THE MEANING OF ‘INSOLVENCY’ IN A PAY WHEN PAID CLAUSE

In William Hare Ltd v Shepherd Construction Ltd [2010] EWCA Civ 283, [2010] All ER (D) 168 (Mar) the Court of Appeal held, affirming the decision of Mr Justice Coulson, that a pay when paid clause was not effective because the employer was not insolvent according to the terms of the clause. The parties had failed to update the definition of insolvency to include self-certified administrations. The employer in the present case had gone into administration by a self-certifying route with the consequence that the contractor was held not to be entitled to rely upon the clause to withhold the sums otherwise due to the sub-contractor. The Court of Appeal stated that the onus is upon a party relying upon a pay when paid clause ‘to get a clause of this nature right.’ The defendant in the present case had not got it right but it was not the task of the court to rescue the defendant from the consequences of its oversight, given that the clause, as drafted, had a legitimate, albeit reduced, sphere of application.