REUTERS | John Kolesidis

The effect of a failed adjudication on the JCT final certificate “conclusive evidence” clause

In University of Brighton v Dovehouse Interiors Ltd, Carr J in the TCC gave guidance on the meaning of “commenced” adjudication proceedings for the purposes of challenging a final certificate under the JCT standard form of contract. The judgment also considers what the position is where the adjudication is then aborted.

Conclusive evidence clauses

Users of the various JCT forms of contract will be familiar with its “conclusive evidence” clause relating to the final certificate (in this case, clause 1.9). Once the final certificate has been issued, if either of the parties disagrees with its contents, clause 1.9.2 gives them 28 days to challenge it by commencing adjudication, arbitration or other proceedings. If proceedings are not commenced in that time, the final certificate becomes conclusive evidence in respect of the contractor’s entitlements, including those relating to extensions of time and adjustments to the contract sum (for example, to reflect variations or loss and expense).

The commercial rationale of the clause is to encourage the parties to reach agreement on the contractor’s entitlements after completion of the works and, if that is not possible, to give certainty as to those entitlements within a pre-defined period of time.

Dovehouse’s final account dispute

Dovehouse carried out fit-out and associated works to a new campus building for the University of Brighton in 2012. Practical completion was certified on 30 October 2012, but there were various disputes between the parties relating to time, money, incomplete works and defects.

The contract administrator issued the final certificate on 9 December 2013, which triggered the 28-day period under clause 1.9.2. The parties agreed to extend this period to 66 days to attempt to resolve their differences, but those attempts proved unsuccessful.

The abortive adjudication proceedings

On day 65 Dovehouse served a notice of adjudication on the University. It identified the wrong adjudicator nominating body (ANB) and gave an address for the University different from that specified in the contract.

As a result of being nominated by the wrong ANB, the adjudicator resigned a week after his appointment. By this time, the agreed 66-day period had expired. Consistent with the authorities, the University claimed that the adjudication was a nullity and, as a result, no proceedings had been commenced for the purposes of clause 1.9. Accordingly, the final certificate was now conclusive.

Dovehouse disagreed. It served a second notice of adjudication on 24 February 2014, this time identifying the correct ANB. The University then applied (under CPR Part 8) for a declaration as to the effect of the final certificate.

What does “commenced” mean for the purposes of clause 1.9?

The court held that:

  • Service of a notice of adjudication (as opposed to a referral notice) commenced adjudication proceedings for the purposes of clause 1.9 and this had the effect of triggering the saving proviso relating to the final certificate.
  • The notice of adjudication had been validly served in accordance with the requirements of the Scheme for Construction Contracts 1998 and the contract. The identification of a different address to that stated in the contract particulars (as required by paragraph 1(3)(d) of the Scheme) was not sufficiently material to invalidate the notice.

The effect of the adjudicator’s resignation

It was common ground between the University and Dovehouse that the adjudicator was right to resign. It is also settled on the authorities that, in those circumstances, the referral becomes a nullity. But what does this mean in practice?

The University:

  • Claimed that as the adjudication had become a nullity, it could not be treated as having commenced. It was not possible to make good the referral based on the first notice of adjudication and so Dovehouse had to re-start the process with a new notice, which it did. However, by this stage, Dovehouse was out of time for reasons that it was solely responsible for.
  • Suggested you could distinguish between causes of an adjudicator’s resignation that the referring party assumed a risk or responsibility for (such as approaching the wrong ANB) and those that it did not. Here, Dovehouse should live with the consequences of failures in the process for which it assumed a risk, namely the final certificate becoming conclusive evidence of its entitlements.

Dovehouse claimed that the saving proviso in clause 1.9.2 of the contract was linear. Once it was triggered, it could not be reversed. Accordingly, it did not matter if the proceedings connected to that notice could not proceed.

The court agreed with Dovehouse. It noted that the relevant provisions of the Scheme (and the Court of Appeal in Lanes v Galliford Try) did not draw a distinction between the various possible causes of an adjudicator’s resignation. In fact, the court held that the subsequent failure of the adjudication was not relevant to whether adjudication proceedings had been “commenced” for the purposes of clause 1.9.2 In its judgment:

“…commencement of proceedings… requires no more than the giving of a valid notice [of adjudication] under paragraph 1(3) of the Scheme.”

The application to the wrong ANB, whilst problematic for the referral notice, did not affect the notice of adjudication’s validity.

Not so much of a nullity as some may have thought

Can adjudication proceedings be “commenced” to trigger the saving proviso when the referring party has no intention of seeing them through? Would this frustrate the commercial rationale and operation of the conclusive evidence clause? At the very least, the original responding party would be left having to commence its own separate proceedings which, in turn, would lead to delays and additional costs.

Here, Carr J held that once the saving proviso was triggered, it remained in operation during the currency of any subsequent adjudication proceedings. This conclusion was “not inconsistent” with the view expressed in Bennett v FMK Construction Ltd [2005] EWHC 1268 (TCC) that the saving proviso of clause 1.9.2 would fall away if the referring party abandoned the adjudication. Carr J noted:

“…otherwise a party could simply abuse the ability to commence proceedings under the Scheme by serving a notice of intention to proceed and removing the conclusive effect of the Final Certificate without any intention to resolve the dispute under the Scheme.”

However, she went on to note that the court did not need to consider abandonment because Dovehouse re-started the adjudication immediately, this time approaching the correct ANB.

Carr J referred to the Court of Appeal’s decision in Lanes v Galliford Try. In that case, the referring party abandoned the adjudication and re-started it to obtain a different adjudicator. The Court of Appeal found that this was insufficient to deny the referring party the right to refer its dispute to adjudication. Carr J commented that:

“…the Court of Appeal eschewed the notion that where adjudication is not pursued (for whatever reason) the right to adjudication is lost forever. It drew no distinction between circumstances where adjudication was thwarted by error on the part of the referring party or for some other reason. It expressly rejected the invitation to alter the result by reference to the cause of the adjudication proceedings not continuing to their end.”

Despite the fact that Lanes v Galliford Try was not determined in the context of a conclusive evidence clause, Carr J concluded that its reasoning applied. If that is true then, while not considered directly in this case, the logical conclusion is that a referring party could serve a valid notice of adjudication to trigger the saving proviso in clause 1.9.2, only to subsequently abandon the adjudication thereafter. It is not clear how this sits with Carr J’s view about abuse of process.

So where are we now?

Carr J’s judgment gives helpful confirmation that, for the purposes of the JCT’s conclusive evidence clause (at least), a valid notice of adjudication is required to commence proceedings for the purposes of challenging the final certificate. Thereafter, the position remains a little uncertain.

In this case, approaching the wrong ANB was not enough to undo the commencement of adjudication proceedings, even though those proceedings had to be “re-started”. The court noted that, in substance, actual notice of Dovehouse’s claims had been received prior to the expiry of the 66-day period and that Dovehouse was not slow in correcting and re-serving its notice of adjudication.

The court was perhaps reluctant to shut out Dovehouse from having its final account claims adjudicated where it had given notice of them to the University within time. In fact, the court might have taken the position even further. As long as a valid notice of adjudication is given, that is enough to trigger the saving proviso and, following Lanes v Galliford Try, it appears not to matter what happens thereafter to bring about an end to the adjudication. Once triggered, the saving proviso cannot be reversed.

Share this post on: