Employers can sometimes find themselves wishing to make direct payments to subcontractors engaged by their contractor. This could be, for instance, if a payment dispute arises at subcontract level or if the main contractor suffers cash flow difficulties. Subcontractors may threaten to terminate or suspend work and the employer may feel that direct payments are necessary to keep the project afloat. Although the commercial rationale is clear, a number of legal issues can arise. For example, the employer will usually wish to recover such payments from the contractor but, with little knowledge of the claims, may struggle to prove that the contractor was liable to pay such sums to the subcontractor. Cases dealing with these issues are rare. However, a recent arbitration appeal heard by the Commercial Court provides a good illustration of the legal difficulties faced by employers in such circumstances and potential routes to overcome them.
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