointed on 22 May. To make clause 27.6.5.1 subject to the notice requirement of s 111(1) would be in effect to write it out of the contract. It would be absurd to impute to Parliament an intention to nullify clauses like 27.6.5.1, not by express provision in the statute, but by the device of providing a notice requirement with which the employer could never comply. S 111(1) had to be construed in a way which was compatible with the operation of clause 27.6.5.1. His Lordship would say lex non cogit ad impossibilia and on that ground s 111(1) should be construed as not applying to a lawful ground for withholding payment of which it was in the nature of things not possible for notice to have been given within the statutory time frame.
LORD HOPE delivered a concurring speech.
LORD WALKER agreed with LORD HOFFMANN.
LORD MANCE and LORD NEUBERGER delivered dissenting speeches.
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