State your case — When a contractor goes bust it’s simply accepted that poor old subbies hand over all materials on site to the employer. But this could be an infringement of their human rights
When a contractor goes pop, its subcontractors are inevitably left in a bad position, as has been demonstrated by the recent demise of Botes. Botes went into administration in June this year with losses of £1.6m across its construction and maintenance divisions.
Often the subcontractors will not have been paid for the work it has done under its subcontract as the contractor juggles with payments in the hope that it can trade out of trouble. To add to its woes, the subcontractor will be faced with the loss of the goods and materials that it has stored on the site.
In many standard forms of contract, such as the JCT, the ownership of goods and materials supplied by the subcontractor will pass to the employer if the value of such goods and materials is included in an interim certificate under the main contract, and the amount properly due has been paid to the contractor.
What is more, no matter what is said in the contract, under common law anything that is affixed to the land becomes part of it. For all you Latin scholars this doctrine goes under the title of “quicquid plantatur solo, solo cedit”.
Invariably, the subcontractors’ goods and materials will be incorporated into the structure and thus ownership of the goods and materials will pass to the landowner under this doctrine.
No matter what is said in the contract, under common law anything which is affixed to the land becomes part of it
Because of the unfavourable position at common law regarding goods and materials incorporated into the works, it has become more and more apparent that a novel approach to this perennial problem needs to be found. The Human Rights Act 1998 may provide this.
Under article one of the first protocol to the European Convention on Human Rights, “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. Nobody shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
“The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
The case of JA Pye (Oxford) Ltd and another vs United Kingdom at the European Court of Human Rights in November 2005, which concerned the adverse possession of registered land, gives a pointer in considering how the European Court of Human Rights approaches article one of the first protocol.
The facts of this case are rather esoteric.
Under the European Convention on Human Rights, “Every legal person is entitled to the peaceful enjoyment of his possessions”
Pye had granted a Mr Graham a series of grazing licences. Upon the expiry of the last of these, Graham continued to use the land. He made requests in writing for the renewal, all of which went unanswered. Graham eventually registered cautions against ownership of the land and this led to Pye commencing proceedings for recovery of it. The Human Rights Act 1998 came into force while the case was progressing through the English courts, and consequently article one of the first protocol became an integral part of the proceedings.
In this case the court ruled that the principle of proportionality was important. Deprivation of an individual’s property without compensation was not, in the opinion of the court, proportional. The court went further still, stating that the deprivation of an individual’s property without compensation could only be justified in exceptional circumstances.
It seems unarguable that a subcontractor’s loss of ownership of the goods and materials incorporated into the works amounts to a deprivation of that property under the first protocol. Under section 6 (1) of the Human Rights Act 1998, the courts are public authorities and so must act in accordance with the convention. The question then is this: does the common scenario outlined above, where materials supplied by the subcontractor pass to the employer, despite no payment being made, fall into the category of “exceptional circumstances”?
To date there has not been a challenge to the common law position, so the relevance of the Pye decision in these circumstances is as untested. However given the financial ramifications of this doctrine this may not remain the case for long.
Steven Carey is a senior partner at Campbell Hooper