COURTS PROVIDE PROTECTION FOR SUBCONTRACTOR IN CLAIMS

Main Contract Dispute

Subcontractors being lower down the food chain are reliant upon contractors for payment. Where disputes arise over the amount a main contractor is obliged to pay to the subcontractor the usual “ he who alleges must prove ” argument comes to the fore. If the main contractor makes a claim against a subcontractor and as a result reduces the amount due for payment or seeks to recover actual payment from the subcontractor then the shoe is on the other foot. In the case of Bovis Lend Lease Ltd v RD Fire Protection Ltd (2003) a dispute arose concerning a claim from the management contractor Bovis against FD Fire Protection a subcontractor who undertook the dry lining and fire protection. Bovis had been appointed as the management contractor on the Braehead Shopping Centre in Glasgow. A major row broke out between Braehead the developer and Bovis with claims flying in both directions. Bovis alleged that they were owed £37m as the balance due on the final account and damages for breach of contract whilst Braehead counterclaimed in the sum of £ 65.8m in respect of alleged mismanagement, defective work and overvaluation of the works. Proceedings were commenced and as part of the process Bovis joined RD Fire Protection as a joint defendant on the basis that part of the counterclaim related to the quality of work undertaken by RD Fire Protection. Bovis and Braehead entered into a compromise arrangement whereby Braehead paid Bovis a sum of £ 15m in full and final settlement of all matters in dispute which included the alleged defective work carried out by RD.

Claim Against the Subcontractor

The settlement reached between Braehead and Bovis was on a global basis in that there was no build up which showed how the amount had been calculated. The cost of correcting the defective work formed part of the counterclaim but it was not clear whether or not the agreed figure included any provision in respect of the alleged defective work. Bovis however claimed from RD Fire Protection the full cost of the remedial works as pleaded by Braehead. They sought to bypass the settlement entirely and proceed as if it had never taken place. This was obviously wrong as Bovis were only entitled to recover whatever loss they could prove resulted from the defective work. It was possible for there to be some provision in the global settlement figure for the defective work the more likely however was that as the settlement figure was on a global basis the sum could not be identified. It was open therefore for Bovis to request the Court to ascertain the sum involved which could then be passed on to RD Fire Protection. Bovis did not use this approach but instead passed on the total sum originally claimed by Braehead. The court rejected the case brought by Bovis and found for RD Fire Protection.

Getting the Claim Against The Subcontractor Right

It may be concluded that if Bovis had taken the trouble to reach an agreement with Braehead as to how the global settlement figure was made up and included a specified sum whether contrived or otherwise in respect for defective work they would have been home and dry. The decision in the case of Durabella Ltd v J Jarvis and Sons Ltd (2001) however would lead to a different conclusion. In this case J Jarvis and Sons Ltd were main contractors for the construction of 36 apartments in London for a developer. Durabella were subcontractors who laid hardwood floors. Under the terms of the subcontract J Jarvis and Sons Ltd were required to pay Durabella only after payment had been made by the developer. In other words pay when paid. A dispute arose between the developer and J Jarvis and Son Ltd which included the quality of the hardwood floors. Durabella claimed that they were owed money which was not paid as J Jarvis and Sons Ltd maintained that the money remained unpaid by the developer. A settlement was reached under which a sum of £550,000 was to be paid by the developer to J Jarvis and Sons Ltd. The wording of the agreement specifically stated that there was no allowance in the settlement figure for the hardwood flooring. J Jarvis and Sons Ltd advised Durabella that as the settlement figure included nothing for hardwood flooring then they were not entitled to a payment. The court concluded that the wording of the agreement had been devised with the intention of misleading Durabella and was therefore of no evidential value. It was held that as J Jarvis and Sons Ltd had failed to establish that it had not receive payment from the developer Durabella were entitled to be paid.

Correct Procedure

It is not always the case that claims when settled follow a logical method involving precise calculation. Towards the end of lengthy negotiations horse trading often becomes the preferred method of arriving at a lump sum walk away settlement figure. Before putting their signatures to a settlement agreement main contractors should have in mind their strategy if appropriate of recovering money from subcontractors whose quality of work was one of the matters in dispute. If the main contractor is to succeed in tying in the subcontractor to money included in a settlement with the employer ideally prior agreement with the subcontractor as to the sum included should be reached. Failing this the main contractor will have to demonstrate that any sum included in respect of the subcontractor’s defective work is reasonable otherwise the main contractor will find recovery from the subcontractor could prove difficult.