Reinwood Ltd v L Brown & Sons Ltd

On 17 January, the employer issued a withholding notice to deduct LAD’s, relying upon a non-completion certificate. On 20 January the employer, paid early the monies due under the relevant payment certificate. Three days later the architect issued an extension of time which cancelled the non-completion certificate upon which the withholding notice was based. The CA held that the employer's right to LAD’s crystallised as soon as the withholding notice was given. However once the EOT was given, the monies ought to be re-paid within a reasonable time.

The contractor appealed to the HL as the matter had a bearing on whether or not the contract had been properly terminated. There was no doubt that if the January extension had been granted after the final date for payment, the employer's deduction of the LAD's based on the December non-completion certificate would have been unassailable as that certificate would not have been cancelled by the EOT award. The problem here was the fact that the January extension was granted after the date of issue of the interim certificate, but before the final date for payment.

The HL said that whilst the effect of the January extension was to cancel the non-completion certificate, that cancellation was not retrospective in its effect. Thus, in making a payment before the January extension was granted, the employer was entitled to rely on that certificate. In part this was for policy reasons. Under the HGCRA, the parties are entitled to know in advance where they stand vis a vis payment issues. Otherwise, not merely could neither party rely on a valid withholding notice as being conclusively determinative of any obligations with regard to payment of an interim certificate, neither party could even rely on an actual payment, correct at the time it was made, as being effective. To hold otherwise, would be unfair on an employer who could be deemed to have underpaid due to an event which occurred after payment. The contractor's position was also protected as the other effect of the January extension was that the employer had to repay the amount deducted. In the view of the HL, the HGCRA would apply here, which meant that the amount to be repaid would become due after 7 days, with the final date for payment being 17 days later. Lord Walker said this:

"All these provisions are aimed at letting the parties know where they stand, in order to avoid unpleasant last-minute surprises and disputes. Parties cannot know where they stand if their obligations are liable to be changed at the last moment, with retrospect effect."