The claimant subcontractor Durabella sought to recover the balance of the price of building works from the defendant contractor Jarvis. Jarvis had been employed by Galliard to carry out a building development and had subcontracted Durabella to lay flooring. Jarvis resisted paying Durabella because it claimed that Durabella's work had been defective and counterclaimed for losses and for amounts allegedly paid to Galliard. Galliard had been dissatisfied with Jarvis' performance and had terminated its contract with Jarvis.

In Jarvis' proceedings against Galliard it maintained that Durabella's work was not defective. Those proceedings were settled in February 2001 and Jarvis now found itself in the contradictory position of trying to argue that Durabella's work had in fact been defective. Jarvis sought to rely on the terms of its settlement with Galliard and the "pay when paid" clause contained in the subcontract with Durabella to prove that it did not need to pay Durabella.

The issues were as follows:

Whether the contract between Jarvis and Durabella incorporated Durabella's standard terms, Jarvis' standard terms or DOM/1 terms and conditions in conjunction with Jarvis' standard terms;

Whether Jarvis had been paid by the employer for all or part of Durabella's subcontractual works; and

1. If Jarvis had been paid, was Durabella then precluded from any entitlement it might otherwise have had by the "pay when paid" clause contained in Jarvis' standard terms.

HHJ LLoyd held:

1.The subcontract incorporated Jarvis' conditions and the conditions in DOM/1 as they were not displaced by Jarvis' conditions. That Jarvis and Galliard did not conclude an orthodox main contract did not mean that Durabella was not a subcontractor.

2. The deed of settlement between Jarvis and Galliard had no evidential value in showing whether or not Jarvis had received payment for Durabella’s work. The contract drawn up by Jarvis' solicitor had been deliberately devised to mislead both Durabella and the court. Jarvis failed to establish that it had not been paid in full for Durabella's work.

3. Both common law and the Unfair Contract Terms Act 1977 provided that a contractor could not rely on a "pay when paid" clause if the reason for non-payment was its own breach of contract or default. Jarvis could not rely on the "pay when paid" clause because either its employment had come to an end as a result of its own default or it had failed to pursue its remedies promptly and effectively.

Judgment was given accordingly. Part judgment only; remainder kept confidential at request of both parties.