Building firm loses mall cash fight

The York-based company was left millions of pounds out of pocket when Trinity Walk Wakefield, the development company behind the Trinity Walk shopping centre, went into administration.

Shepherd invoked a controversial "pay-when-paid"clause in the contract which suggested if Shepherd wasn't paid, it would not pay its subcontractors C R Reynolds (Construction) and William Hare.

Last June Reynolds and William Hare took the firm to a division of the High Court in London, which specialises in technology and construction disputes, where a judge ruled the clause was out of date and therefore invalid.

It ordered Shepherd to pay millions of pounds owed to Reynolds, based in North Ferriby, East Yorkshire, and William Hare, based in Bury.

Shepherd's appeal against the decision was dismissed last week, forcing the company to pay hundreds of thousands of pounds in additional appeal costs.

Managing director Chris Reynolds of C R Reynolds (Construction), which carried out groundworks and drainage on the site, said: "Before the project collapsed last year and we were pulled off site by Shepherd we had been working seven days a week to ensure that we completed our contractual works as quickly as possible.

"The low point for me was having to lay off 45 men half-way through the project. We faced a completely unexpected 2m hit to our cash flow but fortunately we were strong enough to be able to carry on trading whilst the case went through the courts. I am pleased to say we have now been paid in full by Shepherd."

Matthew Fletcher, partner in Hull law firm Gosschalks who acted for Reynolds, added: "The message from the Court of Appeal is loud and clear: if a contractor wants to pass on the financial risk of not getting paid to his sub-contractor he must draft the so-called pay-when-paid clause correctly. If he gets it wrong then the court will not come to his rescue."

Construction of Trinity Walk started in 2007 but was halted in early 2009 when Trinity Walk Wakefield went into administration following the withdrawal of funding by Anglo Irish Bank.

It remained half-built for months – the highways programme, market hall, car park and the steel frames for the two largest tenants, Sainsbury's and Debenhams, had been virtually completed and 52 per cent of the floor space had been pre-let.

Work resumed on the shopping centre earlier this year after a consortium rescued the scheme. The group, which comprises AREA Property Partners, Sovereign Land and Shepherd Construction, is investing 120m to finish the job on top of the 100m already spent.

The concept and plans for the shopping centre remain largely unchanged. The 500 sq ft centre, which is due to open in spring 2011, will comprise more than 40 shops, including Next, New Look, H&M, Peacocks, River Island, Orange, Greggs and Carphone Warehouse.

The development will address the supply of new city centre retail space and stem the so-called "leakage" of customers to surrounding towns.

Shepherd Construction's parent company Shepherd Group reported an annual pre-tax loss of 1.5m for the year ending June 30 2009, while gross turnover fell by two per cent to 701m.

The York-based company said its results were significantly affected by recession-related exceptional costs, including a charge of 12.4m after a withdrawal of bank funding from Trinity Walk.

Shepherd Construction was yesterday unavailable for comment on losing its appeal.