Final Certificate Challenge
Adjudication on construction projects can be a knotty issue, and never more so than when the parties are dealing with final certificate disputes. One man who knows his way around the issue is Mr Justice Coulson, who (literally) wrote the book on them: “Coulson on Construction Adjudication”. Thankfully he was around to hear the recent case of Trustees of the Marc Gilbard Settlement Trust v OD Developments  EWHC 70 (TCC), in which he considered how many bites at the cherry a contractor gets to challenge a final certificate.
The claimant employed the defendant contractor to carry out works at 32 Shepherd Street, Mayfair. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009), containing Final Certificate provisions. On 3 December 2013, the Contract Administrator issued a Final Certificate showing a sum due from the defendant to the claimant of £232,153.54 plus VAT. On 20 December 2013, within the relevant 28 day period, the defendant issued Part 7 proceedings in the Technology & Construction Court disputing the validity and correctness of the Final Certificate. These proceedings were slow to unfold: 13 months after issue, the parties were yet to fix a first Case Management Conference.
The defendant subsequently sought to refer to adjudication the matters raised in the Part 7 claim, with the existing litigation as a fall-back arrangement if the adjudication was unsuccessful. The claimant contended that this option was not available to the defendant and that, whilst the extant Part 7 proceedings constituted a legitimate challenge to the Final Certificate, no other proceedings could now do so, because any such proceedings would not have been commenced within 28 days of the Final Certificate. The claimant issued Part 8 proceedings for declaratory relief as to the proper interpretation of clause 1.9, the provision of the contract dealing with the Final Certificate.
Clause 1.9 stated that the issue of the Final Certificate would be conclusive evidence in respect of a wide range of matters. However, clause 1.9.3 provided as follows: "If any adjudication, arbitration or other proceedings are commenced by either Party within 28 days after the Final Certificate has been issued, the Final Certificate shall have effect as conclusive evidence as provided in clause 1.9.1 save only in respect of the matters to which those proceedings relate". The interpretation of this clause, the “saving provision”, was the subject of some dispute.
The claimant stated that the meaning of the clause was simple: the Final Certificate was not conclusive evidence in any proceedings issued within 28 days of the Certificate (such as the Part 7 proceedings started in this case) but would take effect as conclusive evidence in any proceedings not issued within that 28 day period, including any future adjudication.
The defendant’s argument was more subtle: it argued that the saving provision related expressly to “the matters to which those proceedings relate”. Thus the saving was in respect of those matters to which the proceedings (started within 28 days) related. This meant that, provided that the subsequent adjudication related only to those same matters, there was nothing to stop the defendant from issuing subsequent adjudication proceedings in respect of such matters. Any bar on so doing would be an unwarranted prohibition or fetter on the defendant’s right to adjudicate ‘at any time’.
Mr Justice Coulson made it clear that his “initial instinct was that the defendant’s stance was obviously wrong”. However, the defendant submitted its arguments cogently, giving Coulson J. pause for thought.
Reviewing the clause, Coulson J. noted four key points:
1. The purpose of clause 1.9.3 is to limit those matters in respect of which the Final Certificate is not conclusive to those matters raised in any proceedings issued within 28 days.
2. The use of the word “matters” in clause 1.9.3 is not inconsistent with that approach, because the contract needs to provide a mechanism that identifies clearly those individual elements (“matters”) which are the subject of the saving provision.
3. The clause is predicated on the assumption that the party who wishes to challenge the Final Certificate can choose the forum in which that is done. On its face, the clause does not envisage more than one set of proceedings. However, this point was qualified to state that a contractor who wanted to challenge a Final Certificate by way of adjudication proceedings could also issue arbitration or court proceedings at the same time as the notice of adjudication, just in case something went wrong with the adjudication during the reference.
4. The defendant’s interpretation of the clause would require it to state that the Final Certificate “shall have effect as conclusive evidence as provided in clause 1.9.1, save only in respect of the matters to which those or any other proceedings relate”. The clause does not say this, because it envisages that the Final Certificate will only be challenged in one set of proceedings.
Thus Coulson J. held that the proper construction of clause 1.9.3 is that the contractor has to challenge the Final Certificate in one set of proceedings; those proceedings which constitute the only vehicle by which the Final Certificate is capable of being challenged. The only qualification to this rule is if a contractor were to issue arbitration or court proceedings at the same time as the notice of adjudication, as a protective measure.
To be safe, Coulson J. went on to consider whether his preferred interpretation passed the common sense test. Unsurprisingly it did, as the use of a single set of proceedings for challenging the Certificate, issued within a certain period of time, allows both parties to the contract certainty as to the time and cost of those proceedings.
Further, the argument that the clause fettered the defendant’s right to refer disputes to adjudication “at any time” was held to be unsustainable; this right has already been circumscribed by the requirement to adjudicate within 28 days. Further the defendant was not prohibited from adjudicating; the effect of clause 1.9 is simply that the Final Certificate is binding if adjudication is not commenced within 28 days. It had been entitled to refer the Final Certificate to adjudication within 28 days, but chose to issue Part 7 proceedings instead; thus its own actions had resulted in the right being lost.
For further information, or to discuss this or any other related article, please contact Robert Calnan.
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