Many in the industry will be familiar with the JCT suite of contracts and the provisions at clause 1.8/1.9 of these contracts which make the final payment notice, final certificate or final statement (as applicable) conclusive evidence of adjustments to the contract sum, reimbursement of loss and expense and that all extensions of time have been given. This brings certainty and finality in respect of certain aspects of the contract.
To avoid the conclusive effect, a party must commence proceedings within strict timeframes. This article considers some of the contractual provisions and looks at the decision in the recent case of Battersea Project Phase 2 Development Company Limited v Q.F.S. Scaffolding Limited and whether issuing a notice of adjudication can prevent conclusivity.
Under the JCT 2016 suite of contracts, particularly the Design and Build Contract, Standard Building Contract and the Design and Build Sub-Contract Conditions, the conclusive effect is suspended in relation to the subject matter of any adjudication, arbitration or other proceedings until such proceedings are concluded. Thereafter the final statement or final payment notice is conclusive but subject to the terms of any decision, award or judgment or settlement of those proceedings.
Subcontracts in the JCT 2011 suite (the Design and Build and Standard Sub-Contracts) contain the same provisions.
The clauses have previously been given some judicial consideration. Where, under a JCT 2011 Standard Building Contract, a party commences court proceedings within the required timeframes to prevent conclusivity, but later commences an adjudication, the final certificate will be conclusive in the adjudication proceedings if they are issued outside of the timeframe.
Previous case law confirms that parties need to be very careful when choosing their course of action to avoid the conclusive effects of final certificates or final payment notices.
To buy more time, a party might decide to issue court proceedings given that it will then have four months to serve the claim form, allowing more time to negotiate or prepare its claim before further steps in the proceedings are required.
If a party opts for adjudication, it will have a very short time to prepare its case in full. Under the Scheme for Construction Contracts, a referral notice must be issued within seven days of the notice of intent being issued otherwise the proceedings are a nullity and the referring party must start the process again. This requirement could be a deterrent to using adjudication to avoid the conclusive effects of final certificates and final payment notices. However, the recent case of Battersea Project Phase 2 Development Company Limited v Q.F.S. Scaffolding Limited [2024] EWHC 591 (TCC) might make you think again.
The judgment related to a subcontract incorporating the JCT Design and Build Sub-Contract Conditions 2011. The subcontract related to the asbestos scaffolding package as part of the impressive development of Battersea Power Station. There were numerous adjudications between the parties culminating in a decision on the true value of the final subcontract sum which showed a sum due to the subcontractor Q.F.S.
The contractor, Battersea Project Phase 2 Development Company Limited (BPS), didn’t pay and Q.F.S commenced proceedings to enforce the adjudicator’s decision. BPS commenced Part 8 proceedings for a declaration that its final payment notice was conclusive of the sum due to Q.F.S, essentially arguing that the adjudication was too late to prevent the conclusive effect.
The difference between the parties’ assessment of the final subcontract sum was vast. Q.F.S calculated the final subcontract sum to be just over £71 million. BPS calculated the sum to be just over £31 million and on 22 December 2022, Mace, as agents for BPS, issued a final payment notice showing a final subcontract sum of £31,041,884 excluding VAT.
On 19 December 2022, Q.F.S had issued a notice of adjudication seeking the assessment of the true value of the final subcontract sum. There had been numerous previous adjudications between the parties and this was adjudication number 11. Because there were other adjudications ongoing, Q.F.S proposed delaying service of its referral notice for adjudication 11.
There was a dispute between the parties about exactly what had been agreed in respect of the timing of service of the referral notice. A referral notice was not served until May 2023. Prior to serving its referral in May 2023, Q.F.S also issued a new notice of intent. The adjudicator decided that the true value of the final subcontract sum was just over £35 million plus VAT, resulting in a sum due to Q.F.S of just over £3 million.
Whilst it was not disputed that the first notice of adjudication was issued in time to prevent conclusivity of the final payment notice, given there was a delay in serving the referral and a second notice of intention, the parties were in dispute as to whether the adjudication proceedings were concluded by either:
If the lapse of the first notice of adjudication constituted those proceedings being ‘concluded’ then the adjudicator’s ultimate decision determining the true value to be just over £35 million plus VAT and resulting in a sum due to Q.F.S of just over £3 million, would not be enforceable. The final payment notice setting the final sub-contract sum as £31,041,884 plus VAT would be considered conclusive and not subject to the adjudicator’s decision. If the latter was correct, than the adjudicator’s decision was enforceable and the final payment notice was subject to that decision, meaning that a sum of just over £3 million would be due to Q.F.S.
The issue turned on what was meant by proceedings being concluded. The court took that view that conclusion envisages either a decision or a settlement. An adjudication which ends up being a nullity results in neither of these. The court’s focus was on the dispute which was the subject of the proceedings being concluded. The dispute remained live and unresolved until the adjudicator’s decision. As the court summarised:
“The reference to adjudication proceedings is generic. In my view, the expression ‘such proceedings’ is broad enough to encompass adjudication proceedings relating to the same dispute as was the subject of the initial notice raised within time in respect of the Final Payment Notice.”
The court was not persuaded that the risk of a party commencing adjudication merely to prevent conclusivity without an intention to take action should prevent the interpretation reached. The court held that abandonment of proceedings would constitute them being concluded, but there had been no abandonment here. On the facts of this case, there simply was no evident intention to abandon the dispute.
It is notable that some later JCT editions, particularly the 2016 JCT Design and Build and Standard Building Contracts, expressly provide that proceedings shall be treated as concluded if no action is taken by either party for 12 months from the relevant statement.
The judgment certainly gives food for thought. At present it seems that issuing a notice of adjudication within the strict contractual timeframes, without following up with a referral notice within the 7 day requirement under the scheme, may be all that is required to prevent conclusivity. Parties can then take a reasonable time to get their case together before issuing a second notice of intent and following up with the referral within seven days thereof. This strategy, however, is not without risk.
Given the near identical wording across the suite of JCT contracts both in the 2016 and 2011 editions, this interpretation is likely to apply across the board. Parties should consider these options carefully and may also wish to make amendments to add clarity to these parts of their contracts going forward.
For more information, please contact the construction and infrastructure team.
We produce a range of insights and publications to help keep our clients up-to-date with legal and sector developments.
Sign up
