This was an appeal against a TCC decision that Shepherd could not rely on a “pay when paid” clause (see casenotes 3 of 2009). The decision also covered another subcontractor, CR Reynolds, who was also a party to the appeal.

The Court of Appeal upheld the decision of the TCC. Shepherd had repeated its submissions in the Court of Appeal that it had raised at first instance. Shepherd stated that whilst it did not contest that the pay when paid clause applied only on the making of an order of the court, and not self-certifying administration, it would be an absurd result if the sub-contract was construed without taking into account the amendments to the Insolvency Act. This was a clear example when there had been a mistake with the drafting and the court should therefore rectify the mistake, so that it included all the routes to administration.

The Court of Appeal disagreed. If a main contractor wished to have a pay when paid provision, then he would be bound to identify a way in which the third party employer may become insolvent as defined in the legislation. If, due to a drafting error, he chose a method which was not in accordance with the legislation, the principles in ICS v West Bromwich Building Society would not come to the rescue, however obvious it was, that he had mis-drafted the provision. If the provision was drafted in a way which actually does work, even if a reasonable person would guess that it was not intended to be so limited and that there had been an error, this was less reason for the courts to come to the rescue.

There was no evidence of any appreciation that an error had been made. The clause as worded did work; it was effectively an exclusion clause and therefore if Shepherd wished to rely on it then it was for Shepherd to draft the clause correctly.