Drax Power wins payment dispute over remedying work defects

Drax Power was entitled to withhold payment relating to one set of works to offset the cost of remedying defects in another set of works carried out by the same contractor.

Selina Gonzalez Trainee Solicitor reports on this recent case.

That was the decision of the High Court in a case involving Drax and Shepherd Construction Ltd.

The issue arose after Drax engaged Shepherd to design and build a facility (the Ecostore) to handle biomass fuel and transport it to the boiler distribution system. The contract was later varied to engage Shepherd to also design and build the boiler distribution system itself (the BDS works).

Clause 14.9 of the contract as varied related to the retention money. It appeared under the heading “In relation to [the Ecostore works]” and provided for Shepherd’s entitlement to apply for payment of the retention money in respect of those works and Drax’s entitlement to withhold the cost of any work still to be executed.

The next three clauses appeared under the heading “In relation to [the BDS works].” They dealt with the final milestone payment and established the date from which Shepherd could apply for payment of the retention money.

The clauses also said: “If any work remains to be executed under Clause 11 (Defects Liability) … the Employer (Drax) shall be entitled to withhold the estimated cost of this work until it has been executed and to deduct the same from amounts otherwise due to the Contractor (Shepherd) until such time as the work is completed”.

Drax paid the retention money relating to the Ecostore works. Shepherd then applied for payment of the retention money relating to the BDS works. Drax deducted sums from that payment in respect of the cost of remedying defects in the Ecostore works.

Shepherd said that the contract did not entitle Drax to deduct from the BDS works retention money sums relating to remedying defects in the Ecostore works.

The court found in favour of Drax.

It held that the contract entitled Drax to withhold from the sums due for the BDS works the estimated cost of any work remaining, regardless of whether that work related to the Ecostore works or the BDS works.

The most important factor in reaching that conclusion was the wording that referred to “any work”.

The absence of any express qualification limiting “any work” to the BDS works powerfully indicated that the reference was not limited to those works.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Selina on 01228 516666 or click here to send her an email.