Challenging Final Certificates: making the right decision

A recent judgement serves as a reminder for parties looking to challenge Final Certificates – whether through adjudication, arbitration or legal proceedings – to do so in a timely manner.

In Trustees of the Marc Gilbard 2009 Settlement Trust v OD Developments & Projects Ltd [2015] EWHC 70 (TCC), Coulson J granted a declaration that a contractor could not challenge the Final Certificate by issuing adjudication proceedings outside of the contractual 28 day period when Part 7 proceedings had already been issued (challenging the same issue) within the 28 day period. This was said to be consistent with business common sense.

Here we take a look at the case in more detail ...

Background to the case

The Trustees of the Marc Gilbard 2009 Settlement Trust (the Employer) appointed OD Developments and Projects Ltd (the Contractor) to carry out works at a property in Mayfair. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009) – (the Contract).

On 3 December 2013, the Contract Administrator issued a Final Certificate showing a sum due from the Contractor to the Employer of £232,153.54 plus VAT. On 20 December 2013, within the relevant 28 day period, the Contractor issued Part 7 proceedings in the TCC disputing “the validity and correctness of the Final Certificate.”

The Part 7 proceedings have progressed very slowly and, almost 14 months on, the parties are yet to fix a first Case Management Conference. As such, the Contractor now wishes to refer to adjudication the matters raised in the Part 7 proceedings.

The Employer contends that this is not an option because; save for the existing Part 7 proceedings challenging the Final Certificate, any new proceedings would not have been commenced within 28 days of the Final Certificate. The parties have not been able to resolve this difference so the Employer issued Part 8 proceedings for declaratory relief as to the proper interpretation of the provision in the Contract dealing with the Final Certificate.

The relevant terms of the Contract

Clause 1.9.1 of the Contract states:

Clause 1.9.4 of the Contract states:

The parties’ submissions

In short, the Employer’s submission was that Clause 1.9 simply means that the Final Certificate is not conclusive evidence in any proceedings issued within 28 days of the Certificate (such as the Part 7 proceedings started in this case). However, the Employer argued that the Final Certificate will take effect as conclusive evidence in any proceedings not issued within that 28 day period.

On the other hand, the Contractor initially suggested that because the Final Certificate had been challenged in time in the Part 7 proceedings it was "inconclusive and has been challenged for the purposes of all dispute resolution proceedings” which could be commenced at any time. Coulson J commented that this was “tantamount to saying that, because the Part 7 proceedings constituted an effective 'foot in the door', the effect of the Final Certificate has been entirely negated for all time.”

At the hearing, the Contractor argued that those disputes in respect of which the Final Certificate was not conclusive related expressly to "the matters to which those proceedings relate". Accordingly, the Contractor submitted that there was nothing to stop it from issuing subsequent adjudication proceedings in respect of such matters. Indeed, it was suggested by the Contractor that if it could not do that, then that would be an “unwarranted prohibition or fetter on their right to adjudicate 'at any time'.”

Analysis of the dispute

Coulson J analysed the dispute between the parties under three heads: “(i) the literal meaning of the words; (ii) business common sense; and (iii) the right to adjudicate 'at any time'.”

The literal meaning of Clause 1.9.3

Coulson J was in no doubt that what he had called the Contractor’s ‘foot in the door’ approach was wrong and that there is nothing in clause 1.9.3 to support this open-ended approach.

The real issue for interpretation was whether Clause 1.9.3 envisages one set of proceedings (eg adjudication, arbitration or court proceedings) issued within 28 days of the Final Certificate, or whether it envisages an initial set of proceedings to challenge the Final Account but then permits the challenger to commence other proceedings outside the 28 days provided that those proceedings relate to the same issues.

Coulson considered that the former is the correct construction (subject to one qualification).

The qualification: if adjudication is the first option to challenge the Final Certificate under clause 1.9.3, simultaneous protective court or arbitration proceedings (issued within the 28 days) are permissible, and/or court or arbitration proceedings in accordance with clause 1.9.4 of the Contract (which expressly allows a further 28 days after an Adjudicator has decided a Final Certificate challenge, in which the challenger can issue arbitration or court proceedings).

The common sense interpretation of Clause 1.9.3

Coulson J was in no doubt that business common sense dictates that the right interpretation is that, following the issue of the Final Certificate, the Contract provided for just one set of proceedings, started within 28 days, in which that Final Certificate could be challenged:

Coulson J also concluded that it is contrary to common sense that the parties envisaged incurring the costs of subsequent multiple proceedings to argue about the same matters.

As set out above, the only exception/qualification is if the original proceedings were commenced by way of adjudication: then, a protective arbitration notice or claim form would also be permissible so long as it too was issued within the relevant 28 days.

Fettering the right to adjudicate 'at any time'

The Contractor argued that if it was restricted from issuing subsequent adjudication proceedings, then the Court would be fettering the Contractor’s right to adjudicate ‘at any time’.

The Contractor chose to challenge the Final Certificate through litigation rather than issue adjudication proceedings within 28 days of the Final Certificate. As such, Coulson J concluded that there had been no fettering of the Contractor’s right to adjudicate as it could have done so within the prescribed 28 days. Coulson J further clarified that if the Contractor were to commence adjudication proceedings outside of the 28 days (which it is entitled to do) the Final Certificate would be conclusive evidence for the purposes of clause 1.9.1 of the contract. As such, in these circumstances the Contractor has no additional right to adjudicate if the purpose of the adjudication is to challenge the Final Certificate. In effect, to that extent the Contractor was correct that the right to adjudicate “at any time” is fettered by this decision, but this is a decision dictated by business common sense and in order to give effect to the contractual arrangements agreed by the parties.

The sum due under the Final Certificate

The Employer argued that because the Final Certificate had only been challenged in the Part 7 proceedings, the consequence of any decision in the Employer’s favour as to the proper interpretation of clause 1.9.3 would mean the Employer is entitled to issue adjudication proceedings to recover the Final Account sum of £232,153.54, and that an Adjudicator would be obliged to find in the Employer’s favour. As such, the Employer argued that it was therefore entitled to hold the Final Account monies until the conclusion of the Part 7 proceedings.

However, Coulson J was not sure that this analysis was right, not least because at the enforcement stage it would be unusual for a claimant to recover summary judgment in respect of a claim when the defence to it has already been outlined in detailed pre-existing court proceedings. In any event, Coulson J considered that this issue was “largely peripheral to the principal matter” raised by the Employer in the Part 8 proceedings. Therefore, no declaration in respect of the sums allegedly due under the Final Certificate was granted.

Declaration

In summary, Coulson J granted that the Final Certificate is not conclusive evidence in respect of the matters raised in the existing Part 7 claim, but is conclusive evidence in any other proceedings which might subsequently be commenced, because those proceedings would not have been commenced within 28 days of the Final Certificate.

Comment

This judgment should serve as a reminder to parties looking to challenge Final Certificates. In that regard, parties should evaluate the best route to challenge the Final Certificate (whether by adjudication, arbitration or legal proceedings). This will, of course, depend on the facts of the case and the timescales the parties have in mind. In any event, the process must be commenced within the time prescribed in the contract, which in this case was within 28 days of the Final Certificate.