LAWBUILD Letter No. 11

Wednesday, 20th July 2005

Lawbuild provides construction law expertise to save clients time and money. A personal message from Lawbuild's Principal David Lewis

Publication of correspondence, legal disclaimers and warnings: please read first

The rush to judgment

Although Lawbuild is not primarily a litigation practice, I do try to help established clients who need to collect a debt or who find themselves at the wrong end of a contract-related lawsuit. Recently, though, my confidence in the legal system has been sorely tested.

The case of Client A

“Client A” was sued for a small debt. On his behalf, and in good time, I posted a defence to the court and the claimant. But shortly afterwards the court gave judgment against client A on the grounds that he had failed to put in a defence.

I applied immediately to set aside the judgment. The court fixed a hearing for the application. It also sent a copy of the judgment to the Registry of County Court Judgments, which entered my client’s name in the register as a judgment debtor.

At the hearing of the application the District Judge informed me that the court had received the defence within the deadline. (No, there is no “not” missing from that last sentence.) The claimant denied receiving the defence, but told the judge that he had telephoned the court office before applying for judgment and that the court staff had told him they had not received the defence. The judge had no option but to set aside the judgment, and the parties agreed a settlement shortly afterwards. Eventually – after further blunders by court staff - the entry in the Register of County Court Judgments was removed.

I did not charge my client for the extra work involved. Instead I sought compensation from HM Courts Service, who admitted numerous errors but argued that my claim should be reduced because I had written to the court instead of telephoning. (No doubt if I had phoned the court – an exercise requiring considerable time and patience – the Courts Service would have blamed me for not having written.) Wearying at last, and somewhat against my instincts, I accepted the Courts Service’s reduced offer and eventually received over £580 in compensation. I sometimes wish I had pursued the agency in court, but then common sense prevails. After all, how easy would it be to win a lawsuit against ... the Courts Service?

The case of Client B

“Client B” consulted me over threats of legal action by a creditor. I wrote to the creditor, explaining why my client was not liable to pay the invoice. I received no response, but a few weeks later client B received - you’ve guessed it - judgment from the court (a different court from the one in client A’s case), again on the grounds that he had not filed a defence in time.

The reason my client had not filed a defence was that he had never received the claim.

This time (bearing in mind the admonitions of the Courts Service in the case of client A) I telephoned the court office, who told me they had posted the claim form to my client. I therefore applied to set aside the judgment. The court held a hearing and duly set aside the judgment.

The (to me) astonishing point about this case is that, despite the court having set aside the judgment, neither my client nor I have yet received the claim. The court is about to set a trial date, and my client still doesn’t know the case against him.

Thinking the unthinkable

By now I am beginning to think heretical thoughts. Are the Civil Procedure Rules unfairly weighted against defendants? Does the inefficiency of the court staff mean that defendants can’t expect to be treated justly? Are the courts, though no doubt entirely neutral and well-meaning, objectively the enemy of defendants (to use Lenin’s expression)? And, in the face of injustice through biased rules and inefficiency, might it sometimes make more sense economically to pay a “bad” invoice than to withhold payment?

I know these are unworthy thoughts, which no solicitor should entertain for a moment. It’s just that I can’t stop them popping into my head.

Paranoid, you might say, and you might be right; but I wonder how many times my clients have to receive judgments in default without the opportunity of defending themselves, not to mention having their names entered in the Register of County Court Judgments, before my misgivings become justified?

It strikes me that the Civil Procedure Rules, which allow claims and defences to be filed (with the court) and served (on the other party) by ordinary first class post, ought to be changed so that judgment in default can never be given unless these important documents are sent by recorded or special delivery. But why should the Civil Procedure Rule Committee make this common sense change when every application to set aside judgment brings in a court fee of £60? Or is that just me being paranoid again?

I have written to the Civil Procedure Rules Committee about this, but I think we can safely assume that the rules will stay the same and that the courts will continue to order judgment in default against defendants who have not had the opportunity of defending themselves.

This, sadly, is what the British justice system has come to.

And now, do enjoy the rest of The Lawbuild Letter.

With kind regards.

Principal of Lawbuild, solicitors
Editor of the Lawbuild Letter

Pay or notify

The dangers of sitting on invoices in the field of commercial construction

“A party to a construction contract may not withhold payment … of a sum due under the contract unless he has given an effective notice of intention to withhold payment.” So says section 111(1) of the Construction Act (a.k.a. Part II of the Housing Grants, Construction and Regeneration Act 1996), which applies to commercial projects but not to work carried out for a homeowner.

What this means in practice is that if you receive an invoice or payment certificate from a contractor or subcontractor, or from a designer or other building consultant, and you don’t think you should pay it, you should avoid the temptation to sit on the invoice and do nothing.

First, you should establish the deadline for giving a withholding notice. This is not easy to calculate if you’re not familiar with the legislation. Refer to the contract: most standard forms reproduce section 111(1) and set out the deadline for giving the withholding notice. If the contract says nothing about this, the deadline is ten days after the date when payment of the invoice is due.

If you dispute the invoice because the work has not been done properly, you probably need to give withholding notice by the deadline.

If a payment certificate has been issued, you should give a withholding notice.

If you want to recoup a previous overpayment, you should give withholding notice.

If you want to deduct delay damages, or charges which the contract allows you to deduct, you should give withholding notice.

If however none of these apply, and your argument is that the sum invoiced is not in fact due, then you may be entitled to withhold payment without giving notice; though it could be safer to give the notice anyway.

A glossary of construction law expressions: N is for .

Novation

A building owner who is selling land where building works are in progress can transfer (or “assign”) his rights under the building contract to the buyer. But he can’t assign his liabilities without the contractor’s consent: which is not surprising, since otherwise the contractor might find himself claiming money from an insolvent buyer instead of a cash-rich seller.

If (in my example) the contractor does consent to the building owner assigning his liabilities as well as his rights, then this has to be done by “novation”.

Novation, as its name suggests, is the substitution of a new contract for an existing one. In my example, the building contract between seller and contractor is replaced by a new contract (novation agreement) between buyer and contractor. The seller will be normally be a party to the novation agreement so that he and the contractor can release each other from their respective liabilities.

When does novation take effect? This is a matter for the parties. A novation can have effect ab initio, i.e. as if it had been entered into at the time of the original contract. Or it can take effect from the date of the novation agreement, or indeed some other date.

There are three typical situations in construction when a novation may occur.

• Under design and build contracts, where the appointments of the designers are sometimes novated to the contractor, who steps into the shoes of the client.
  
  
• Under warranties to a fund, where the employer defaults and the appointments and building contract are novated to the fund, which steps into the employer’s shoes.
  
  
• Where appointments and building contracts have been entered into by a subsidiary company and are novated to the parent company, which steps into the shoes of the subsidiary. (Obviously this can occur vice versa or with numerous variants.)
  

Business Network International^®

Lawbuild and David Lewis are a member of the Victoria (London) Chapter of Business Network International (BNI).

BNI is a business and professional networking organisation whose purpose is to generate quality referred business for its members. BNI can claim to be the most successful organisation of its kind in the world, as it records the business transacted on a weekly basis. In 2004 members of BNI worldwide passed over 3,300,000 referrals generating £850m of business. Currently, there are more than 3,800 active groups, of which 512 are in the UK and Ireland.

BNI groups limit membership to one person per business, so members have an opportunity to lock out their competition.

You can contact us to ask about the benefits of becoming a BNI member, and we can arrange for you to attend one or two meetings as a visitor and without obligation.

To learn more, visit BNI Europe and BNI Victoria.

Letters

Comments on my design article

In Lawbuild Letter No. 10 we criticised design flaws in manufactured goods. A number of you commented.

Jonathan Silverman of London solicitors Silverman Sherliker asked, “Why do ... most ... car designers assume that we have hands shaped cup-like which move vertically?” He blamed it on the safety legislation of the 1970s.

Oliver Lewis of Imetrix, a research agency for online usability, recommended “a classic on that subject”: The Design of Everyday Things, by Donald A. Norman. (It’s on my Amazon wishlist, Olly.)

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About Lawbuild

Lawbuild is a specialist construction law practice offering expert advice and services to anyone carrying out or lending money for construction, and to any buyer, seller, landlord or tenant of recently built or refurbished property. We are experienced, thorough and professional. Our aim is to save clients time and money, and our charges are very reasonable.

Lawbuild is equally at home with contracts for services and with many other kinds of non-specialist agreement.

Lawbuild’s principal, David Lewis, has more than 30 years’ experience in contracts and construction law.

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David Lewis
Lawbuild, solicitors
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N3 1QT

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