In the recent case of CC Construction Limited v Raffaele Mincione [2021] EWHC 2502 (TCC) the Court grappled with three interesting issues : i) establishing the due date for the Final Payment under a JCT contract when no instructions have been issued in respect of making good defects; ii) conclusivity of the Final Statement and iii) breaches of natural justice in an adjudication where a claim for set off for liquidated damages was raised.
In 2016 Raffaele Mincione ("the Employer") engaged CC Construction Ltd (“the Contractor”) to design and build the shell and core of a new house at 57 – 59 Clabon Mews, London SW1 (“the Property”). The contract was an amended form of the JCT Design and Build Contract (2011 Edition) (“the Contract”).
The Employer took partial possession of almost all of the Property on 07 December 2018. The only part of the Property which was not taken into partial possession was the external face of the boundary wall of 57 Clabon Mews. Under the Contract, the part taken into possession by the Employer was called the “Relevant Part”.
Practical completion was certified on 15 November 2019. On 14 February 2020 the agents acting for the Employer issued a document entitled “Notice of Completion of Making Good”. This document stated that it referred “solely to the Relevant Part” (i.e. that part of the Property taken into possession by the Employer in December 2018, and being almost the entirety of the Property). The end of the Rectification Period for the remaining parts of the Work was 15 November 2020 (being 12 months after the date of practical completion). At no time during the Rectification Period or after did the Employer or its agents issue any schedule of defects for the remaining part.
On 01 December 2020, the Contractor issued its Final Statement pursuant to clause 4.12.6 of the Contract. The Final Statement showed a sum due from the Employer to the Contractor of £479,957.80. This was received by the Employer on 04 December 2020. On 18 December 2020 the Employer issued a letter stating he disputed the entirety of the Final Statement pursuant to clause 4.12.6 of the Contract. No further documents were issued by the Employer until 13 January 2021 when the Employer purported to issue a further Notice of Completion of Making Good in respect of the whole of the Works, followed subsequently by a payment notice reducing the sum stated as due to the Contractor in the Final Statement from £479,957.80 to -£254,646.58.
Following the Employer’s failure to make payment of the sum stated in the Final Statement, the Contractor successfully brought an Adjudication against the Employer, with the Adjudicator finding the sum of £479,957.80 was due to the Contractor on the basis that the due date for payment of the Final Statement was 04 January 2020 (one month after the issue of the Final Statement) and the Employer had failed to issue a payment notice or payless notice within the contractual timeframes.
The Employer failed to pay the sums awarded in the Adjudication and the Contractor subsequently commenced Part 7 enforcement proceedings in the Technology and Construction Court. That same day, the Employer commenced Part 8 proceedings seeking declarations to finally determine the applicable due date and in respect of conclusivity of the Final Statement. The Employer also raised in defence of the Part 7 proceedings allegations of breach of natural justice arising from the perceived failure by the Adjudicator to appropriately consider the Employer’s set off defence for liquidated damages.
The two separate sets of proceedings were joined for a single hearing before HH Judge Eyre QC and there were three key issues before the Judge:
i) What was the due date for payment of the final payment?
ii) Was the Final Statement conclusive as to the sum due to the Contractor and in respect of extensions of time and loss and expense?
iii) Was there a breach of natural justice by the Adjudicator in his treatment of the Employer’s liquidated damages set off?
Establishing the due date for the final payment was important as this would determine whether the Employer’s purported payment notice was in time.
Under the JCT contract, the due date for the final payment is defined under clause 4.12.5 as being one month after the last of the following to occur:
i) the end of the Rectification Period;
ii) the date stated in the Notice of Completion of Making Good;
iii) the date of submission of the Final Statement.
The question was which of the above events had occurred last, and when? It was common ground that the end of the Rectification Period was 15 November 2020 (being 12 months from the date of practical completion of the whole of the works) and that the Final Statement had been submitted to the Employer on 4 December 2020. However, the parties disagreed as to position relating to the Notice of Completion of Making Good.
The Employer had issued a Notice of Completion of Making Good on 14 February 2020 which related to the parts of the Property that the Employer had taken into possession. The Employer then issued a further Notice of Completion of Making Good relating to the whole of the works on 13 January 2021.
The Contractor argued that only one valid Notice of Completion of Making Good had been issued (that issued in respect of the Relevant Part). The Contractor argued that it was not open to the Employer to issue a further Notice when it had not notified any defects in respect of the remaining part.
In the alternative, the Contractor’s position was that if a second Notice of Completion of Making Good was required for the remaining part of the works, such Notice ought to have been issued within 2 weeks of the expiry of the Rectification Period, being the latest date by which the Employer could issue a schedule of defects requiring rectification.
The Employer argued that the act of taking Partial Possession of the Property in December 2018 had in effect created two sections and that clause 4.12.5 makes reference to the last of the Notices of Making Good that are issued. As such, it was appropriate for the Employer to issue a further Notice of Completion of Making Good on 13 January 2021 and therefore the due date for the Final Statement was 13 February 2021. The Employer considered additional wording would need to be read in to clause 4.12.5 to suggest that the due date could arise without there being a Notice of Completion of Making Good covering the whole of the works.
HH Judge Eyre considered the wording of clause 2.36 which states:
“When the defects, shrinkages or other faults in the Works or a Section which the Employer has required to be made good under clause 2.35 have been made good, he shall issue a notice to that effect (a “Notice of Completion of Making Good”)"
In essence, the Judge considered that this clause means that “a notice under clause 2.36 can only be issued where defects and so forth have been required to be made good under clause 2.35”. As such, where the Employer has not issued an instruction in the form of a schedule of defects for the purpose of clause 2.35.1 or has not issued instructions under clause 2.35.2 and where the time for doing so has passed, there can be no Notice of Completion of Making Good.
HH Judge Eyre QC held that as there was no vehicle for a Notice of Completion of Making Good to be issued in the present case clause 4.12.5.2 cannot come into operation and no account should be taken of the requirement for the Notice of Completion of Making Good in calculating the due date.
With this in mind, the due date is deemed wholly unaffected by the purported Notice of Completion of Making Good issued on 14 February 2020 for the Relevant Part or the one issued on 13 January 2021, neither having been issued pursuant to a schedule of defects under clause 2.35.
Whilst a declaration was not formally made, such declaration being subject to a further hearing, the resulting effect of HH Judge Eyre QC’s reasoning is that the due date for the Final Statement will be 04 January 2020 being 1 month after the submission of the Final Statement (the last of the applicable events under 4.12.5 to occur).
The conclusivity provisions under the JCT contracts will be well known to some. It has often been understood that unless a notice of dispute is issued and proceedings commenced within strict timeframes, the disputing party will have limited ability to challenge the content of the Final Statement. Under clause 1.8.1 the Final Statement can become conclusive as to any extensions of time and loss and expense and under 4.12.6 as to sum due pursuant to clause 4.12.2 (being the final adjustments to the Contract Sum).
Clause 4.12.6 states:
“Except to the extent that prior to the due date for the final payment, the Employer gives notice to the Contractor disputing anything in the Final Statement or the Contractor gives notice to the Employer disputing anything in the Employer's Final Statement, and subject to clause 1.8.2, the relevant statement shall upon the due date become conclusive as to the sum due under clause 4.12.2 and have the further effects stated in clause 1.8.”
Clause 1.8.2 states:
“If adjudication, arbitration or other proceedings have been commenced by either Party before the due date for the final payment the relevant statement shall have effect as provided in clause 1.8.1 upon and from the earlier of either:
.1 the conclusion of such proceedings, in which case that statement shall be subject to the terms of any decision, award or judgment in or any settlement of such proceedings; or
.2 the expiry of any period of 12 months from or after the submission of the statement, during which neither Party takes any further step in such proceedings, in which case the statement shall be subject to any terms agreed in settlement of any of the matters previously in issue in such proceedings”.
The issue before HH Judge Eyre QC concerned whether a notice of dispute and proceedings are required to prevent conclusivity under 4.12.6.
HH Judge Eyre QC considered that a notice of dispute or proceedings were alternative routes to prevent conclusivity rather that cumulative requirements under 4.12.6. The Employer had issued a notice on 18 December 2020 disputing the contents of the Final Statement and this is all that was required to prevent the Final Statement becoming conclusive.
HH Judge Eyre QC declined to make any declarations as to conclusivity under 1.8.1 (extensions of time and loss and expense). However, given loss and expense is to be taken into account in the final adjusted Contract Sum that can become conclusive pursuant to 4.12.5 of the Contract, it will be of interest to many that HH Judge Eyre QC did not make a declaration as to the conclusivity of the Final Statement under 1.8.1. Is a notice of dispute sufficient to prevent loss and expense becoming conclusive under 1.8.1 without complying with 1.8.2? It seems this may be possible and therefore the door remains open for many disputing parties to merely issue a notice of dispute and leave all arguments up for debate without the time and expense of commencing adjudication, arbitration or litigation before the due date.
In the Adjudication, the Employer had attempted to raise by way of set off an alleged claim for liquidated damages. The Contractor submitted that the Adjudicator had indeed considered the set off but determined that it did not apply given the sum stated as due in the Final Statement was payable owing to the Employer’s failure to issue a payment notice or pay less notice within the contractual time limits. However, the Employer contended that rather the Adjudicator had declined to considered liquidated damages at all on the basis the Adjudicator determined it was not part of the dispute being referred. In defence of the proceedings to enforce the Adjudicator’s decision, the Employer therefore alleged a breach of natural justice.
HH Judge Eyre QC held that the Adjudicator had in essence done both. In one part of the decision it was apparent that the Adjudicator had considered and rejected a claim for set off. However in another part of the decision, summarising the Adjudicator’s conclusions, the Adjudicator said “in terms that he was declining to consider the potential set off because he did not regard it as part of the dispute before him”. Consequently, HH Judge Eyre QC found that the Adjudicator had breached natural justice and whilst subject to further submissions, gave a preliminary view that the adjudicator’s failure to consider the liquidated damages claim in the sum of £343,237.74 was a discrete matter and not capable of tainting or affecting his decision as to amounts in excess of that sum which could potentially be enforced.
The case will serve for many as welcome clarity on due dates for final payments but will potentially cause concerns for others trying to prevent conclusivity or enforce adjudicator’s decisions. As to the conclusivity issue, parties still ought to proceed with an abundance of caution and ensure that both a notice of dispute and proceedings are commenced before the due date to avoid any debates as to whether the action taken is sufficient to prevent the Final Statement becoming conclusive. Much time and cost can be avoided with such an approach. As to the enforcement, there is unfortunately little a party can do to ensure the appointed adjudicator sets out their reasoning clearly, this case is perhaps however a warning to many adjudicators to ensure when reasons are provided they are clear and consistent and not open to interpretation to allow the smooth administration of the Adjudication process.
If you have any questions about the article above, please get in touch with Patrick Blake, Lianne Edwards or another member of the Construction & Infrastructure team.
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