The judgement in Shepherd Construction Ltd -and- Pinsent Masons LLP, handed down by Mr Justice Akenhead on 19 January 2012 is a salutary reminder to all that when relationships break down, the resulting mess can be very expensive to sort out. Prior to the dispute arising between these “old friends”, Shepherd and Masons had worked together for over 20 years.
The case arises from losses sustained by Shepherd whilst working on the Trinity Walk shopping centre. The Employer on this project, Trinity Walk Wakefield Ltd (“Trinity”) had gone into administration in 2009 and Shepherd had elected to rely on its non-standard “pay when paid” clause in the various sub-contracts entered into by Shepherd on the project to try to avoid making payments to its sub-contractors.
The “pay when paid” provision in question had been drafted some time in 1998 by Masons, as it was then, on the DOM/1 and DOM/2 forms of sub-contract, to address the effects of The Housing Grants Construction and Regeneration Act 1996 (“the 1996 Act”) which, as we all know, came into effect on 1 May 1998. Masons were instructed to draft the amendments concerned and received payment for the work done. The relevant amendment drafted by Masons provided that Shepherd would be entitled to operate a “pay when paid” provision in circumstances where Shepherd’s Employer became insolvent. The clause in question went on to identify, as set out in Section 113 of the 1996 Act, that “a company becomes insolvent (a) on the making of an administration order against it under part II of The Insolvency Act 1986”
Long before Shepherd actually commenced work on the Trinity Walk project in 2007, The Enterprise Act 2002 (“The Enterprise Act”), which brought in amendments to the 1986 Insolvency Act, had come into effect. The Enterprise Act introduced a new method of allowing a company to enter into administration by its directors passing a resolution to do so and it was this route that Trinity elected to use to enter administration in 2009.
The resulting effect of all this was that Shepherd, in several actions involving its sub-contractors on the Trinity Walks project, was unable to rely on its “pay when paid” provision. The route of entry into administration by Trinity was not addressed in Shepherd’s “pay when paid” provisions and Shepherd was ordered to pay out over ten million pounds to its sub-contractors.
It seems that Shepherd was far from happy with this turn of events and decided to sue Pinsent Mason LLP arguing that it, and/or its predecessors (Masons and Pinsent Masons), were negligent in failing to advise Shepherd of the need to update its standard amendments in order to address the effects of the Enterprise Act. Shepherd, in effect, was alleging that Pinsent Masons LLP was under an ongoing duty to advise Shepherd where subsequent changes in legislation affected earlier advice Masons and/or Pinsent Masons had given.
Mr Justice Akenhead ruled against Shepherd, finding that there was no evidence of “some overarching general retainer” requiring Pinsent Mason LLP to continually review all of its previous advice. I am sure I am not the only adviser that breathed a sigh of relief on reading this judgement. But this is only just the first round. The war continues and both parties will continue to incur considerable legal costs in the continuing battles ahead.
I understand that the Parties did follow the pre-action protocol and met to narrow the issues in dispute but I cannot help but wonder if these old friends truly tried to talk this through before retreating to their corners? Had they done so, perhaps this long-standing friendship could have been saved and this very public, painful and expensive divorce could have been avoided.
Peter Vinden is a practising adjudicator, arbitrator, mediator, expert and conciliator. He is Managing Director of Vinden and can be contacted by email at firstname.lastname@example.org