Some years ago, when arbitration was all the rage, it was considered important to ensure that the arbitration tribunal had the power to open up, review and revise certificates issued by, what was then almost always, the architect. The recent case of William Hare Ltd v Shepherd Construction Ltd [2009] EWHC 1603 (TCC) acts as a reminder to those parties who work in the construction industry and who have their own bespoke standard form of contracts which they like to use, that it is important that their contracts are regularly opened up, reviewed and revised. This ensures  that the contracts used are brought up to date and incorporate, for example, any modifications or changes in the law.

 The contract which was the subject of the dispute in William Hare (and in particular the insolvency provisions) was drafted without any reference to the Enterprise Act 2002, which amended the Insolvency Act 1986 and introduced self-certifying administrations. As a result the clause in the contract which sought to incorporate the "pay when paid clause" allowed by Section 113 of the HGCRA 1996, while identifying 4 specific different types of insolvency, did not specifically refer to self-certifying administrations (brought in by the Enterprise Act) as a form of insolvency which brought in the ability to withhold payment as a result of a third party's insolvency.  In this case the main contractor sought to withhold payment of sums due to the subcontractor on the basis that that the employer had entered into a self-certifying administration. The Court held that given that the clause defining what was meant by the word "insolvent" did not specifically mention self-certifying administrations, the contractor was not entitled to withhold the monies from its subcontractor and as a result the monies had to be paid, even though the main contractor's chances of ever recovering payment from the employer were, to say the least, remote.

So while the use of standard form contracts should be promoted for a number of different reasons, changes in legislation or judgments of the Court on interpretation of certain contractual provisions mean that it is worthwhile taking your contract into a friendly lawyer for a service once in a while. A clean bill of health always provide peace of mind.  And even if the contract does need some rewiring, prevention is always better than cure.

For more information on these issues please contact

James Levy

or your usual Lewis Silkin contact