JCT insolvency ruling: time limit on termination not condition precedent

An English High Court ruling in an insolvency case concerning a Joint Contracts Tribunal (JCT) Minor Works contract (2011) could apply to other standard form contracts in the same suite, a legal expert has said.

James Ladner, construction law expert at Pinsent Masons, said the decision in Levi Solicitors LLP v David Frederick Wilson and JKR Property Development Ltd that there was no strict time limit for serving a statement of account after a contractor’s default was likely applicable to other contracts in the JCT suite.

It comes after Levi, a major creditor of Farrar Construction Ltd, challenged a proof of debt submitted by JKR, another creditor, when Farrar entered into a company voluntary arrangement (CVA) due to insolvency. Levi claimed that the CVA supervisor, David Wilson, was wrong to have admitted JKR’s proof of debt.

As regards the JCT suite, the case centred around the procedure for calculating sums due between the parties under the contract following an ‘at fault’ determination of the contractor’s employment. At fault means termination as result of default, insolvency or corruption on the part of the contractor. Levi argued that JKR’s claim for repayment was based on a statement of account that had been delivered after the end of the three-month window stipulated by the procedure in clause 6.7.3 of the contract. Levi contended that the three-month period was a condition precedent to entitlement requiring strict compliance in order for the statement, which determined who owed what, to be valid.

Handing down his decision, Mr Justice Fancourt found that JKR’s proof of debt for £128,921.70 was correctly accepted by Wilson and for the purposes of the CVA. He said that, where a creditor challenges the proof of debt of another creditor in a CVA, the burden of proof is on the creditor who submitted the proof to show that it is established, not on the creditor challenging it. The court noted that there was no previous authority for this ’creditor vs creditor’ challenge.

Mr Justice Fancourt also found that the operation of the interim payment process set out in clauses 4.3–4.8 of the JCT minor works contract was replaced automatically by the payment provisions in clause 6.7.3 upon Farrar becoming insolvent.

On the clause Levi claimed was a condition precedent, the judge held that the three-month timescale for repayment claims specified in clause 6.7.3 was not a “strict” deadline. Instead, it set the date after which the contractor could take advantage of the contractual dispute resolution procedure to ensure that the financial position was finalised. It meant JKR could pursue Farrar for the money it was owed at any time before the expiry of the relevant limitation period.

Ladner said: “Although determined as part of insolvency proceedings, the court very sensibly decided that the right to serve a statement of account under clause 6.7.3 following a contractor’s default, corruption or insolvency ‘within three months’ of the given date was not a strict time limit. Instead, Mr Justice Fancourt held that the employer could still validly issue a statement of that account at a later time.”   

“While the decision concerned the JCT Minor Works contract, the court’s logic could equally apply across other JCT contracts in both the 2011 and 2016 editions - including the popular JCT Design and Build 2016 contract, which features similar provisions and wording at clause 8.7.4,” Ladner added.