The second case R and C Electrical v Shaylor concerns the interrelationship between payment provisions in a main contract and a sub-contract.
Shaylor was a “main contractor” to Ashley House. R&C was Shaylor’s M&E sub-contractor.
The sub-contract payment conditions provided that the Final Payment would become due 30 days after issue of the Final Certificate under the main contract, with the Final Date for Payment 52 days later. Any Withholding Notice was to be served no later than 7 days before the Final Date of Payment.
When a dispute arose between R&C and Shaylor, R&C adjudicated alleging that time was at large and seeking payment of delay damages and valuation of its final account.
The adjudicator agreed that time was at large and that R&C was obliged to complete its works within a “reasonable time”. However, the 39 weeks taken by R&C was not reasonable as it was responsible for at least 4 weeks delay. R&C was therefore not entitled to delay damages, but neither had Shaylor substantiated any claim in relation to R&C’s delay.
R&C’s final account was therefore valued at £196,000 but due to the payment provisions the adjudicator said it was not yet due for payment.
R&C applied to the Court for immediate payment alleging that the main contract mechanism had broken down such that a Final Certificate would never be issued.
The Court held that on a strict operation of the payment provisions, the issue of the Final Certificate under the main contract, and any sum due to R&C under the sub-contract would not have occurred until after the adjudicator’s decision. The adjudicator was therefore correct in saying that the sum was not yet due for payment.
The Court also said that it was not for R&C to assert a breakdown of the main contract payment mechanism, and that even if Ashley House had deliberately withheld issuing the Final Certificate under the main contract, R&C was still not entitled to immediate payment.
Further, under the sub-contract payment provisions, Shaylor would still have the opportunity to serve a Withholding Notice.
Comment: The Court emphasised that the adjudicator’s decision remained binding until the dispute was finally determined by litigation or agreement. It is also interesting to note that by the time of the Court hearing, the Final Certificate under the main contract had been issued! Note, however, that under the amended Construction Act, conditional payment provisions are prohibited, this includes “pay-when-certified”. Whilst the intention is to speed up the payment of sub-contractors, there is a risk that main contractors will increase the payment period in order to protect their cash flow against non-paying employers!
Author: James Coppinger, Head of Construction and Engineering.
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