Where a JCT interim payment is due, the final date for payment has passed unpaid with no withholding notice served, and the contractor then becomes insolvent, can the employer use insolvency as a reason not to pay?
A JCT interim sum falls due and is unpaid, then the contractor fails. Whether the employer can terminate and keep the money, despite serving no notice, was settled by the House of Lords first decision on the construction legislation.
Yes on the JCT wording: where the contractor becomes insolvent after the final date for payment has passed, the employer can terminate the contractor's employment and rely on the clause suspending further payment, and the requirement of a withholding notice does not bite where there was a lawful ground and the notice could not have been given in time, as the House of Lords held in Melville Dundas v George Wimpey
Yes, on the JCT wording. Where the contractor becomes insolvent after the final date for payment has passed, the employer can terminate the contractor's employment and rely on the clause suspending further payment, and the requirement of a withholding notice does not bite where there was a lawful ground to withhold and no notice could have been given in the statutory timeframe. In Melville Dundas Ltd v George Wimpey UK Ltd the House of Lords, by a majority of three to two in its first decision on the construction legislation, held that a JCT clause stopping further payment after termination for insolvency was not in conflict with the statutory payment requirements, and that the employer could withhold the interim sum although no notice had been served, the receivers having been appointed after the last date for a notice. Now, in the 1996 Act as substituted by the 2009 Act, section 111(10) confines that result to insolvency: the requirement to pay the notified sum does not apply where the contract so provides on the payee's insolvency. The outcome turns on the exact contract wording and the sequence of dates.
| Suspension clause | JCT stops further payment after termination for insolvency |
| Melville Dundas | The House of Lords upheld the employer by a 3-2 majority |
| The notice | Did not bite where the ground arose after the notice deadline |
| No conflict | The clause was not in conflict with the statutory payment requirements |
| Now statutory | Section 111(10) of the 1996 Act, substituted 2009, confines it to insolvency |
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