William Hare Limited v Shepherd Construction Limited and C R Reynolds (Construction) Limited v Shepherd Construction Limited

This case demonstrates that it is essential that construction contracts contain up to date clauses that reflect the current laws. If not parties run the risk that the courts will refuse to interpret clauses to reflect new legislation and may even strike out offending clauses making them unenforceable.

The Facts
Shepherd Construction Limited was the Contractor and had subcontracted works to William Hare Limited and C R Reynolds (Construction) Limited. The subcontracts defined insolvency by including a reference to “administration orders” rather than the traditional out of court filing method which was provided for under the Enterprise Act 2002.

The Contractor tried to argue that the insolvency definition in the subcontract should be regarded as including a reference to entering administration by out of court filing to enable it to rely on a “pay when paid” clause that would avoid its having to pay the sub-contractors any sums.

The Decision
The contractor failed to avoid liability to pay the subcontractors. The Court needed to see a strong case to show that something was wrong with the language of the sub contract. The Court found that any attempt to limit liability should be clearly drafted as it is likely the Courts will not allow the limitation and will rule against a party seeking to rely on the ambiguity.

Conclusion
In summary, it is essential that you ensure that insolvency event clauses are up to date and reflect current laws. The reasoning in this case would apply equally to insolvency termination provisions as well as to pay when paid clauses.