I’ve just been looking back over our past blogs and neither Matt nor I have written about an English adjudication enforcement case since May. That’s in part been because there weren’t many reported adjudication enforcement judgment on BAILII over the summer, but that changed in September with publication of judgments in Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd and CC Construction Ltd v Mincione, both judgments of HHJ Eyre QC. There are lots of similarities between them as both are about an adjudicator’s jurisdiction, breach of the rules of natural justice and severance. Theresa Joo has already written an excellent blog on the former case, and so I thought I would plump for the latter.
CC Construction Ltd v Mincione is one of those cases where, not only were the parties in dispute, they also had the added stress of it concerning conclusivity issues with a JCT Final Statement.
CC Construction Ltd v Mincione
In April 2016, Mr Mincione (the employer) engaged CC Construction (the contractor) under an amended JCT Design and Build Contract, 2011 Edition, to design and build the shell and core of a new house, along with the demolition of two existing mews houses in Knightsbridge, London. The contract value was originally £2.5 million, although it was revised to £3.1 million in September 2017.
Key events include the following:
- The contract did not provide for sectional completion although, in December 2018, the employer took partial possession of the “entirety of the Property apart from the external face of the boundary wall of 57 Clabon Mews”. The contractor said this amounted to 99.86% of the value of the works. Practical completion was certified in November 2019.
- In October 2018, prior to taking partial possession, the employer issued a non-completion notice and notice of an intention to withhold liquidated damages because of delay.
- In February 2020, after taking partial possession, the employer issued a Notice of Completion of Making Good, which related to the “Relevant Part” (that is, the part the employer had already taken possession of).
- The contractor’s final account was issued in March 2020.
- On 5 October 2020, the contractor sent the employer a Final Statement. This showed a balance due to the contractor of some £480,000. It is unclear whether the employer received the Final Statement and so the contractor sent a further copy on 1 December 2020, which the employer responded to in a letter of 18 December, rejecting the sums claimed.
- The employer issued a Notice of Completion of Making Good of the whole works on 13 January 2021.
- On 19 January 2021, the contractor sent an invoice for the outstanding £480,000, arguing the contractual final date for payment of the Final Statement was 15 January 2021.
- On 10 February 2021, the employer served a payment notice claiming an overpayment to the contractor of some £255,000.
The dispute over the sum due to the contractor and whether the employer was entitled to deduct liquidated damages was referred to adjudication, with the adjudicator deciding that:
- No Notice of Completion of Making Good was required, and it was therefore not relevant in determining the due date for payment.
- The dispute over the Final Statement had crystallised and was conclusive (the employer’s December 2020 letter did not prevent this, and nor did the fact that the employer had not started proceedings prior to the due date) and so the contractor was entitled to the sum claimed as no payment or pay less notice had been issued before the due date for payment of 4 January 2021.
- The employer’s liquidated damages claim was not part of the dispute referred and could not be raised as a set-off.
The matter came before HHJ Eyre QC pursuant to enforcement proceedings commenced by the contractor and a Part 8 claim commenced by the employer. He reviewed the parties’ contract and set out his interpretation of how the various provisions operate:
- He agreed with the adjudicator that no Notice of Completion of Making Good was required in this case, and it was therefore not relevant in determining the due date for payment.
- He found that the employer’s December 2020 letter did prevent the Final Statement becoming conclusive notwithstanding the fact that the employer had not started proceedings prior to the due date (although he made no declaration about the effect of clause 1.8.1 (which dealt with conclusivity) or the due date for payment).
- He concluded the adjudicator had jurisdiction to address the conclusivity question but failing to deal with liquidated damages was a material breach of the rules of natural justice.
- He suggested he could sever the decision (there was a “core nucleus … that can be safely enforced”), and could enforce the balance over the amount of the liquidated damages claim.
The interesting aspects of the judgment
There are three very interesting aspects of this case I want to discuss. The first two are particularly relevant to parties to construction contracts and those that represent them, and the final aspect serves as a useful reminder to adjudicators about the need to avoid material breaches of the rules of natural justice:
- Notice of Completion of Making Good is not required in all circumstances.
- Parties can avoid a Final Statement becoming conclusive without having to serve proceedings.
- Where payment is being claimed, adjudicators’ need to ensure they deal with all available defences.
Notice of Completion of Making Good is not required in all circumstances
The judge’s discussion about the parties’ cases and his findings on this point stretch to almost nine pages, but I think they can be distilled into the following principles under the JCT D&B 2011 contract:
- A Notice of Completion of Making Good (a Making Good Notice to avoid the tongue twister) can only be issued under clause 2.36 in circumstances where an employer has required defects, shrinkages and other faults to be made good in accordance with the provisions of clause 2.35.
- Where there is no scope to issue a Making Good Notice under clause 2.36, then it will not be relevant in determining the due date of the final payment under clause 4.12.5. In these circumstances, the due date for payment will be the later of the end of the Rectification Period (clause 184.108.40.206) and the date of submission of the relevant Final Statement (clause 220.127.116.11), and the issue of a Making Good Notice will not be relevant (clause 18.104.22.168).
I have made specific reference to the JCT D&B 2011 contract, but the 2016 Edition uses materially the same wording at clause 2.36 and the equivalent to clause 4.12.5 (clause 4.24.5). Therefore, I see no reason why the same principles would not apply.
In my view the above findings could have some significant implications for parties where the question of whether the starting pistol for the final payment has been fired. I’m not talking about instances where no defects or shrinkages are noted by the employer, as those are few and far between in my experience. Rather, I am talking about situations that many of us will be familiar with, namely where there is a dispute as to whether defects and shrinkages have been notified within the correct period under clause 2.35.
Parties in the midst of such live disputes could suddenly find that a due date for a final payment has already arisen as a result of this judgment.
Parties can avoid a Final Statement becoming conclusive without having to serve proceedings
As I intimated in the opening paragraph, conclusivity issues on JCT Final Statements and the like can bring parties and their representatives out in a cold sweat, as there can be serious consequences if a party fails to take heed of the relevant contractual provisions.
The primary clause under consideration regarding the conclusivity of the Final Statement was 4.12.6:
“Except to the extent that prior to the due date for the final payment the Employer gives notice to the Contractor disputing anything in the Final Statement or the Contractor gives notice to the Employer disputing anything in the Employer’s Final Statement, and subject to clause 1.8.2, the relevant statement shall upon the due date become conclusive as to the sum due under clause 4.12.2 and have the further effects stated in clause 1.8.”
The contractor argued that the effect of the words “subject to clause 1.8.2” in clause 4.12.6 was that in order to prevent a Final Statement becoming conclusive, the employer had not only to give notice of dispute but also had to commence proceedings whether by adjudication, arbitration or otherwise before the due date and that was not done here.
The judge disagreed, deciding that as a matter of language clause 4.12.6 provides for a different rather than a cumulative means of preventing a Final Statement becoming conclusive. The judge also stated that this consequence follows when regard is had to the nature of the contract and the purpose of the provisions.
I think that the judge’s findings will be of interest to many with a JCT D&B 2011 contract (and indeed the 2016 Edition as it uses materially the same wording as clause 4.12.6 at clause 4.24.6) where disputes exist at or around the time of the Final Statement. This is because my impression is that many practitioners have worked on the basis that proceedings have to be issued in accordance with clause 1.8 in order to avoid a Final Statement from becoming conclusive evidence of the matters set out.
The resulting different outcomes of applying the judge’s findings to similar Final Statement disputes could probably fill an entire blog, but perhaps we’ll leave that for another day!
Where payment is being claimed adjudicators’ need to ensure they deal with all available defences
When it came to the employer’s set-off for liquidated damages the adjudicator had concluded:
“It is established law that an Adjudicator cannot open up a certificate considered to be conclusive, as such, once the due date has been determined, the Adjudicator will have no further power to open up the Final Statement. In respect of liquidated damages, I conclude that it is not a part of the dispute I have been asked to decide and therefore cannot be raised in set off in these circumstances.”
In court, the employer argued that the adjudicator had materially breached of the rules of natural justice by failing to address his case on deducting liquidated damages. Somewhat unsurprisingly, given the authorities on this point (including Global Switch Estates 1 Ltd v Sudlows Ltd which I blogged about in January), HHJ Eyre QC agreed. The authorities are clear in that, where a referring party seeks payment in respect of specific elements of the works, the responding party is entitled to rely on all available defences (including the valuation of other elements of the works) to establish that the referring party is not entitled to the payment claimed.
Therefore, an adjudicator must deal with those defences, even if it is a case of simply finding that they fail as a result of a lack of a pay less notice. This is consistent with Coulson J’s (as he was then) point in Pilon Ltd v Breyer Group plc that the responding party’s right to rely on all available defences is “subject to questions of withholding notices”.
Here, the employer was not entitled to deduct liquidated damages as he had not served a pay less notice. If the adjudicator had dismissed the employer’s set off defence on this basis then there would have been no breach of the rules of natural justice.
However, what some might find surprising is that the adjudicator’s finding on this point was found to be a material breach of the rules of natural justice. After all, if he had correctly dealt with the liquidated damages set off defence, the result of the adjudication would quite clearly have been the same. Adjudicator’s beware!
Some final thoughts
Given that, ultimately, the employer managed to get the liquidated damages deducted from the sum awarded by the adjudicator, I am not sure that we will see this case appealed. Therefore, it is all the more important that parties, representatives and adjudicators heed the points I have made above.