Retention payments

I recently reported the case of Ballast Wiltshier -v- Thomas Barnes and Sons concerning the refusal to enforce an agreement for liquidated and ascertained damages on the basis that the agreement was construed as a penalty. This case also considered the payment of retention monies.

Wiltshier were main contractors on a project known as The Arcades, Ashton-under-Lyne, and had employed Thomas Barnes to do certain reinforced concrete work on the project.

After conclusion of the works, disputes arose between the parties which were referred to an arbitrator. At a preliminary meeting with the arbitrator, the parties agreed that the arbitrator had jurisdiction to consider all matters in dispute between the parties whether or not those disputes had arisen or arose subsequently.

In its points of claim, Barnes claimed various substantial sums for disruption, prolongation, late payment, overheads, loss of profit, remeasured works, variations and dayworks.

In his award, the arbitrator found that Barnes was entitled to extensions of time, totalling a further eleven weeks. He disallowed some of the monetary claims made by Barnes and allowed others. The claims allowed in the award were set out as gross amounts, including retention monies.

On appeal to the Official Referee, Wiltshier submitted that the arbitrator was wrong in awarding payment of retention monies.

It was argued on behalf of Wiltshier that payment of the second half of retention money was not due until after the date of the arbitrator's award, that the arbitrator had made an error of law in determining the events upon which the retention was due to be released, and finally that it was not within the jurisdiction of the arbitrator to deal with retention money.

meritless

Frequently I report cases where it would appear that, admittedly with the benefit of hindsight, the case put forward is plainly and entirely without merit.

The worst culprits most recently have been insurers seeking to deny payment under the terms of performance bonds. This aspect of this case falls into that category.

His Honour Judge Bowsher QC remarked that even upon Ballast Wiltshier's own case, the retention money fell due to be released within days after the arbitrator published his award. He commented that this dispute therefore had an air of unreality about it. However, he was obliged to deal with matters which had been put before him.

Firstly, it was argued on behalf of Wiltshier that the notice to concur in the appointment of the arbitrator had made no reference to retention money.

Judge Bowsher quickly dismissed this point, noting that the notice to concur had referred to payments due under the terms of the contract and that these terms included the provisions in respect of retention money. Accordingly, he concluded that the notice envisaged a review of the whole of the account between the parties which necessarily included retention money.

Secondly, Wiltshier argued that the pleading of the case before the arbitrator had not included a claim for retention money. Once again this was dismissed.

The amounts claimed by Barnes had been the total remeasured value for works in gross figures. In other words Barnes claimed a value including the amount which Ballast Wiltshier was entitled to retain. Judge Bowsher held that this was entirely consistent with the subcontractor's rights under the contract.

action

When the sum due for payment under the subcontract falls due to be paid, the party entitled to be paid has a cause of action for the whole gross amount, irrespective of any possible retentions.

Clause 21 of the DOM 1 subcontract conditions provides that interim and final payment shall be made to the subcontractor in accordance with the provisions of clause 21.

In clause 21(3) the amount of the first and each interim payment to the subcontractor shall be the gross valuation É less an amount equal to any amount which may be deducted and retained as retention by the contractor.

Judge Bowsher emphasised the use of the words "shall" and "may" in these clauses. This meant that the subcontractor had a right to the gross sum and the paying contractor had a discretionary right which it may or may not choose to exercise to retain a part of that gross sum. The sum retained is the subcontractor's money.

If retention is withheld it is withheld as security for any set-off which may be raised, but the subcontractor has a cause of action for the whole gross sum and it is perfectly entitled to claim the gross sum without reference to retention money, leaving it to the paying party to raise the discretionary right to make a retention if it wishes.

Finally, it was argued that the arbitrator had misunderstood the terms of the subcontract relating to the date for release of retention.

Wiltshier argued that the agreement with the subcontractor had been modified to the effect that the release of retention to the subcontractor was conditional upon retention being released by the employer under the main contract.

Judge Bowsher concluded that while the arbitrator had been wrong in his interpretation of these clauses, the effect was of no relevance and did not vitiate his award. Accordingly, the appeal was dismissed.