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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2022] CSIH 42
CA45/20
Lord President
Lord Malcolm
Lord Woolman
OPINION OF LORD CARLOWAY, THE LORD PRESIDENT
in the reclaiming motion
in the cause
D McLAUGHLIN & SONS LTD
Pursuers and Respondents
against
EAST AYRSHIRE COUNCIL
Defenders and Reclaimers
Pursuers and Respondents: Howie KC; DAC Beachcroft Scotland LLP
Defenders and Reclaimers: DM Thomson KC; Shepherd & Wedderburn LLP
16 September 2022
Introduction
[1]
The terms of the contract between the parties incorporated the Standard Building
Contract With Quantities for use in Scotland (SBC/Q/Scot (2011 Edition)). At the heart of
this reclaiming motion (appeal) is a question of whether a Final Certificate ought to be
treated as conclusive of the sums due to a contractor in an adjudication about an interim
payment. That, in turn, raises whether an Adjudicator's decision, that the Final Certificate
was not conclusive, can be reversed in these proceedings.
2
Payment under the contract
[2]
The contract provided (clause 4.9) for monthly interim payments. This process
involved the defenders' architect issuing Interim Certificates which stated the sum which he
considered due (4.10.1). If no Interim Certificate were issued, the pursuers could issue an
Interim Payment Notice stating the sum which they considered due (4.11.2.2). That sum
would become payable (4.12.3) unless a Pay Less Notice were timeously issued by the
defenders (4.12.3, 4.12.5). The amount in the Interim Certificate was a gross valuation of the
works less the amounts payable under previous Interim Certificates and any sums paid in
respect of an Interim Payment Notices (4.9.2).
[3]
The final payment (4.15) was due when the Final Certificate was issued by the
architect (4.15.3). This Certificate stated the Contract Sum; that is the sums due under the
contract Bills and any variations (4.15.2). It also stated the total of the sums due in Interim
Certificates and any amounts paid in respect of any Interim Payment Notices. The final
payment was the difference between those two amounts. It was to be shown on the Final
Certificate as a balance due to one or other of the parties (4.15.2). It was issued "without
affecting the rights of the [pursuers] in respect of any interim payment not paid in full by the
[defenders])" (ibid). "Interim payment" was not defined, but the Interim Payment Notice
regime is included in clause 4.12.1 under the heading "Interim-payments-final date and
amount".
[4]
The Final Certificate is, in any adjudication or court proceedings arising out of the
contract, "conclusive evidence that any necessary effect has been given to all the terms of
this Contract which require that an amount be added to or deducted from the Contract
3
Sum ..." (1.9.1.2). However, if proceedings are commenced within 60 days of the Certificate,
it is conclusive "save only in respect of the matters to which those proceedings relate"
(1.9.3). Where an adjudication has occurred and a party wishes to challenge the adjudication
decision, legal proceedings must be initiated within 28 days (1.9.4).
Facts
[5]
On 10 August 2017, there having been no Interim Certificate issued by the defenders'
architect, the pursuers issued an Interim Payment Notice for £949,556.50; being the sum
which they considered due as at 27 July 2017. This represented a gross valuation of
£3,802,614.87 less a retention (£95,065.37) and previous payments (£2,757,993.00). The
defenders did not issue a Pay Less Notice. The sum in the Interim Payment Notice
(£949,556.50) thus fell due to be paid. Between then and July 2019, the defenders made
certain payments to the pursuers, but they did not pay the full amount which was due
under this Interim Payment Notice.
[6]
On 17 July 2019 a Final Certificate was issued. This specified the Contract Sum (as
adjusted) at £3,343,223.82. It stated the "total amount of all previously certified or
authorised to the Contractor" (sic) as £3,341,794.83. The amount due as a balance to the
pursuers was £1,428.99. The defenders paid that sum. The pursuers disputed the Final
Certificate. In particular, on 12 September 2019, within the 60 days period which was
required for a timeous challenge, they served an Initial Writ on the defenders, in which they
contend that the Contract Sum in the Final Certificate does not reflect the work done,
including variations. This first action, which has been remitted to the Court of Session, is
still pending. In it, the pursuers seek £368,018.98. This is calculated on the basis of a
4
Contract Sum of £3,711,242.80 (adjusted down from the gross valuation in the Interim
Payment Notice) less the sums which the defenders have paid (£3,343,223.82).
[7]
On 23 March 2020, the pursuers served a notice of referral to adjudication. They
sought a determination that they were entitled to £438,317.68, being the balance which was
due under the 2017 Interim Payment Notice (£949,556.50, less sums paid of £511,238.82).
This figure was subsequently adjusted to £427,578.75, to which interest required to be
applied. There was no challenge to the jurisdiction of the Adjudicator (Adjudicator's 2
nd
Decision (corrected) on an Interim Payment Entitlement at para 9). The defenders' response to
the claim was that, first, the Interim Payment Notice was invalid because, inter alia, it did not
state the correct "relevant due date" (4.11.2.2). It should have been 28 and not 27 June.
Secondly, the Final Certificate was conclusive evidence of "the sum of [the pursuers']
entitlement in respect of all payments under the contract" (Adjudicator's 2nd Adjudication
Decision at para 24). The sum specified in the Final Certificate had been paid and therefore
the adjudicator had to find that nothing further was due. The pursuers countered that, until
the effect of the Final Certificate had been determined in the first court action and the
Contract Sum duly adjusted, they were entitled to enforce their existing contractual right to
payment under the unchallenged Interim Payment Notice.
[8]
The Adjudicator noted (para 31) that the adjudication "specifically excluded" any
dispute about the true value of the work done and claimed under the Interim Payment
Notice; a matter which would, if necessary, be the subject of another process. On 6
(corrected on 11) May 2020, the Adjudicator found in favour of the pursuers. He noted that
the parties had agreed a "site start date" of 30 May 2016, but the "march in" meeting had
happened on the following day because of a public holiday. On this basis, the relevant due
5
date for the monthly interim payment had been correctly stated on the Interim Payment
Notice as 27 July 2017. This was based on the contractual provision whereby the first date
for payment was to be four weeks after the works were to commence on site (para 44).
[9]
On the conclusivity of the Final Certificate, the Adjudicator reasoned (para 60) as
follows:
"The disputed matter in the Final Certificate concerns the true value of the Contract
Sum ... whereas the dispute in this adjudication concerns a legal technicality (a so-
called `smash and grab') in respect of [the] interim payment ... The Marc Gilbard case
[Marc Gilbard's 2009 Settlement Trustees v OD Developments and Projects
adjudication there concerned the same matter that was disputed in the Final
Certificate, which is different to that in the present matter. I accept the purposive
intent of clause 1.9 is to limit disputes arising under the contract to those relating to
matter[s] to which, in the present case, court proceedings have commenced. The
court proceedings relate to the adjustment of the Contract Sum and, in particular, to
a sum allegedly due in respect of an Interim Payment Notice, dated 21 May 2019, and
[a related] Interim certificate ... I take this to mean the adjustment of the Contract
Sum is not yet concluded and evidenced by the Final Certificate. Therefore, I find
the Final Certificate is not `conclusive evidence that any necessary effect has been
given to all terms of [the] Contract which require that an amount be added to or
deducted from the Contract Sum or that an adjustment be made to the Contract
Sum', per clause 1.9.1.2."
The Adjudicator found the defenders liable to pay to the pursuers £427,578.75 plus VAT
(£513,094.50) with interest of £78,361.18 to the date of his decision and continuing at the rate
of £61.46 per day.
The principal action
[10]
The defenders did not pay the sum found due by the Adjudicator. On 8 June 2020,
the pursuers raised this, second, action seeking enforcement of the Adjudicator's award (ie
for payment). On 17 July 2020, the defenders counterclaimed. The counterclaim was the
first challenge by the defenders to the Adjudicator's decision. It was not raised within
6
28 days of the award (1.9.4), but 72 days after the uncorrected decision of 6 May. In the
counterclaim, the defenders sought declarator that: (1) the Final Certificate was conclusive
evidence in the adjudication, because the adjudication had not been commenced within 60
days of the Certificate's issue; and (2) the Interim Payment Notice was invalid. The
defenders principal contention remained that, since they had paid the balance due,
according to the Final Certificate, no award ought to have been made by the Adjudicator.
[11]
In his decision on the enforcement of the Adjudicator's decision (2021 SLT 1427), the
commercial judge referred (at para [24]) to the binding nature of an adjudication until such
time as a final decision is reached (Housing Grants, Construction and Regeneration Act 1996
s 108(3)). The policy behind the adjudication regime was "pay now, argue later"(Michael J
Lonsdale (Electrical) v Bresco Electrical Services [2020] Bus LR 1140 at para 12). The scope of
available defences in England and Wales, in an application for enforcement, was restricted
to grounds of admitted error or the timing, categorisation or description of the payment
was a limited exception where the court could make a final decision on the merits of a
dispute, because the point was short and self-contained, at the same time as it was
considering enforcement. An example would be if an Adjudicator's interpretation of a
contractual provision was "beyond any rational justification" (Hutton Construction at
para 18).
[12]
The commercial judge held that this test was not met. The defenders had been
allowed, unopposed, to lodge a counterclaim to the enforcement proceedings, based upon
Final Certificate conclusivity. The use of a counterclaim to stymie enforcement was to be
discouraged. The counterclaim did not seek to resolve the dispute between the parties on
7
the correctness of the Final Certificate. Rather, the Final Certificate argument in the
counterclaim was presented as a challenge to the Adjudicator's decision. The correctness or
otherwise of the Final Certificate would depend on the resolution of the first court action.
On this basis, decree for enforcement of the award was granted on 30 December 2020. The
defenders paid the sum found due by the Adjudicator.
The Counterclaim
[13]
The commercial judge heard a subsequent debate on the relevancy of the
counterclaim ([2021] CSOH 122). He revisited the effect of Interim Certificates; holding that
sequential certificates were re-valuations of the works, each in turn superseding the others
(Scottish Equitable v Miller Construction 2002 SCLR 10 at para [29]). These were not
conclusive. If there had been an over-valuation, that could be remedied by the issue of later
Interim Certificates or the Final Certificate; the latter being subject to any challenge to its
correctness. The judge continued (at para [21]):
"...if the sum specified in an Interim Payment Notice which is held to be valid is not
paid, subsequent interim payments [? certificates] ...will not absolve the party who
was due to pay from the contractual obligation to make payment in terms of the
Interim Payment Notice ... If the sum is paid, then subsequent Interim Certificates
can take that payment into account and thus seek to put interim payments back in
order. Alternatively, the party who has made payment ... is free to commence
adjudication proceedings (or arbitration or a legal action) to dispute that the sum
paid was the true value of the works ...".
The counterclaim was a free standing claim for the recovery of an alleged over payment and
not a challenge to the Adjudicator's decision. The fundamental question was whether the
defenders were entitled, by way of a counterclaim, to pursue the Final Certificate point ,
pending the outcome of the first court action.
8
[14]
The commercial judge considered the key issue was whether Marc Gilbard's 2009
Settlement Trustees v OD Developments and Projects was correct. He determined that it was; ie
that the Final Certificate (1.9.3) would be conclusive "only in respect of the particular
matters and those proceedings" (para [28]). This meant, in the context of this case, that the
Final Certificate was not conclusive only in the first (timeous) action. It was conclusive in
any later (non-timeous) process (ie the adjudication). If, as here, there was an Adjudicator's
award after the issue of the Final Certificate, and that Final Certificate were challenged by
adjudication within 60 days, legal proceedings could be raised within a further 28 days and
the Final Certificate would not be conclusive in those proceedings.
[15]
However, as "a twist in the tale", in terms of Jerram Falkus Construction v Fenice
final determination of the merits of the dispute) if it were not challenged within 28 days
(1.9.4). The challenge to it in the counterclaim failed on that basis (para [33]). It also failed
because (para [36]), during the period when the Final Certificate was under challenge, the
defenders should not be permitted to found upon it on an interim basis.
[16]
The validity of the Interim Payment Notice had been determined in the adjudication.
The 28 day limit applied to it too. Otherwise, the commercial judge considered that a proof
would have been required to determine the correct relevant due date relative to the start of
the works (para [40]). If the counterclaim had resulted in a final determination of the
dispute in the defenders' favour, the judge would have allowed them to recover the interest
which they had paid to the pursuers.
9
Decision
[17]
The contract envisages a system of monthly interim payments up until the final
payment. Obviously, were the contract terms to have been regularly performed, the former
should precede the latter. Each Interim Certificate states that a sum is payable as at the "due
date" (4.10.1). It does so by specifying the gross valuation of the work and deducting from
it, inter alia, sums due under earlier Interim Certificates and sums paid under an Interim
Payment Notice (4.9.2.4). Each Certificate involves a revaluation of the gross amount which
the defenders' architect considers to be due under the contract from time to time. In that
limited sense, a later Interim Certificate will supersede an earlier one. However, the sum
certified as due for payment in one Interim Certificate does not supersede that in an earlier
one; each Interim Certificate certifying, as due for payment, a different amount. On this
basis, some of the dicta in Scottish Equitable v Miller Construction 2002 SCLR 10 (Lord Prosser,
delivering the opinion of the court, at para [29]) may not be entirely accurate. In order to
secure payment, a contractor would require to rely on each sequential certified sum; not just
that in the most up-to-date Interim Certificate.
[18]
Similarly, the Final Certificate does not certify for payment all the sums due under
the contract. It states the Contract Sum and then the amounts due in the earlier Interim
Certificates and any sums paid under an Interim Payment Notice (4.15.2). The sum certified
as due is a balance due to or by the contractor; being the Contract Sum less the Interim
Certificate figures due and the Interim Payment Notice sums actually paid. The Final
Certificate does not supersede the Interim Certificates, other than in respect of the Contract
Sum, as valued at the end of the contract. The Interim Certificates remain both extant and
important. Should a contractor be seeking payment, the Final Certificate will only provide
10
an entitlement to a balance. Certificates of the interim amounts provide the necessary
vouching for what are likely to be more substantial sums.
[19]
If the terms of the contract were to be followed as intended, all interim payments
should be made before the Final Certificate determines, in the absence of a valid challenge,
the final payment. The Final Certificate provides an end point to any disputes in relation to
the final payment. It does not invalidate the interim payment regime whereby sums, which
are already certified to be due or appear due in an unchallenged Interim Payment Notice,
are payable even if enforcement of such payments may ultimately constitute a Pyrrhic
victory. Put another way, the conclusivity of the Contract Sum in a challenged Final
Certificate has no bearing on what should have been paid in the interim. In due course, the
first action will determine the correctness of the Final Certificate. Depending upon how the
pleadings are developed, it may result in the pursuers requiring to repay the defenders
some of what was paid after the adjudication, or it may not.
[20]
The ratio of Marc Gilbard's 2009 Settlement Trustees v OD Developments and Projects
one process (eg court action), it cannot be challenged in a later non-timeous process (eg
adjudication), simply because the latter would be out of time. The "foot in the door"
approach, whereby the earlier challenge would be sufficient to permit later challenges, was
contrary to the conclusivity intended in the contract. There is no difficulty in accepting this
ratio as correct. If the adjudication in this case had been a challenge to the Final Certificate,
it ought not to have been entertained by the Adjudicator as it was raised too late. However,
the circumstances here are different. The enforcement of the Adjudicator's award, and the
award itself, do not challenge the conclusivity of the Contract Sum in the Final Certificate.
11
The latter's validity nevertheless remains, and ought to remain, dependent on the outcome
of the first court action. Until it is resolved (and following Marc Gilbard, it ought only to be
resolved in the action), its conclusivity remains in limbo.
[21]
Clause 4.15.2 makes it clear that the sum shown on the Final Certificate does not
affect the pursuers' right to receive any interim payment which is due under the contract.
That is not confined to sums which are certified as due under an Interim Certificate. It must
also apply to sums payable ad interim following an Interim Payment Notice, which has not
been challenged by a Pay Less Notice. As the wording of the Notice demonstrates, in terms
of the clause, an interim payment must include a sum in an Interim Payment Notice.
[22]
If this analysis is incorrect, and the statement of balance in a Final Certificate
supersedes the Interim Payment Notice regime, the Adjudication based on the latter must
have been incompetent; it could have served no useful purpose. The problem is that the
parties were content that the adjudication should proceed on the basis of the general
principle that parties are free to adjudicate "at any time" (Housing Grants, Construction and
Regeneration Act s 108(2)(a)). Having done so, they must be taken as bound by the
Adjudicator's decision, except in so far as it is challengeable under the contract. The terms
of clause 1.9.4 are straightforward and clear. Any decision , which is issued by an
Adjudicator after the date of issue of the Final Certificate, can only be challenged within
28 days. In this case it was not. The effect of that is that the defenders are bound by it. They
must pay the sum awarded by the Adjudicator, which they have done. They must await the
outcome of the first action on the correctness of the Final Certificate. That approach is the
only one which is consistent with the adjudication regime. The defenders must "pay now,
12
argue later" (Michael J Lonsdale (Electrical) v Bresco Electrical Services [2020] Bus LR 1140,
Lord Briggs at para 12).
[23]
Similar considerations apply in relation to the defenders' subsidiary argument that
the Interim Payment Notice was invalid because it sought payment of the amount due on
28 June 2017, when the correct "relevant due date" was one day earlier. The commercial
judge determined (para [40]) that, if this was in error, there would have to be a proof on the
issue of when the works had commenced; clause 4.11.2.2 requiring the notice to specify a
date which is the same in a particular month as that four weeks after that commencement.
This is a matter which will not arise, once the first action is resolved. It is one upon which
the court should reserve its view.
[24]
For these reasons, the reclaiming motion should be refused. The pursuers accepted
that their grounds in the cross appeal would only arise if the reclaiming motion were to be
allowed. They do not therefore require to be considered. The court should adhere to the
commercial judge's interlocutor of 7 December 2021. The focus should now be upon
expediting the progress of the first action to enable this dispute to be brought to a
conclusion.
13
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2022] CSIH 42
CA45/20
Lord President
Lord Malcolm
Lord Woolman
OPINION of LORD MALCOLM
in the cause
D McLAUGHLIN & SONS LTD
Pursuers and Respondents
against
EAST AYRSHIRE COUNCIL
Defenders and Reclaimers
Pursuers and Respondents: Howie KC; DAC Beachcroft Scotland LLP
Defenders and Reclaimers: DM Thomson KC; Shepherd & Wedderburn LLP
16 September 2022
Introduction
[25]
This reclaiming motion (appeal) concerns a matter of importance to the construction
industry, namely when and by what means is it possible to challenge the conclusive effect of
a final certificate? The dispute turns on the proper interpretation of clause 1.9 of the Joint
Contracts Tribunal Standard Building Contract With Quantities for use in Scotland (2011)
the wording of which is common to all 2011 versions of the JCT standard building contracts.
(The provisions of clause 1.9 are set out in an appendix to this opinion.) There is a related
issue as to the interplay between interim and final payments.
14
[26]
The commentary on Trustees of the Marc Gilbard 2009 Settlement Trust v OD
"In the JCT suite of contracts, the issue of the Final Certificate expressly is deemed to
be final and conclusive evidence that every financial and time adjustment has been
correctly done and that in effect there can be no other claims by the contractor. This
has been a feature of the standard form since the 1930s and it might be thought to be
here to stay. The only way to challenge this conclusive effect is either by way of a
fraud challenge or if proceedings are started within 28 days of the issue of the
Certificate" (in the present contract the period is 60 days).
In the decision itself at paragraph 1 of his judgment Coulson J (as he then was) observed that
all standard form building contracts seek to ensure that after completion outstanding
disputes can be swiftly and finally resolved. Hence, in the absence of a timeous challenge,
the final certificate becomes conclusive evidence in respect of a wide range of matters,
including all remaining financial disputes. At para 9 he cited authority that conclusive
evidence clauses are designed to draw a line on enquiries into outstandings on running
accounts and to provide clarity as to the parties' obligations once a project is completed.
[27]
In Jerram Falkus Construction Ltd v Fenice Investments Inc (No. 4) [2011] BLR 644 at
para 30 the same judge commented that conclusivity provisions allow for challenges to the
final account but also ensure that that this must be done within a restricted time period to
provide at least a measure of finality.
[28]
Facing a similar situation to the present case, in Marc Gilbard's Trustees Coulson J
held that the terms of clause 1.9.3, which provide for an exception to the conclusive nature of
the final certificate, do not allow the certificate to be challenged in late proceedings. It
matters not that there is an ongoing timeous challenge, and this even where the two
proceedings raise exactly the same matters. (He recognised that where applicable, and
subject to a strict time limit, clause 1.9.4 provides an exception to this rule.)
15
The circumstances of the present case
[29]
In March 2016 East Ayrshire Council (the employer) and D McLaughlin & Sons
Limited (the contractor) entered into a contract for an extension to Hurlford P rimary School
at a price of slightly over £2m. Shortly after practical completion, on 10 August 2017 a
contractor's interim payment notice to 27 July 2017 was issued for just under £950,000. It
stated works done to a value of approximately £3.8m. Reference was made to the retention
and previous payments of almost £2.76m. The employer did not issue a pay less notice. The
sum claimed in the contractor's notice was neither paid nor enforced.
[30]
Subsequently payments to an aggregate amount of £511,238.82 were made. On
17 July 2019 the final certificate was issued adjusting the contract sum to £3,343,223.82. This
included a valuation of the works covered by the interim payment notice. The total amount
previously certified or authorised to the contractor was stated at £3,341,794.83. The amount
owing was the small balance between the two sums, and subsequently it was paid to the
contractor.
[31]
The contractor challenged the final certificate in court proceedings raised within the
60 day period allowed for in clause 1.9, and this on the basis that the contract sum should
include the full amount claimed in the interim payment notice. Separately, and well beyond
the said period, in March 2020 the contractor raised an adjudication relying on the
employer's failure to pay the sum stated in the interim payment notice. The adjudicator
upheld the claim and made an award of £427,578.75 plus interest.
[32]
The employer refused to pay. The contractor raised the present proceedings seeking
enforcement of the award. The employer counterclaimed for declarators that the interim
payment notice was invalid and that in any event the final certificate was conclusive
16
evidence as to the contract sum payable to the contractor. After a debate the commercial
and amended its counterclaim to seek repayment from the contractor.
[33]
After another debate the commercial judge essentially upheld the arguments
presented by the employer in support of the counterclaim, including those based on the
decision in Marc Gilbard's Trustees. However when pondering his judgment he noticed
clause 1.9.4 of the standard form contract and sought supplementary submissions thereon
from the parties. In the event, and relying on its terms, he dismissed the counterclaim
because it had not been raised within 28 days of the adjudicator's award ([2021] CSOH 122).
The employer asks this court to reverse that decision and grant decree in terms of the
counterclaim. The contractor cross appeals in respect of the rejection of some of its
submissions.
The payment regime
[34]
At this stage it is worth noticing the relevant payment provisions in part 4 of the
contract (set out in the appendix). They can be summarised as follows. Interim payments
are due monthly on the dates specified in the contract particulars until expiry of the
rectification period. Broadly an interim payment is based on the gross valuation of the
works executed so far, less the aggregate of the retention, sums stated in previous interim
certificates, and any monies paid in response to an interim payment notice issued since the
last interim certificate.
[35]
Following on valuations made by the quantity surveyor the monthly amount due
will be stated in interim certificates issued by the architect/contract administrator not later
17
than 5 days after the due date. If no interim certificate is forthcoming the contractor can give
an interim payment notice to the quantity surveyor stating the sum considered to be due
and how it is calculated. The employer can issue a pay less notice in respect of either an
interim certificate or an interim payment notice. Failing such, the sum in the interim
certificate, or the interim payment notice as the case may be, is payable.
[36]
With regard to the contractor's interim payment notice issued in August 2017 there
was no pay less notice thus the sum stated was more or less immediately payable. If that
sum had been paid it would have been taken into account in subsequent certificates,
including the final certificate. It was neither paid nor enforced at the time. The works
involved in the interim payment notice were included in the final certificate. The
contractor's valuation of those works is considerably greater than that reflected in the final
certificate.
[37]
As per clause 4.15 a final certificate specifies two sums. The first is the adjusted
contract sum; the second is the amount stated as due in interim certificates (not interim
payment notices) plus any advance payments made and any sums paid in response to an
interim payment notice issued since the last interim certificate. If the former is greater than
the latter the contractor will be entitled to the difference; if vice versa a sum is due to the
employer. The passage in parenthesis in clause 4.15.2 referring to "any interim payment"
recognises that the employer might not have paid the full sum due under the interim
certificates, hence it is provided that the contractor's right to such is preserved. Thus by way
of illustration; if on the face of it a final certificate shows a balance due to the employer of
£30,000 but £50,00 is unpaid in respect of interim certified sums, the practical outcome is a
debt of £20,000 owed to the contractor. To insist on payment from the employer is consistent
18
with the terms of the final certificate. It does not challenge the adjusted contract sum nor
raise issues as to the conclusive nature of the final certificate.
[38]
It is asserted that the passage in brackets in clause 4.15.2 also preserves the unpaid
balance of the contractor's notice of August 2017 as a debt which can be enforced without
involving any challenge to the conclusive nature of the final certificate and thus unaffected
by the time limits in clause 1.9. In construing clause 4.15.2 it is important that it balances
against the adjusted contract sum only the total sum due as stated in interim certificates plus
any advance payments and any sums paid in response to an interim payment notice issued
since the latest interim certificate. In these circumstances it is natural to make it clear that
debts due under interim certificates are preserved, but having regard to the structure of the
final certificate it would be odd to include a reference to any debts arising from contractors'
notices. A contractor's interim valuation is superseded, sometimes said corrected, by those
in subsequent interim certificates and that in the final certificate. A contractor's insistence
on a debt due under an interim payment notice jars with the terms of the final certificate.
One is then in the realms of balancing finality with allowing scope for the resolution of
continuing disputes. This is the territory covered by the conclusive evidence provisions and
the time limits in clause 1.9. If the debt created by the absence of a pay less notice is pursued
in order to obtain more than is due as per the final account, the conclusive status of the final
certificate is being challenged, in which case clause 1.9 comes into play. (There is further
discussion of this issue below.) On the specific issue concerning the passage in brackets in
clause 4.15.2, having regard to the context and the structure of the relevant provisions, "any
interim payment" refers to those mandated by an interim certificate, not to debts created by
a failure to serve a pay less notice in response to a contractor's interim payment notice.
19
The contractor's timeous challenge
[39]
A final certificate can be challenged if this is done in terms of clause 1.9. As
mentioned earlier, a court action was raised by the contractor timeously, that is within
60 days from the date of the final certificate. It seeks declarator that the final certificate
should have valued the contract works at £3,711,242.80 and also payment from the employer
of £441,622.78. It narrates that in the first half of 2019 the parties tried to reach agreement as
to the true value of the adjusted contract sum. In May 2019 the contractor's submission was
assessed by the quantity surveyor. This resulted in an interim payment certificate dated
17 June 2019, the validity of which is challenged on grounds of timing. In any event the sum
certified was replicated in the final certificate issued the next month, the terms of which
have already been stated. The contractor avers that the certified adjusted contract sum
undervalues both variations in the contract works and the measured works. The action is
defended and remains unresolved.
The adjudication
[40]
In March 2020 the contractor gave notice of the intention to refer the matter of the
unpaid interim payment notice issued in August 2017 to adjudication. This was several
months after the expiry of the 60 day period set down in clause 1.9. The claim was for the
adjusted balance due thereunder of £427,578.75 plus interest to 16 March 2020 of £100,650.93
accruing at a daily rate of £63.05.
[41]
In defence it was argued unsuccessfully that the notice was not valid. The employer
failed in an attempt to establish that the dispute had been settled. It was also contended that
20
the final certificate was conclusive evidence in the adjudication as to the contractor's
entitlement. All sums due thereunder having been paid it followed that the adjudicator
should have found that nothing was payable.
[42]
As to the conclusive evidence submission, the adjudicator noted that the employer
relied on clause 1.9 and the decision in Marc Gilbard's Trustees. He stated that the contractor
had provided an opinion of senior counsel, though nothing is said as to its terms. At para 60
he observed that the disputed matter regarding the final certificate was as to the true value
of the contract sum, whereas the dispute in the adjudication concerned "a legal technicality
(a so-called `smash and grab')" in respect of an interim payment. He distinguished Marc
Gilbard's Trustees in that there the adjudication involved the same matter as that disputed in
respect of the final certificate. The adjudicator considered that the "purposive intent of
clause 1.9 is to limit disputes arising under the contract to those relating to matter (sic) to
which, in the present case, court proceedings have commenced".
[43]
The adjudicator continued:
"The court proceedings relate to the adjustment of the Contract Sum and, in
particular, to a sum allegedly due in respect of an Interim Payment Notice, dated
21 May 2019, and Interim Certificate 26. I take this to mean the adjustment of the
Contract Sum is not yet concluded and evidenced by the Final Certificate. Therefore,
I find that the Final Certificate is not `conclusive evidence that any necessary effect
has been given to all terms of [the] Contract which require that an amount be added
to or deducted from the Contract Sum or that an adjustment be made to the Contract
Sum', per clause 1.9.1.2."
At para 61 the adjudicator concluded this chapter of h is decision by stating: "Interim
Payment Notice 13 was clearly disputed and remains so. I find in favour of (the contractor's)
position that I am not obliged to award nil."
[44]
In summary the reasoning was that the subject matter of the adjudication is different
from that in the court action, thus the decision in Marc Gilbard's Trustees does not apply. The
21
court proceedings seek an adjustment of the final certificate contract sum, and that remains
unresolved. According to the adjudicator it followed that the final certificate had no
ongoing conclusive effect in respect of the contract sum.
The dismissal of the counterclaim by the commercial judge
[45]
The commercial judge addressed three issues, namely (i) the effect of the final
certificate, (ii) the adjudicator's decision that the interim notice was valid, and (iii) whether
even if otherwise unsuccessful the contractor was nonetheless entitled to retain interest
arising after the date of the adjudicator's award.
[46]
On the first issue the judge agreed with the reasoning of Coulson J in Marc Gilbard's
Trustees, the effect of which is that the terms of the final certificate are conclusive in
proceedings raised outside the period allowed in the contract. However he held that clause
1.9.4 barred any challenge to the outcome of the adjudication if none was raised within
28 days of the decision. The counterclaim was not lodged within that period thus it came
too late. Furthermore the employer was wrongfully using the conclusive nature of the final
certificate to obtain interim relief pending resolution of the timeous court proceedings.
[47]
As to issue (ii) this turned on whether an incorrect relevant due date was specified in
the interim payment notice, a factual matter in respect of which the parties were in dispute.
The judge rejected the contractor's argument that the notice would remain valid even if the
wrong date had been used. However clause 1.9.4 again intervened to render the
adjudicator's decision on this issue inviolable 28 days after its issue.
22
[48]
Issue (iii) became academic but the judge favoured the view that had repayment
been ordered it would include all interest payments (Aspect Contracts (Asbestos) Ltd v Higgins
The submissions to this court
[49]
The court was favoured with detailed submissions from the parties both in writing
and orally at the hearing. What follows is but a brief outline of them.
Clause 1.9.4
[50]
The employer submitted that in relation to clause 1.9.4 the judge erred in relying on
the reasoning of Coulson J in Jerram Falkus Construction Ltd v Fenice Investments Inc (No. 4)
construed purposively in the context of the clause as a whole. An overly strict or literal
approach had been adopted.
[51]
The contractor contended that the sub-clause clearly required any challenge to the
adjudicator's award to be made within 28 days. Here it came too late and the judge
correctly dismissed it on that basis.
The effect of the final certificate
[52]
The employer submitted that the adjudication came outside the period allowed by
clause 1.9 therefore, as per Marc Gilbard's Trustees, in the adjudication the final certificate was
conclusive as to the contract sum. The amount due under it having been paid, the
adjudicator should have issued a nil award. The purpose of the Housing Grants,
Construction and Regeneration Act 1996 Act and the relevant standard contract terms is to
23
facilitate prompt and cost-effective resolution of disputes. The adjudicator's view is at odds
with the difference between interim and final certificates (as explained in Scottish Equitable
plc v Miller Construction Ltd 2002 SCLR 10 and Castle Inns (Stirling) Ltd (t/a Castle Leisure
[53]
The contractor submitted that the adjudication was an enforcement of the sum due
under the August 2017 interim payment notice, not a challenge to the final certificate, thus
the time limit in clause 1.9 had no application. If that was wrong, the timeous court
challenge removed the certificate's conclusive effect in relation to the contract sum not only
in those proceedings but also for the adjudication. The 1996 Act allowed an adjudication "at
any time". Marc Gilbard's Trustees was wrongly decided and should not be followed.
The validity of the interim payment notice
[54]
The employer offered to prove that the wrong due date in terms of clause 4.11.2.2
had been specified in the interim payment notice which would render the notice invalid.
[55]
The contractor asserted that the correct date was used. In any event where the notice
was otherwise clear, a minor non-prejudicial error in this regard would not invalidate it. In
the absence of a pay less notice the sum claimed became due as per clause 4.12.3.
Repayment of interest
[56]
The employer submitted that it was a necessary consequence of the adjudication
regime laid down in the 1996 Act that an employer can recover overpayments caused by an
adjudicator's decision (Aspect Contracts). That would include interest payments.
[57]
The contractor contended that interest accruing between the period allowed by the
adjudicator for payment and actual payment falls into a different category akin to an
24
adjudicator's fees. The additional interest payments were caused by the employer's delay in
payment. They were not part of the dispute. The implied term as to repayment had no
application. Even if unsuccessful on everything else the contractor should be allowed to
retain these monies.
Was the claim in the adjudication a challenge to the final certificate?
[58]
Many decisions in recent years concern the implications of a failure to issue a pay
less notice in response to a contractor's interim payment notice and attempts to avoid the
perceived injustice, even hardship, of having to handover whatever was claimed pending
resolution of the correct position. No case has been cited where long after the final
certificate an attempt is made to obtain further monies by enforcing a contractor's interim
payment notice.
[59]
The commercial judge made reference to Grove Developments Ltd v S&T (UK) Ltd
reconciling first instance decisions: "We are all trying to hack out a pathway through a dense
thicket of amended legislation, burgeoning case law and ever-changing standard form
contracts" (para 102). The Court of Appeal's decision illustrates the following. The
statutory payment regime is designed to provide enforceable immediate interim payments
to contractors and sub-contractors. In terms of section 111(1) of the 1996 Act, the notified
sum must be paid on or before the final date for payment. However, and even in the
absence of a payment notice or a pay less notice, the necessarily "ball park" figures can be
adjusted and overpayments corrected either in subsequent certificates or by way of "true
25
value" adjudications or other proceedings. Given the longer time period allowed for the
preparation of a final certificate it is more likely to be accurate. While the sum stated therein
is due and payable, as with interim applications its terms are also challengeable.
[60]
J&B Hopkins Ltd is a decision of Fraser J. It concerned an attempt to resist summary
judgment of an adjudicator's decision on the basis that the relevant interim application for
payment had been superseded by subsequent interim payment cycles in which the
contractor had participated and which had corrected the sum payable under the contract.
The judge cited authority to the effect that adjudication is all about interim cash flow. It was
true that an interim payment could be corrected, but that did not mean that an adjudicator's
decision that the notified sum was due because there had been no pay less notice could not
be enforced. While the case before him concerned a technical issue as to the validity of a
notice, an adjudicator may well have determined a substantive matter, for example a dispute
as to the valuation of particular elements of the works or the quality of the works. And it
would be next to impossible for a claimant to react to non-payment of an application before
the next interim cycle. To allow it to prevent an adjudication would undermine the
statutory adjudication regime.
[61]
This did not cause manifest injustice such as would justify a stay of execution. To
have to pay a sum, only for it to be repayable shortly thereafter, was in accor d with the
statutory scheme; indeed another adjudication was pending. No question as to the financial
stability of the claimant had been raised. The importance of complying with pay less and
payment notice procedures was emphasised.
[62]
It is not difficult to understand why the commercial judge cited these decisions.
However they both concerned interim cash flow issues. Neither involved the effect, if any, of
26
a final certificate and the associated time limits in clause 1.9 on the contractor's right to
pursue the non-payment of a sum due in an interim payment notice.
[63]
It seems clear that the commercial judge viewed the adjudication and its outcome as
no more than legitimate skirmishing for a tactical advantage "on an interim basis" pending
resolution of the challenge to the final certificate which was proceeding in the court action
(para 19). That said, he did notice that, having received more than is sought in the court
action, progressing it may have become "less attractive" for the contractor.
[64]
Before this court it was submitted that conclusive effect is not conferred on the final
certificate in relation to monies payable in respect of interim certificates. The adjudication
concerned an interim payment issue in respect of which the terms of the final certificate are
of no relevance. They have no evidential value in respect of the sum which should have
been paid in July 2017 to account of the ultimate contract sum. In effect the contention is
that the adjudication was not a challenge to the terms of the final certificate. Logically this is
a preliminary issue which, if the proposition is correct, would elide the need to consider
clause 1.9 and the competing submissions regarding Marc Gilbard's Trustees.
[65]
In Coulson on Construction Adjudication 4
th
ed the author explains how the decision of
Edwards-Stuart J in ISG Construction Ltd v Seevic College [2015] BLR 233 prompted
contractors, as was done here, to make a large claim immediately after practical completion,
see para 3.51. In the absence of a pay less notice, and even if it was disputed, the sum
claimed could be enforced and retained for the usually lengthy period until the final account
process was completed. ISG decided that there could be no true value second adjudication
in the meantime because the absence of a pay less notice meant that the stated sum was
taken as agreed, "right or wrong". In Galliford Try Building Ltd v Estura Ltd [2015] BLR 321 at
27
paras 18-20 the same judge clarified that this deemed agreement was for the purposes of the
interim application in question and involved no agreement as to the value of the work at
some other date. The result was that because of a failure to issue a pay less notice an
employer could be forced to lay out a large sum over an extended period pending the final
account even though it was confident that it would establish that the contractor's valuation
was excessive. For present purposes it can be noted that at para 25 the judge drew a
distinction between interim and final payments. There was "a fundamental difference"
between the two situations. The latter stated the amount properly due in respect of the
account. Subsequently these comments were endorsed in the Court of Appeal, see Harding
[66]
These claims came to be known as "smash and grab" and have been described as
having brought adjudication "into a certain amount of disrepute" (Coulson J in the first
instance decision in Grove Developments Ltd v S&T (UK) Ltd, see [2018] BLR 173 at para 143).
The tactic, if that is what it is, is less attractive for contractors at pre-completion interim
stages because the matter will usually be quickly resolved at the next monthly payment
cycle. For this reason employers rarely adjudicate the true value of such interim
applications.
[67]
The peculiarity in the present case is that having made the "smash" in August 2017
shortly after practical completion, the contractor delayed the "grab" until March 2020, many
months after the final certificate. However it is claimed that the final certificate is of no
relevance, and this notwithstanding that had the interim application been enforced much
earlier, the sum paid by the employer would have been taken into account in the final
certificate resulting in a large sum due by the contractor to the employer.
28
[68]
The decisions in ISG and Galliford have been criticised and would not be followed
today. In Harding v Paice and Another, cited earlier, the Court of Appeal followed the
approach set out in its decision in Rupert Morgan Building Services Ltd v Jervis [2003] EWCA Civ 1563
(which had not been brought to the court's attention in ISG). There Jacob LJ
observed that section 111 of the 1996 Act addressed cash flow during the works. It was not
about making any certificate conclusive. Notwithstanding a failure to serve a notice in
response, if an employer could show that he had overpaid that could be put right in
subsequent certificates, otherwise the matter could be addressed in an adj udication or other
proceedings, see para 67 in the judgment of Jackson LJ.
[69]
As a result of more recent authority, and for the reasons explained in detail by
Coulson J in the first instance decision in Grove Developments Ltd v S&T (UK) Ltd, cited
earlier, and subsequently endorsed by the Court of Appeal, it is now settled that a failure to
serve a pay less notice does not prevent a true value adjudication. It follows that aggrieved
employers who fail to serve a pay less notice in response to a disputed post completion
interim application are not forced to await the outcome of the final account process. Matters
can be put right before then by an employer's adjudication. At paragraph 138 Coulson J
observed that cash flow "must not be confused with the contractor retaining moneys to
which he has no right". In the present context this can be translated to cash flow not
allowing the contractor to obtain moneys to which he will be entitled only if the timeous
court challenge to the final certificate is successful.
[70]
Of course an employer could pay up, or be forced to pay up, and then choose to
await the final certificate for redress. As already noticed the payment will be taken into
account in the certificate. However here the contractor waited until long after the final
29
certificate and argues that, no matter what the correct valuation of the contract works might
be, the certificate's terms have no relevance to the consequences of a failure to issue a pay
less notice in response to an interim notice. The final certificate can of course be challenged
by the contractor if done timeously as per clause 1.9, as was done here, but in the meantime,
and unless and until such a challenge succeeds, the valuation in the interim application is to
be treated as having been corrected by the terms of the final certificate. (Earlier the
proposition that this conclusion is foreclosed by the terms of clause 4.15.2 was addressed.)
[71]
Contrary to the argument at the interim position dealt with by Fraser J in J&B
Hopkins, this analysis does no damage to the statutory payment and adjudication regime. It
is supported by clause 1.9.1.2 of the standard form contract. It provides that the final
certificate is "conclusive evidence that any necessary effect has been given to all the terms of
this Contract which require that an amount be added to or deducted from the Contract Sum
or that an adjustment be made to the Contract Sum" (subject only to a saving provision of no
application here). On any view an interim application is an attempt to add a sum to the
valuation of the contract works. If paid, that sum requires to be taken into account in the
final certificate. The contractor's late attempt to enforce the interim payment notice
application is not consistent with respect for the final certificate. It sets out what is properly
due for the contract works, whereas interim provisional payments are aimed at cash flow as
they progress.
[72]
It is plain that the commercial judge envisaged that any overpayment now will be
reversed in the court action. There can be no certainty on that, but even if there was, it
would not justify the adjudicator's decision. The more obvious approach is to see the
contractor's timeous challenge as the opportunity to address any alleged defect in th e final
30
certificate as to the adjusted contract sum. Matters can be tested by asking suppose there
had been no court action and thus no timeous challenge to the certificate? Then there could
be no question of seeing the adjudication or the counterclaim as doing no more than
addressing interim relief pending resolution of the correct position with the conclusive
evidence provisions being in limbo. Furthermore the view that the debt created by the
absence of a pay less notice can be enforced unconstrained by the terms of the final
certificate and clause 1.9 cannot turn on the happenstance of whether there has or has not
been a timeous challenge to the final certificate in another process. If the proposition is
correct it would apply in the absence of such and allow a contractor to obtain payment in
terms of both the final certificate and an unpaid interim notice.
[73]
It might be asked if the above analysis is correct, why was the adjudication allowed
to proceed? The answer is that a party has an unfettered and unqualified right to refer a
dispute arising out of a construction contract to an adjudicator "at any time", see section 108
of the 1996 Act. The adjudicator had jurisdiction to deal with the dispute put before him.
The contractor wanted payment in terms of the interim notice and in response to one of the
lines of defence presented an argument that the final certificate was either irrelevant or,
having regard to the terms of cls 1.9.3, had no conclusive effect because a timeous court
challenge had been made. It would be difficult to prevent such an argument from being
heard and adjudicated upon. Indeed it was upheld by the adjudicator.
[74]
The key question now is - did the adjudicator reach the correct decision? In the
meantime the overall conclusion from the above discussion is that interim issues and
disputes are put in the past by the final certificate. The adjudication was not simply about
enforcement of a historic debt. It was a challenge to the terms of the final certificate which
31
stated that the works being over and the contract sum adjusted, the contractor was entitled
to payment of less than £1,500. The proposition that the certificate and the terms of clause
1.9 were of no relevance to the adjudication is not well-founded. In so far as the adjudicator
adopted and applied it, he was in error.
[75]
There remains controversy on two matters. First, did the raising of the timeous
action have the effect of excluding the conclusive evidential status of the certificate as to
sums due in the subsequent adjudication? Secondly, having held that the decision in Marc
Gilbard's Trustees was applicable, did the commercial judge err in dismissing the
counterclaim because of clause 1.9.4?
Some general propositions and their application
[76]
The following propositions can be derived from the cases cited to the court.
1
In order to promote finality and expedition in respect of the resolution of
outstanding issues, in the absence of a timeous challenge (here within 60 days) the
final certificate is intended to be conclusive on, amongst other things, all remaining
financial disputes as to the sum due to the contractor: Marc Gilbard's Trustees paras 1
and 9; Jerram Falkus para 30.
2
Clause 1.9.3 excludes the conclusive nature of the final certificate in respect of the
matters raised in timeous proceedings, not in respect of those raised in any late
proceedings - and this remains true even if the matters at issue are the same in both
proceedings: Marc Gilbard's Trustees paras 30, 32-33 and 47.
3
Clause 1.9.4 applies where there is a clause 1.9 compliant adjudication, the outcome
of which is only temporarily binding and can be reversed. Expedition and finality is
32
achieved by providing that the adjudicator's determination becomes final if not
timeously challenged (here within 28 days) in court or arbitration proceedings: Marc
Gilbard's Trustees paras 13, 27, 34; Jerram Falkus paras 23-26; Castle Inns paras 37-38
and 41.
4
There is no fetter on an adjudication raised after the 60 day period, but the final
certificate will be conclusive on the matters covered by it: Marc Gilbard's Trustees
paras 37-40.
5
Unlike provisional interim valuations and cash flow questions, in respect of which
each interim certificate supersedes its predecessor, a dispute concerning the final
certificate raises the substantive and definitive merits of the parties' rights and
obligations as to the sum due to the contractor and opens up all previous certificates:
Scottish Equitable plc para 29; Castle Inns para 33; Jerram Falkus para 33.
[77]
The commercial judge accepted almost all of the above. For example he noted that
the final certificate "is conclusive evidence of the sum due, unless a challenge to it occurs in
the period stated in the relevant provisions in the contract ..."(para 21). He rejected the
submission that the decision in Marc Gilbard's Trustees was either wrong or distinguishable
and stated that he agreed with the "careful reasoning of Coulson J" (para 27). It would
follow that the adjudicator's reasoning at para 60 of his decision was flawed.
[78]
At this point in the analysis the employer would have anticipated victory, or at least
a considered decision as to whether the adjudicator erred by not making a nil award.
However the judge then referred to "a twist in the tale". While preparing his opinion he
came to consider clause 1.9.4. No mention had been made of it in the debate so he sought
written submissions from the parties. For the first time the contractor argued that the
33
adjudicator's decision was final because the counterclaim was raised more than 28 days after
the decision was issued and thus the challenge was time-barred. That submission was
upheld (para 33).
[79]
If clause 1.9.4 is considered in isolation the judge's decision is readily
understandable. However it requires to be set in the context of the terms and purpose of
clause 1.9 as a whole. In that regard it provides a time constraint on challenges to
adjudications which are compliant with the rest of the provision. It makes little sense to
apply clause 1.9.4 to adjudications raised long after the final certificate, most of which will
have nothing to do with its terms.
[80]
Clause 1.9 strikes a balance between the desire for swift finality as to the status of the
final certificate and the resolution of disputes as to its terms. The clause envisages pre or
post final certificate challenges by way of adjudication, arbitration or litigation (the post
challenges being time limited). Unlike the others, the outcome of an adjudication, though
binding, is temporary ("pay now argue later"). Thus there has to be provision for a
challenge to the outcome of a timeous adjudication; but it would run counter to the overall
intention if that could occur at a time of the challenger's choosing, hence the imposition of a
time cut-off. That is the context and purpose of clause 1.9.4. It is consistent with the general
structure that unresolved disputes on valuations in interim certificates or applications are
superseded by the final certificate which conclusively states the sum due for the contract
works.
[81]
Here the adjudication was not compliant with the terms of clause 1.9 thus sub-
clause 4 was not in play. The commercial judge erred by dismissing the counterclaim
because it was not raised within a 28 day period. He sh ould have addressed its merits. The
34
logic of his acceptance of the decision in Marc Gilbard's Trustees is that the adjudicator erred
in rejecting the argument that in the adjudication the final certificate was conclusive as to the
sum due to the contractors for carrying out the contract works. Given that the adjudication
was not raised within 60 days and the contractor has been paid all that was due in terms of
the certificate, the adjudicator should have made a nil award.
[82]
The commercial judge added additional reasoning (paras 34-36) culminating in:
"Accordingly, I am not persuaded that the Final Certificate must be treated as
conclusive evidence for interim purposes, when there is nothing to support that as
the contractual intention and in any event the accuracy of the certificate is currently
under challenge in the other action."
The reasoning is that timeous legal proceedings are pending which challenge the accuracy of
the final certificate and there is nothing in the contract to allow the employer to obtain what
is described as "interim relief", namely repayment of the monies paid in satisfaction of the
adjudicator's award based on the final certificate being conclusive.
[83]
As already mentioned this approach treats the adjudication and the challenge to the
adjudicator's decision as part and parcel of, or at least as preliminary tactical skirmishes in
the lead up to the resolution of the court action. Thus while meantime thanks to the
enforcement of a historic interim payment notice, the contractor will be in pocket in respect
of a sum in excess of that specified in the final certificate, the view is that this can all be
resolved in the court action and nothing can be done before then.
[84]
There can be no certainty that matters will be resolved in the contractor's court
action, but even if there was, the interim phase ended after the final certificate was issued.
Had there been interim enforcement of the interim payment notice, that would have had a
significant effect on the terms of the final certificate, in particular there would have been a
35
large sum due to the employer. Neither the adjudication nor the counterclaim are properly
described as matters concerning "interim relief" pending the outcome of another process.
[85]
In addition the judge's approach overlooks the consequence of his earlier acceptance
of the decision in Marc Gilbard's Trustees which confirms that notwithstanding the timeous
challenge, the final certificate was conclusive in the adjudication in respect of what sums, if
any, the contractor is due. It is not a matter of treating the adjudication as no more than an
overdue enforcement of the interim payment notice issued early in the contract works
pending a more substantive resolution of the parties' rights and obligations in respect of the
contract sum. All of that was superseded by the final certificate. The only valid challenge to
its conclusive effect is the pending court action. And as discussed earlier, had there been no
timeous court action there would be no room to treat these as interim issues which could be
resolved finally in other proceedings. As to "pay now argue later", the counterclaim is the
place for a reassessment of the correct status of the final certificate in the adjudication, not a
process begun before the adjudication started.
Decision on the reclaiming motion
[86]
The adjudicator's view that the claim concerned a separate matter not involving the
final certificate has been addressed above. The sum due in terms of the final certificate
having been paid, the adjudicator erred in rejecting the employer's argument that the only
legitimate vehicle for extracting more money was the timeous court action. The reclaiming
motion should be upheld and decree pronounced in terms of the first, third and fourth
conclusions in the counterclaim, thereby requiring repayment of the adjudicator's award.
36
The merits of the contractor's valuation of the contract works and the challenge to the final
certificate can be resolved in the pending court action.
The cross appeal
[87]
The first matter raised in the cross appeal is dealt with in the above analysis. In the
whole circumstances the other issues are academic and need not be addressed.
37
Appendix
Clause 1.9:
"1.9 Effect of Final Certificate
1.9.1 Except as provided in clauses 1.9.2, 1.9.3 and 1.9.4 (and save in respect of
fraud) the Final Certificate shall have effect in any proceedings under or arising out
of or in connection with this Contract (whether by adjudication, arbitration or legal
proceedings) as:
... 2 conclusive evidence that any necessary effect has been given to all the
terms of this Contract which require that an amount be added to or deducted
from the Contract Sum or that an adjustment be made to the Contract Sum
...;
.3 conclusive evidence that all and only such extensions of time, if any, as are
due under clause 2.28 have been given; and
.4 conclusive evidence that the reimbursement of direct loss and/or expense, if
any, to the Contractor pursuant to clause 4.23 is in final settlement of all and
any claims which the Contractor has or may have arising out of the
occurrence of any of the Relevant Matters, whether such claim be for breach
of contract, duty of care, statutory duty or otherwise.
1.9.2 If adjudication, arbitration or other proceedings have been commenced by either
Party before the Final Certificate is issued, the Final Certificate shall have effect as
conclusive evidence as provided in clause 1.9.1 upon and from the earlier of either:
.1 the conclusion of such proceedings, in which case the Final Certificate shall
be subject to the terms of any decision, award of judgment in or settlement of
such proceedings; or
.2 the expiry of any period of 12 months from or after the issue of the Final
Certificate during which neither Party takes any further step in such
proceedings, in which case the Final Certificate shall be subject to any terms
agreed in settlement of any of the matters previously in issue in such
proceedings.
1.9.3 If adjudication, arbitration or other proceedings are commenced by either Party
within 60 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.
1.9.4 In the case of a dispute or difference on which an Adjudicator gives his decision
on a date after the date of issue of the Final Certificate, if either Party wishes to have
that dispute or difference determined by arbitration or legal proceedings, that Party
may commence arbitration or legal proceedings within 28 days of the date on which
the Adjudicator gives his decision."
38
Excerpts from part 4 of the contract:
"Interim payments due dates and amounts due
4.9
.1 For the period up to practical completion of the Works, the due dates for interim payments
by the Employer shall be monthly dates specified in the Contract Particulars up to either the
date of practical completion or the specified date within one month thereafter ...
..."
"Interim Certificates and Valuations
4.10
.1 The Architect/Contract Administrator shall not later than 5 days after each due date issue
an Interim Certificate, stating the sum that he considers to be or have been due at the due date
to the Contractor in respect of the interim payment, calculated in accordance with clause
4.9.2, and the basis on which that sum has been calculated.
..."
"Contractor's Interim Applications and Payment Notices
4.11
...
.2 If an Interim Certificate is not issued in accordance with clause 4.10.1 then:
.1 where the Contractor has made an Interim Application in accordance with
clause 4.11.1, that application is for the purposes of these Conditions an
Interim Payment Notice; or
.2 where the Contractor has not made an Interim Application, he may at any
time after the 5 day period referred to in clause 4.10.1 give an Interim
Payment Notice to the Quantity Surveyor, stating the sum that the
Contractor considers to be or to have been due to him at the relevant due date
in accordance with clause 4.9.2 and the basis on which that sum has been
calculated."
"Interim - payments final date and amount
4.12
.2 Subject to any Pay Less Notice given by the Employer under clause 4.12.5, the
sum to be paid by the Employer on or before the final date for payment shall be the
sum stated as due in the Interim Certificate.
...
.5 If the Employer intends to pay less than the sum stated as due from him in the
Interim Certificate or Interim Payment Notice, as the case may be, he shall not later
than 5 days before the final date for payment give the Contra ctor notice of that
intention in accordance with clause 4.13.1 (a `Pay Less Notice'). Where a Pay Less
39
Notice is given, the payment to be made on or before the final date for payment shall
not be less than the amount stated as due in the notice."
"Final Certificate and final payment
4.15
.2 The Final Certificate shall state:
.1 the Contract Sum as adjusted in accordance with clause 4.3; and
.2 the sum of amounts already stated as due in Interim Certificates plus the
amount of any advance payment paid pursuant to clause 4.8 and (where
relevant) any such sums as are referred to in clause 4.9.2.4,
and (without affecting the rights of the Contractor in respect of any interim payment
not paid in full by the Employer by its final date for payment) the final pa yment shall
be the difference (if any) between the two sums, which shall be shown in the Final
Certificate as a balance due to the Contractor from the Employer or to the Employer
from the Contractor, as the case may be. The Final Certificate shall state the basis on
which that amount has been calculated."
40
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2022] CSIH 42
CA45/20
Lord President
Lord Malcolm
Lord Woolman
OPINION OF LORD WOOLMAN
in the reclaiming motion
in the cause
D McLAUGHLIN & SONS LTD
Pursuers and Respondents
against
EAST AYRSHIRE COUNCIL
Defenders and Reclaimers
Pursuers and Respondents: Howie KC; DAC Beachcroft Scotland LLP
Defenders and Reclaimers: DM Thomson KC; Shepherd & Wedderburn LLP
16 September 2022
Introduction
[88]
Construction contracts contain three important regimes. One - interim certificates -
promotes cash flow during the course of a contract. Another - the final certificate - facilitates
the early and conclusive resolution of all outstanding claims. The third - adjudication -
avoids the lengthy construction disputes of yore. Each regime has its own cordon sanitaire.
Sometimes, however, the regimes mesh. Rarely, they clash. That has happened in this case.
It throws a question into sharp relief, how final is a fin al certificate?
41
[89]
The chronology is as follows. (1) The contractor raised a court action challenging the
final certificate and seeking further payment. (2) Six months later, it initiated an
adjudication based on an interim certificate, which resulted in an award in its favour.
(3) The contractor raised an action to enforce the award. (4) In a counterclaim, the employer
contended that the adjudicator had erred in law by not upholding the final certificate.
(5) The commercial judge held that the adjudicator had erred, but the counterclaim failed
because it had not been brought within the 28 day prescribed period. (6) The employer has
paid all sums currently due to the contractor according to the final certificate.
[90]
Two points require clarification. The first concerns the original payment action.
Although it was raised within the prescribed sixty day period, no steps have been taken to
progress matters. It has lain dormant. By contrast, the adjudication was raised well beyond
the prescribed period, but has proceeded to a conclusion.
[91]
The second point is that the dispute focussed in this appeal has a narrow bandwidth.
Everyone acknowledges that there needs to be a final reckoning. That will most likely take
place in the original payment action. At issue is what happens in the interim. The
contractor contends that the adjudication award should stand meantime. The employer
submits that it should be set aside, because the adjudicator should have made a nil award.
Clause 1.9.3
[92]
Clause 1.9.3 addresses the issue of conclusiveness:
"If adjudication, arbitration or other proceedings are commenced by either Party
within 60 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."
42
[93]
In Trustees of the Marc Gilbard Settlement Trust v OD Developments and Projects Ltd
certainty and clarity. It does so by limiting the matters in respect of which the final
certificate is not conclusive to ones raised in proceedings begun within 60 days of its issue.
Crucially, it does not envisage another set of proceedings starting months or years later.
[94]
I accept that construction. It squares with the purposes of Part II of the Housing
Grants, Construction and Regeneration Act 1996. As applied to this case, the original court
action should have constituted the only proper vehicle to challenge the final certificate. The
adjudicator erred in reaching a different conclusion. He should have made a nil award. The
final certificate should have been final.
Clause 1.9.4
[95]
That is not, however, the end of the matter. Clause 1.9.4 states:
"In the case of a dispute or difference on which an Adjudicator gives his decision on
a date after the date of issue of the Final Certificate, if either Party wishes to have that
dispute or difference determined by arbitration or legal proceedings, that Party may
commence arbitration or legal proceedings within 28 days of the date on which the
Adjudicator gives his decision."
[96]
The employer did not raise a timeous challenge to the award. It intimated its
counterclaim to the enforcement action outside the prescribed time limit. I agree with the
commercial judge that this led to a "twist in the tail". The award can no longer be
challenged. I reject the employer's argument that clause 1.9.3 can somehow be construed as
overriding clause 1.9.4.
43
Conclusion
[97]
I would refuse the reclaiming motion. In doing so I express sympathy for the
employer's position. But all issues in the dispute, including the ancillary matters raised in
this reclaiming motion, should now be addressed and resolved in the original payment
action. I encourage parties to expedite its progress.
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