Author: Justin Mendelle and Oliver Slater

The Scottish Government launched the Home Energy Efficiency Programme Area Based Scheme in 2014, aiming to increase funding of external wall insulation and consequently reduce fuel poverty in Scotland.

Everwarm, a provider of energy efficiency advice, secured a great deal of work under the scheme and, in order to keep up with demand, outsourced a significant portion of that work to a range of subcontractors. BN Rendering offered inexpensive labour from mainland Europe and Everwarm consequently engaged BN to perform insulation works under 38 separate subcontracts. The relationship between the parties was described by the court as “remarkably informal”, typified by the oral nature of some of the agreements.

BN alleged in 2016 that serial underpayments had been made by Everwarm and the relationship between the parties deteriorated, although work did for a while continue. In March 2017 BN ceased working and, two months later, informed Everwarm that the works were complete and claimed retention of £406,015.90 plus VAT.

Everwarm submitted in the alternative that it had in fact overpaid and sought to rely on clause 4.9 in its subcontract terms to assess the total due to BN and reclaim any overpayment which subsequently became apparent. In its entirety, clause 4.9 reads:

 “…[Everwarm] may at any time whatsoever (including without limitation between Valuation Dates) make an assessment of the aggregate of the value of all work properly performed and all other sums properly incurred and/or owing in relation to the Sub-Contract Works up to the selected assessment date…

The purpose of clause 4.9 was therefore to allow Everwarm to assess the value of BN’s work and reclaim any money it had overpaid. BN rejected the legitimacy of clause 4.9 and counter-claimed the retention.

Alexander Nissen QC, acting as a deputy High Court judge, was asked to consider not only the legitimacy of this clause, but also whether it applied to all 38 subcontracts and whether it had been validly applied by Everwarm.

The judge began by ruling that the first 28 subcontracts, 25 of which were oral, did not incorporate Everwarm’s standard subcontract terms and, as such, clause 4.9 could not be relied upon. Its legitimacy or otherwise was therefore immaterial with regard to these subcontracts.

The remaining 10 subcontracts were deemed to incorporate Everwarm’s terms and, in respect of these agreements, the court accepted the legitimacy of clause 4.9, in so doing rejecting BN’s claims that it offended the Housing Grants, Construction and Regeneration Act 1996 and the Unfair Contract Terms Act 1977.

The court did rule, however, that the clause contained “an implied term that any Assessment carried out pursuant to Clause 4.9 would not be undertaken in an arbitrary, capricious or irrational manner. Everwarm was deemed to have breached the implied term by virtue of its arbitrary method of valuation and, as such, the “at any time” clause could not be relied upon in this instance.

The judge proceeded to dismiss the claim and award the counterclaim in the sum of £406,015.90 plus VAT. The most important and relevant take-away from this case is that the power to value works “at any time whatsoever” is valid. Whilst that power cannot be exercised arbitrarily or irrationally, it can be relied upon if included in a contract. Employers may well wish to include wording to this effect – contractors and sub-contractors should be alert to its presence.