Practical Law

I’m acutely aware that this blog is being published when many of you will have already broken-up for the Christmas holidays, and quite possibly the last thing you want to be doing is reading work-related content when you could be sipping Bailey’s and watching your favourite Christmas movie (I’ll throw Die Hard, Home Alone and Love Actually into the mix, but not necessarily in that order). I will therefore endeavour to keep this short.

If you cast you mind back to October you might recall that I wrote about CC Construction Ltd v Mincione, which concerned (among other things), the conclusiveness of a Final Statement under a JCT Design and Build Contract, 2011 Edition. Just like buses, a similar case has come along, namely D McLaughlin & Sons Ltd v East Ayrshire Council, which considers the conclusiveness of a Final Certificate under a JCT Standard Building Contract with Quantities, 2011 Edition (it’s the Scottish version but the key clauses are the same).

My thanks to Len Bunton for bringing this judgment to my attention.

D McLaughlin & Sons Ltd v East Ayrshire Council

The keen-eyed amongst you might remember that there was a previous reported judgment on this case, which Julie Scott-Gilroy wrote about in January 2021. I would recommend reading Julie’s blog because she set out the procedure for enforcing adjudicator’s decisions in Scotland. She also summarised the facts of the case (which I’m going to borrow from her!).

The parties’ dispute arose out of a contract to build a primary school extension. The Final Certificate was issued on 17 July 2019, but the contractor contended that it was entitled to a higher sum. Therefore, it raised an action in the Sheriff Court in September 2019. In March 2020, it referred to adjudication a dispute over  interim payment notice from July 2017: the employer had failed to serve a pay less notice or pay the sum claimed. The adjudicator decided that the payment notice was valid and awarded the contractor £428,000. The contractor then sought to enforce the adjudicator’s decision in the Court of Session.

The employer resisted enforcement of the adjudicator’s decision on two grounds: it questioned the validity of the interim payment notice and argued that the Final Certificate was conclusive evidence of the final account and the adjudicator had erred in not treating it as such (it said the adjudication had not been commenced within 60 days of the issue of the Final Certificate). Also, as it had paid all sums due to the contractor under the Final Certificate, the adjudicator should have awarded a nil amount.

As part of its defence, the employer was required to raise a counterclaim as there is no equivalent procedure to CPR 8 in Scotland. It relied on Coulson J’s (as he then was) judgment in Hutton Construction Ltd v Wilson Properties (London) Ltd, which confirmed that a party in enforcement proceedings could seek a declaration under CPR 8 on part of an adjudicator’s decision that it believed was incorrectly decided. The employer argued that the Hutton approach could also be applied in Scotland.

Lord Clark, round 1

When the matter was heard by Lord Clark, he accepted the Hutton approach could be applied in Scotland and said it was for the judge to decide whether to allow a final determination during the enforcement proceedings. Here, the counterclaim did not fall within the Hutton criteria, it did not seek to finally determine the dispute and the adjudicator’s decision was not “beyond rationally justifiable”. The defender’s challenge failed and the adjudicator’s decision was enforced.

Lord Clark, round 2

The counterclaim was heard in 2021 and Lord Clark’s second judgment was handed down earlier this month. This time, he heard full submissions on the counterclaim, before deciding that it failed, both in relation to the conclusivity point and the validity of the interim payment notice point. He said that if there was an overpayment to the contractor (because the employer had paid the amount the adjudicator awarded, as well as the final account sum), that was a matter to be addressed in the on-going Sheriff Court proceedings concerning the merits of the valuation of the Final Certificate.

I think that two of the three points dealt with by Lord Clark are of interest, namely the conclusivity of the Final Certificate and the validity of the interim payment notice.

The conclusivity of the Final Certificate

The judgment sets out the relevant extracts from clause 1.9 , which deals with the effect of the Final Certificate (and which are too long to recite here, otherwise I’ll certainly have failed in my endeavour to keep this short before I have even started!).

The parties took opposite positions in relation to the Final Certificate:

• The contractor argued it was not conclusive evidence in the adjudication, essentially because the Sheriff Court proceedings were started within 60 days and those proceedings were challenging the sum the contractor was entitled to under the final account.
• The employer relied on Coulson J’s judgment in The Trustees of the Marc Gilbard Settlement Trust v OD Developments and Projects Ltd and argued that the Final Certificate was conclusive in both the adjudication and the counterclaim, as both were raised more than 60 days after it was issued.

Lord Clark agreed with Coulson J’s conclusion in The Trustees of the Marc Gilbard Settlement Trust that in any form of proceedings commenced after the specified period (28 days under the standard form, 60 days in the parties’ amended form), the Final Certificate must be conclusive evidence. As such, the commencement of Sheriff Court proceedings in September 2019 did not mean that the Final Certificate was not conclusive for the purposes of the adjudication commenced in March 2020. So, in this respect England and Scotland are at one, and the employer and its lawyers would no doubt have been rather pleased with this finding.

However, their pleasure would have been short lived because, as Lord Clark explained:

“… there is a twist in the tale: two fundamental points arise from the reasoning of Coulson J, one of which is from an earlier case. If followed, these are in my view fatal to the defender’s argument in this case…”

The judge referred to Coulson J’s judgment in Jerram Falkus Construction Ltd v Fenice Investments Inc in regard to the first of the “fundamental points”. In that case Coulson J decided that, on the proper construction of clause 1.9.4, where an adjudicator has rejected a challenge to a final account and no proceedings are raised within 28 days, the adjudicator’s decision is conclusive. Lord Clarke noted that the adjudicator’s decision in this case was issued on 11 May 2020, but the employer had not lodged its counterclaim until 17 July 2020, that is, more than 28 days after the adjudicator’s decision, and therefore on this basis alone the challenge failed.

In regard to the second of the “fundamental points”, relying on Coulson J in The Trustees of the Marc Gilbard Settlement Trust, Lord Clark found the employer was not entitled to interim relief based on the Final Certificate being conclusive (which, on its case, would have resulted in it obtaining repayment of the sum awarded by the adjudicator) prior to the Sheriff Court proceedings being resolved concerning the merits of the valuation of the Final Certificate. Lord Clark said there was no basis for such a finding under clause 1.9.

Validity of the interim payment notice

Given the employer had not issued its counterclaim within 28 days of the adjudicator’s decision, Lord Clark found that its claim in respect of the validity of the interim payment notice also failed, but he nevertheless expressed his views on it.

The employer had contended that the interim payment notice was invalid because it had referred to a due date of 27 June 2017, whereas the actual due date was 28 June 2017.  Although Lord Clark did not have to establish whether the interim payment notice referred to the correct date he said that, if he had had to deal with the point and it had specified the wrong date, then he would have found it to be invalid. Lord Clark referred to the relevant clause of the contract (clause 4.11.2.2), which expressly requires that an interim payment notice states “the sum that the Contractor considers to be or to have been due to him at the relevant due date” and stated that:

“If the contractor does not use the relevant due date, he does not comply with that provision. The fact that the date used is close to that of the relevant due date does not in my view assist.”

My thoughts

I think it is helpful to have confirmation that there is consistency in the approach of the English and Scottish courts to the conclusiveness of Final Certificates. After all, many English contractors work in Scotland under the JCT Standard Form of Contract and vice-versa. The consistent approach reflects the natural and ordinary meaning of the words used because clause 1.9.3 is clearly intended to limit the matters in respect of which the Final Certificate is not conclusive to those matters raised in proceedings commenced within the specified period. This gives clarity and certainty to the parties. As Coulson J concluded in The Trustees of the Marc Gilbard Settlement Trust:

“I consider that the proper construction of clause 1.9.3 is that….., the challenger has to challenge the Final Certificate in one set of proceedings, and that it is those proceedings which constitute the only vehicle by which the Final Certificate is capable of being challenged.”

Turning to the interim payment notice issue, some might be surprised that, if the only deficiency in an otherwise valid payment notice is a reference to a due date that is one day out, it could result in the notice being invalid, particularly in circumstances where the contract does not require the contractor to expressly state the due date. Nevertheless, those drafting payment and pay less notices, particularly in Scotland, should note the rigid interpretation adopted by Lord Clark. What I suspect most QSs sat in a site office would consider to be an inconsequential error could actually turn out to be very costly.

On that jolly note, I wish you all a very Merry Christmas!