VA Tech Wabag UK Ltd v Morgan Est (Scotland) Ltd

The payment and withholding of payment provisions of the Construction Act 1996 should be enforced so as to ensure the prompt distribution of monies received by the construction consortium
 
VA TECH WABAG UK LTD v MORGAN EST (SCOTLAND) LTD

Scotland, Outer House, Court of Session
Lord Drummond Young
30 May 2002
 

The dispute concerned the operation of a construction consortium agreement where the parties associated themselves as a construction consortium for the purpose of constructing a project. The claimant was a member of the consortium and applied against the other member for relief to prevent the other member from withholding agreement to the prompt distribution of monies held by the consortium received as payment under the construction contract.

 

In granting the relief claimed Lord Drummond Young stated that the status quo in a commercial contract context was dynamic in nature. The parties’ contractual machinery envisaged that payment would be made at particular terms and usually on a regular basis. In doing so that machinery recognised the critical importance of cash flow. That was very plainly recognised in the payment provisions of sections 109 to 113 of the Construction Act and in that Act’s adjudication provisions. Therefore the status quo had to be understood as the making of payments under the contract as they fell due according to its terms. 

 

In some cases other countervailing factors might be sufficiently strong to negate the importance of that status quo. If, for example, there were serious doubts about the solvency of the party to whom the payments were to be made, that might be sufficient to persuade the court that it should not compel a payment to be made. However, this was not such a case in that the claimant was a subsidiary of a large foreign public company and the defendant accepted that there was no doubt about the claimant’s ability to pay any sum that might be due to it. Whilst the defendant’s contention that the dispute could be referred to adjudication might in some circumstances be relevant in such a case, that was no sufficient to negate the arguments based on the strength of the parties’ respective cases and the maintenance of the status quo. The true construction of the relevant provision of the consortium agreement meant that the existence or otherwise of a claim such as the one that formed the subject matter of the dispute in the instant case was not relevant to the parties’ right to payment of monies subject to that provision.

 

Advice Note

Lord Drummond Young’s observations emphasise and reinforce that the courts will be unwilling to disturb the enforcement of the payment provisions of the Construction Act being enforced.
 

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