20 December 2021
Under Construction - Q4 2021 – 1 of 4 Insights
Construction contracts generally provide mechanisms for the payment of the final account to the contractor once completion of the works and correction of any defects has occurred.
Concerning Joint Contracts Tribunal (JCT) contracts, the conclusivity provisions mean that the final account process can be determinative of certain matters between the parties and so prevent challenge unless the final statement is disputed in accordance with the contract procedures. The Technology and Construction Courts (TCC) has recently provided guidance on whether issuing proceedings is necessary to prevent a final statement becoming conclusive under a JCT Design and Build contract form.
Raffaele Mincione, the Employer, engaged CC Construction Ltd, the Contractor to carry out the design and build of the shell and core of a new house under a JCT Design & Build Contract (2011) edition.
Following practical completion on 15 November 2019 and the expiry of the Rectification Period on 15 November 2020, the Contractor submitted a Final Statement on 5 October 2020 in the sum of £479, 957. But, it was alleged that the Employer did not receive it.
The rectification period expired on 15 November 2020 and the Contractor subsequently re-submitted its final statement to the Employer, attaching the letter of 5 October 2020, which the Employer received on 4 December 2020.
The Employer disputed the final statement by email on 18 December 2020 which said "I give notice that I dispute the content of the final statement in its entirety". He further asserted that liquidated damages were in fact due to him in the sum of £340,000 for delays in completing the works.
The Contractor alleged that the Employer's email was not effective in disputing the final statement because the effect of the inclusion of the words "subject to clause 1.8.2" in clause 4.12.6 of the contract meant that in order to prevent a Final Statement becoming conclusive, the Employer also had to begin proceedings by adjudication, arbitration or otherwise
The parties brought a claim to the TCC to address, among other things, whether the Employer's email of 18 December 2020 was sufficient to dispute the Contractor's final statement and so prevent its conclusivity.
HH Judge Eyre QC concluded that a "reasonable recipient of the Employer's letter of 18 December 2020 would be in no doubt that the Employer was disputing the Final Statement" . The letter therefore was an effective notice of dispute.
In interpreting clause 4.12.6 of the Building Contract, the judge concluded that the phrase "subject to clause 1.8.2" actually applied to the words that followed it, rather than words that preceded it. Clause 1.8.2 is another mechanism to prevent a Final Statement from being conclusive but only applies in circumstances where proceedings are already 'in play' before a due date and is intended to "prevent the outcome such proceedings being forestalled by the issue of a Final Statement".
Clause 4.12.6 therefore provided two alternative routes for preventing a Final Statement from conclusive, namely a notice disputing the statement or the issue of proceedings before the due date. The inclusion of the words "subject to clause 1.8.2" was simply to "make it clear that that the operation of clause 1.8.2 is not affected by clause 4.12.6". In other words, if a party does not issue a notice disputing a final statement before proceedings that are then in play at the time of a due date, then that does not mean that the final statement will then become conclusive and supersede the outcome of those proceedings. So, as a matter of language, "clause 4.12.6 provides for different rather than cumulative means of preventing a Final Statement".
The judge's decision indicates it is not necessary to issue proceedings following a notice disputing a final statement to prevent it from being conclusive. A written notice can be sufficient in disputing a final statement, provided that the notice provisions of a contract are always followed. But, as ever the circumstances of the matter must be considered carefully before issuing such a notice.
While Judge Eyre's decision may seemingly do away with the 'two stage process' as previously thought to be the case, it may be that there is still some benefit in continuing on that basis. In circumstances where the parties have taken completely polarised positions, and are entrenched on those views, it may be beneficial to refer the matter to an adjudication anyway to obtain a final determination on the matter, rather than engage in protracted commercial negotiations about the final account.
Also, it remains unclear about the extent of detail or information a party should give when disputing a final statement if it only relies on a written notice. Nevertheless, it can be concluded that a notice disputing a final statement must be drafted clearly and unequivocally in terms of its purpose with reference to clause 4.12.6.
To discuss the issues raised in this article in more detail, please reach out to a member of our Construction team.
20 December 2021
20 December 2021
20 December 2021
by Emma Coates