Construction contract – JCT standard form – Delays to works – Certificate of non-completion issued – Respondent employer serving notice to withhold liquidated and ascertained damages from payment due under interim certificate – Time extension granted to appellant contractor after payment of reduced sum – Whether affecting entitlement to deduct LADs – Appeal dismissed
The respondent was the employer and the appellant was the contractor under a construction contract, in JCT standard form (8th ed), Private with Quantities, incorporating amendments 1 of 1999, 2 of 2000 and 3 of 2001. The contract specified a completion date in October 2004, but clause 25 contained a provision for the architect to set a later date on application by the contractor. The contract also specified that liquidated ascertained damages (LADs) of £13,000 per week would be payable for delays after the completion date. Clause 24 provided for the architect to issue a certificate of non-completion in the event that the works had not been completed on time, following which the employer could, provided that it served the requisite notices, either require the contractor to pay LADs or deduct them from any payment due to the contractor. Those provisions were designed to implement the requirements of section 111 of the Housing Grants, Construction and Regeneration Act 1996.
In the event, the works were delayed. In December 2005, the appellant applied for an extension of time. Meanwhile, the architect issued a certificate of non-completion. In January 2006, it issued an interim certificate that showed a net amount of £187,988 payable to the appellant by a final date of 25 January. The respondent served preliminary and withholding notices, in reliance upon which it withheld £61,629 in LADs and accordingly paid only £126,359. Then, on 23 January, the architect granted the extension of time sought by the appellant, setting a new completion date of 10 January 2006.
The appellant claimed that, since the time extension had been granted before the final payment date under the interim certificate, the respondent could not rely upon the December non-completion certificate to justify withholding LADs and was required to pay the full £187,988 by 25 January. In proceedings brought by the respondent, following the appellant’s purported termination of the contract for, inter alia, non-payment of that sum, the judge held that the respondent was not entitled to rely upon the December non-completion certificate. That decision was reversed by the Court of Appeal (see [2007] EWCA Civ 601; [2007] PLSCS 129); the appellant appealed to the House of Lords.
Held: The appeal was dismissed.
Where the preconditions for withholding payment under clause 24 had been satisfied and the employer had served a withholding notice, both parties should be entitled to proceed on the basis that payment could properly be made in accordance with that notice. Having complied with those requirements, the respondent had been entitled to deduct LADs from the sum due under the interim certificate. It had been entitled to rely upon the December non-completion certificate at the time when it served its notices and when it made its payment under the interim certificate. The subsequent grant of the January time extension did not deprive it of the right to rely upon that certificate; although the effect of the January extension was to “cancel” the December non-completion certificate, the cancellation was not retrospective in effect.
Per curiam: A question that remained outstanding, but did not arise on the instant appeal, was whether an employer could still rely upon a non-completion certificate if a time extension were granted after service of a withholding notice but before it actually paid out on the interim certificate.
John Marrin QC and Alexander Hickey (instructed by Hammonds, of Manchester) appeared for the appellant; Stephen Furst QC and Andrew Singer (instructed by Hill Dickinson LLP, of Manchester) appeared for the respondent.
Sally Dobson, barrister
