If a Main Contractor can be successful in making a subcontractor share the risk of the Employer becoming insolvent, then the Main Contractor can reduce his risk significantly.
In a recent case Kier was trying to be able to avoid payment to a subcontractor if the Employer became insolvent.
Kier had chosen to do this by preparing its own subcontract form of DOM/1. The Kier version introduced a couple of new clauses and included an old clause, number 32. Now Clause 32 had been printed in the standard DOM/1 in error and a note by the publisher, the Construction Confederation, said Clause 32 should be deemed to be excluded from the subcontract. That created an ambiguity. Was the subcontract form as printed with Clause 32 or as published, with the note excluding Clause 32?
This was a significant distinction, as Clause 32 dealt with the insolvency of the Employer.
Kier was Main Contractor to Employer Heathfield Limited for fitting out a health and fitness center in Chelmsford, Essex. Kier engaged Aqua Design (Aqua) as a subcontractor to Kier to supply and install a swimming pool, saunas, a steam room and associated equipment. [Fenlock was a separate subcontractor for glazed screens but on similar terms, hence the joint trial].
The Aqua subcontract was agreed in August 2000. Aqua carried out its works and asked for payment. By October 10, 2000, Heathfield was insolvent. Kier refused to pay Aqua the balance outstanding, citing Clause 32.1 of the agreed DOM/1 subcontract.
Clause 32.1 is interesting because it said that if the Employer was insolvent, the Main Contractor need not make any further payment to the Subcontractor. Kier would only have to do so, if and to the extent, it received money from the Employer. In other words, the subcontract would become pay if paid.
By October 10, 2000, Heathfield was insolvent. Kier refused to pay Aqua the balance outstanding, citing Clause 32.1 of the agreed DOM/1 subcontract
Kier's attitude was, 'Sorry, Aqua, you agreed to Clause 32. You bear the insolvency risks as we do - we can't pay you.'
'Ah', replied Aqua, 'We've noticed that the Construction Confederation's notes published in July 1998 say that Clause 32 was printed in error and should be deleted.'
'Fair point', said Kier. 'But in agreeing to our version of DOM/1 you agreed to our Clause 5. That included the modifications and notes as our form reference 8115a.' 'Now if you look at Form 8115a', Kier continued, 'you'll see it incorporates all the corrections and notes made by the Construction Confederation in July 1998, except the deletion of Clause 32. Consequently Aqua, you have agreed Clause 32 was not to be deleted. It must stay, so sorry we can't pay you'.
The matter was brought before Judge Richard Seymour who was asked to decide whether or not Clause 32 was actually included in the agreed subcontract. The Judge noted that Kier's version of DOM/1 had also introduced Article 1.3. This said that the DOM/1 subcontract conditions were those published by the Construction Confederation.
The Judge held this meant that the sub-contract was to be read as if Clause 32 had been deleted.
Accordingly Kier were liable to pay Aqua. The case was on this preliminary point only, so the value payable has yet to be decided.
Source
Construction Manager
Postscript
The case of Aqua Design & Play International Limited trading as Aqua Design versus Kier Regional Limited trading as French Kier Anglia, and Fenlock Hansen versus Kier Regional Limited trading as French Kier Anglia. Ann Wright has specialised in the commercial management of construction for over 20 years both in the UK and abroad. She is an adjudicator at Wreghitt & Co. Tel: 0121 250 3510.