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29th August 2012

J B Leadbitter & Co Limited -v- Hygrove Holdings Limited (2012)

"Pay when paid" clauses in construction contracts were one of the principal vices outlawed when section 113(1) of the Housing Grants, Construction & Regeneration Act 1996 came into force in May 1998.

"Pay when paid" clauses in construction contracts were one of the principal vices outlawed when section 113(1) of the Housing Grants, Construction & Regeneration Act 1996 came into force in May 1998. In J B Leadbitter & Co Limited -v- Hygrove Holdings Limited (2012) Hygrove was employed by a company called Coastal Housing Group Limited to procure the construction of residential housing in South Wales. Hygrove then subcontracted the whole works package to Leadbitter. Both contracts were under the JCT Design and Build Contract 2005 edition. In addition the three parties entered into a supplemental agreement whereby monies would be paid by Coastal into an escrow account administered by a firm of solicitors. The solicitors would then arrange for payment out to Leadbitter once amounts had been certified under the subcontract between Hygrove and Leadbitter. There were insufficient monies in the escrow account to meet two certified payments under the subcontract and it was argued by Hygrove that, as the supplemental agreement provided that monies only had to be paid out to Leadbitter "provided sufficient funds exist in the escrow account", it was not obliged to make payment. Perhaps not surprisingly the court held that the supplemental agreement could not override section 113(1) and the monies were due under the subcontract notwithstanding that there were insufficient monies in the escrow account. Hygrove would have to make payment direct unless, within the time given by the court for a stay of execution, Hygrove could arrange for Coastal to put the escrow account in funds and arrange for the monies to be paid out to Leadbitter. It is therefore imperative when considering such arrangements to obtain specialist advice on how the legislation might affect your intended plans and provide for adequate sources of funding to meet contract commitments if those plans are frustrated. For more information, please contact Tim Richards on 01908 247010 or email timrichards@hewitsons.com

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