A recent TCC decision has decided that the interest provisions of the JCT Standard Building Sub-Contract Conditions apply only to Interim and Final Payments. The Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act”) is therefore applicable to other payments falling due under the contract, such as on termination. The same interest provisions appear in the JCT and SBCC Standard Building Contract and Design and Build Contract and this decision is likely therefore to be of general application to those forms of contract.
John Sisk & Son Limited v Carmel Building Services Limited (In Administration)
John Sisk & Son Ltd (“Sisk”) engaged Carmel Building Services Ltd (“Carmel”) as a sub-contractor to supply and install mechanical and electrical services at a site in London where Sisk, as the main contractor, was constructing forty apartments and a new Outpatients Department for the Royal National Orthopaedic Hospital. However, during the work Carmel entered administration and Sisk therefore terminated the sub-contract. Several years later, after the works had been completed, Carmel applied for payment of the value of work executed but not paid for, together with interest. The dispute went to arbitration. The arbitrator held that Carmel was entitled to payment for work properly carried out.
In respect of interest, the arbitrator was required to determine the amount of interest due to Carmel upon the sums awarded to it. Carmel sought interest in accordance with the Late Payment Act. Sisk argued that the JCT sub-contract conditions, which were part of the sub-contract, included a “substantial remedy” for the late payment and, therefore, the Late Payment Act had no application. Sisk relied specifically on the following generally worded provision contained in clause 4.10.5 of the JCT conditions:
“If the Contractor fails properly to pay the amount, or any part of it, due to the Sub-Contractor under these Conditions by the final date for its payment, the Contractor shall pay to the Sub-Contractor in addition to the amount not properly paid simple interest thereon at the Interest Rate for the period until such payment is made.”
A general right of interest?
Both the arbitrator and subsequently the TCC held that clause 4.10.5 was not applicable and awarded interest under the Late Payment Act in Carmel’s favour (although for different reasons). The court noted in particular that:
- Although worded generally to refer to payments due “under these Conditions”, clause 4.10.5 was situated within clause 4.10 which deals exclusively with Interim Payments.
- Clause 4.10 also refers to the payment of interest not being a waiver of Carmel’s right to suspend work for non-payment, which is a right only applicable to Interim Payments.
- A similar interest provision is contained in a subsequent clause dealing with the Final Payment, suggesting that clause 4.10.5 was not to be of general application.
Conclusions and implications
The JCT sub-contract conditions considered by the court are the same in all material respects as those contained within the JCT and SBCC Standard Building Contract and Design and Build Contract. As such, this decision is likely to be of general application to these JCT / SBCC forms of contract. Parties should not presume that the unamended provisions of these standard forms adequately address late payment interest in all situations. The court’s findings mean that a remedy for late payment is provided in respect of Interim and Final Payments only and that the penal provisions of the Late Payment Act will apply to other payments falling due under these contracts. Such payments include:
- Payments due on termination as in the present case.
- Liquidated damages falling due to the Employer.
- Insurance premiums recoverable by the Employer due to a Contractor’s failure to insure.
Parties should bear these gaps in mind when negotiating JCT / SBCC contracts and consider whether they would be better served by including a general right of interest for all sums falling due so as to avoid the penal provisions of the Late Payment Act.