Rupert Morgan B.S.Ltd v David & Harriett Jervis [2003] EWCA Civ 1563

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

Where, in a written construction contract, there is a 'system of certificates' and the paying party fails to give an effective withholding notice in respect of a certified sum, that sum is payable in full. Over-certification can and should be corrected in the next certificate. Overpayments might be recovered in court or arbitration proceedings.

Court of Appeal

12 November 2003

The Claimants ('the Builders') were engaged by the Defendants ('the Clients') to carry out work on their cottage. The Clients appointed an Architect. There was a written contract incorporating standard terms provided by the Architecture and Surveying Institute ('the Contract'), which was treated as a construction contract under the HGCR Act 1996.

The Contract provided for the Architect to issue interim certificates every 14 days and for payment 14 days after issue. The Clients, who did not give a withholding notice, disputed the amount certified in an interim certificate. The Builders sought and obtained summary judgment for the full certified sum. The Clients appealed, lost, and appealed again to the Court of Appeal.

The Clients challenged the sum certified in respect of items of work that were not done at all, duplicated items already paid for, items that were charged as extras when they were within the scope of the Contract and items that represented snagging for works already done and paid for. The Clients said that the sum certified in respect of these items was not 'a sum due under the contract' (under s. 111 of the HGRA Act 1996) and so a withholding notice was unnecessary to cover them.

The Court of Appeal dismissed the Clients' appeal. The Court said that 'The fundamental thing to understand is that s.111(1) is a provision about cash-flow. It is not a provision which seeks to make any certificate, interim or final, conclusive'. Under the Contract, the sum due was determined by the certificate and not by the actual work done. If there were an error (e.g. double charging) in an interim certificate, it could and should be corrected in the next certificate.

For the final certificate there was more time to check matters before it was issued. However, if it was incorrect, the contract should determine the position. The contract might provide that the final certificate was conclusive as to the sum due (which would decide the matter). If the contract provided that the final certificate was not conclusive as to the sum due, section 111 did not say that failure to give an effective withholding notice created an irrebuttable presumption that the sum certified was in the final analysis properly payable. The paying party could challenge the amount paid by court or arbitration proceedings.

The Court recognised the risk to the paying party if the receiving party were to enter insolvency before any overpayment in a certificate was corrected. The Court said that this risk could be avoided by checking certificates and giving effective withholding notices. Also, the Court suggested (without expressing an opinion) that a certifier might be liable to a paying party if he negligently failed to advise about serving a withholding notice or if he over-certified.

However, the Court said that the position was different where there was no 'system of certificates'. The Court said that in cases such as SL Timber Systems v Carillion Construction (page 78) the result was different because the builder simply presented his 'bill for payment'. The bill in itself did not make any sums due. What made the sums due was the fact of the work having been done. No withholding notice was needed for work not done, as payment was not due in respect of it.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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