Commercial Contracts & Legal Department Legal Cases

Retention Recovery - Pitchmastic plc v- Birse Construction Ltd [2000] The matter of whether a main contractor can rely on a term of his sub-contract tying the release of a sub-contractors retention to the issue of a certificate under the main contract, was considered by the Technology & Construction Court in 2000 and although the case centred on other issues the findings are still considered to set a precedent in this respect. It is important to be familiar with the facts of this case as the principle is not a general one and if a main contractor quotes this case as a defence to the inadequate mechanism argument it should be carefully considered, against the following facts. In Pitchmastic plc v- Birse Construction Ltd [2000] TCC, Pitchmastic undertook sub-contract roofing works for Birse under an amended version of DOM/2 for the construction of a new national distribution centre for Tesco Stores Limited at Milton Keynes. A number of issues arose including the release of retention as well as claims and counterclaims for delay and disruption. On the issue of retention, the sub-contract provided 5% retention applied until Practical Completion of the main contract works when half of the retention would be released. Pitchmastic was entitled to the second instalment (2.5%) of the retention only when the Certificate of Making Good had been issued under the main contract. No such Certificate was issued. Birse conceded that there were no outstanding defects in any of the work undertaken by Pitchmastic. Pitchmastic argued that Birse could not rely upon the absence of the Certificate of Making Good as a defence to the claim for the release of the final instalment of the retention money. Pitchmastic argued that the Court should declare that a Certificate of Making Good should have been issued in relation to Pitchmastics work. It was held that the contract provisions could not be used to confer rights on the parties which were inconsistent with the sub-contracts express terms. The parties had agreed that Pitchmastic would be entitled to the second instalment of the retention only when the Certificate of Making Good had been issued under the main contract. If it could be shown that Birse had prevented the issue of the certificate, then its absence would not be a bar to Pitchmastics recovery of the remaining instalment. (Roberts v Bury Commissioners [1870] and Panamena Europe Navigacon v Frederick Leyland [1947]). There was no evidence that Birse had prevented the issue of the certificate, nor any allegation to that extent. It was held that it was not sufficient for Pitchmastic merely to show that the Architect had withheld the certificate because of defects by others. Provided Birse and its sub-contractors were proceeding with reasonable diligence to make good the defects, then Birse was not preventing the issue of the certificate (within the meaning of the Roberts v Bury Commissioners principle). Some defects take longer to rectify than others. There may be genuine difficulties in deciding what remedial work was required. It was held therefore that this part of Pitchmastics claim failed. Consequential Advice The key term is reasonable diligence to make good the defects. In addition, the facts only apply where there is an express contractual provision tying retention release under the sub-contract to the certificate in question. Often the inclusion of a

more generalistic you will be required to comply and observe all the terms of the main contract will be relied upon and it is argued that in this instance, the non-issue of a Making Good Certificate as a claim for the release of sub-contractors retention would fail. [Members are referred to the advice contained within this section of the website to challenge this claim by adjudication.] The Defects notice is issued following the expiry of the Defects Rectification Period (formerly the Defects Liability Period) which in itself is established by reference to the issue of the Practical Completion Certificate. It is important therefore that at the time of completion, pressure is brought to bear upon the main contractor to release, to their sub-contractors, a copy of the said Practical Completion Certificate. To manage and clear the remaining defects, it is usual for the schedule to be copied and distributed to the relevant defaulting parties. Ensure you obtain a copy of the complete list. You need this to establish what could be considered a reasonable period to make good the defects. When the defects schedule is about to be issued, or at that time, ask that a programme of works (and it need not be sophisticated) be issued in order that you may ensure co-ordination of your works with the main contractor/occupants or other sub-contractors. It is only by the issuing of this time schedule that you can argue that reasonable diligence has or has not been observed. Any reticence on the part of the main contractor to release this information should be countered with a formal request asking for an indication of the overall timeframe anticipated. Even allowing for dilatory re-inspection and certification periods, it is possible to estimate an end date. Having established this period you have an element of control, (i.e. planned compared with actual). Significant failure to observe this timeframe can then be challenged through the normal routes.