Rupert Morgan Building Services (Llc) Ltd. v Jervis & Anor

Factual and Procedural Background

This appeal concerns the interpretation of section 111(1) of the Housing, Grants (Construction and Regeneration) Act 1996 in the context of a building contract dispute. The appellant defendants ("the clients") commissioned building works on their cottage from the claimant builders under a standard form contract provided by the Architecture and Surveying Institute ("ASI"). Payments were made on an interim basis pursuant to the contract scheme, with an architect issuing interim certificates based on scrutiny of the builder’s bills. A dispute arose over the balance of the seventh interim certificate, amounting to approximately £27,000, which the clients refused to pay without issuing a formal notice of intention to withhold payment as required by the Act. The builders sought summary judgment for this balance. The case progressed through District Judge Murphy at Winchester County Court, then to HHJ Anthony Thompson QC who dismissed the appeal, and finally to the appellate court with permission granted by Clarke LJ.

Legal Issues Presented

1. What is the proper construction of section 111(1) of the Housing, Grants (Construction and Regeneration) Act 1996 regarding the requirement to give notice before withholding payment under a construction contract?
2. Does section 111(1) apply to interim certificates issued by architects under standard building contracts, and what effect does it have on the obligation to pay sums certified?
3. Can a party withhold payment without issuing a notice if they dispute the work done or claim overcharging, duplication, or defective work?

Arguments of the Parties

Appellant's Arguments (Clients)

• The clients argued they were entitled to withhold payment without issuing a notice because the disputed items were not done, were duplicates, were charged as extras improperly, or related to snagging on already paid work.
• They supported a "narrow" construction of section 111(1), contending that if work has not been done, no sum is due under the contract and thus the withholding notice requirement does not apply.

Appellee's Arguments (Builders)

• The builders advocated a "wide" construction of section 111(1), asserting that once an interim or final certificate is issued and no withholding notice given, the certified sum must be paid and cannot be withheld.
• They sought summary judgment on the basis that the clients’ failure to give the required notice precluded withholding payment.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the statutory provision in section 111(1) of the Housing Grants Act, which prohibits withholding payment after the final payment date unless an effective notice is given specifying the amount and grounds for withholding. The dispute centered on whether this applied strictly to certified sums under the contract and whether the absence of a notice precluded withholding payment even if the work was disputed.

The court identified two competing constructions: a "wide" construction requiring payment of certified sums absent notice, and a "narrow" construction permitting withholding if no sum was due (e.g., work not done). The court rejected the narrow construction as based on a mistaken assumption that the provision addresses the ultimate liability between parties. Instead, the court endorsed the analysis from Clark Contracts v The Burrell Co., which clarifies that section 111(1) is aimed at ensuring cash flow by requiring payment of certified sums promptly, with disputes over quality or quantity of work to be resolved later through adjudication or litigation.

The contract at issue provided that payments were to be made strictly according to the architect's certificates, which represent the sum due under the contract and the due date for payment. Although certificates are not conclusive evidence of work quality or quantity, failure to issue a withholding notice prevents the client from withholding payment of the certified sum. The court emphasized that this scheme protects contractors’ cash flow and addresses the problem identified by the Latham report, which found that contractors were often wrongfully withholding payments.

The court acknowledged the risk to clients of overpayment but noted that this risk can be mitigated by timely withholding notices and subsequent remedies including adjudication, arbitration, or legal proceedings. The court found the clients’ argument inconsistent because their duty to pay and the amount payable arise from the certificate, yet they sought to ignore the certificate to reduce payment without issuing the required notice.

Ultimately, the court concluded that the clients must pay the certified sum now and may seek remedies later if they have overpaid. The architect’s role in issuing accurate certificates was highlighted as important to resolving disputes.

Holding and Implications

The court DISMISSED the appeal, holding that under section 111(1) of the Housing, Grants (Construction and Regeneration) Act 1996, a party to a construction contract who fails to give an effective notice of intention to withhold payment must pay the sum certified by the architect by the due date.

This decision reinforces the statutory scheme designed to protect contractors’ cash flow by requiring prompt payment of certified sums and limiting the ability of clients to withhold payment without proper notice. The ruling clarifies that the obligation to pay certified sums is separate from the ultimate question of liability for defective or incomplete work, which can be addressed through subsequent adjudication or litigation. No new precedent beyond the application of existing principles was established, but the judgment provides authoritative guidance on the interpretation of section 111(1) in contracts involving architect’s certificates.