Author: Alan Woolston
Sir Francis Bacon once wrote: “If a man will begin with certainties, he shall end in doubts”.
However, the decision in the recent case of Marc Gilbard v OD Developments confirmed that any doubt as to the certainty afforded by a Final Certificate which a JCT or similar contract states is to be conclusive can be put aside. Parties who wish to dispute such a certificate must act quickly to protect their entitlements, or face losing them for good.
Conclusivity provisions have long been a feature of modern construction contracts. Their purpose is to ensure that, once a project has finished, there comes a point when the parties can draw a line and move on without fear of a potential challenge or dispute which could otherwise emerge many years afterwards. Whilst commonplace, however, these clauses nevertheless deserve close attention.
Take, for example, the conclusivity provisions in the JCT form of contract. They state that the Final Certificate confirming the final account will ordinarily become conclusive evidence that:
These are not minor or inconsequential matters; they concern primary rights and entitlements.
Under the JCT terms, the only way to avoid this conclusive effect is to commence proceedings within 28 days of the due date for the certified final payment. Even then only the matters in dispute will be left open, with everything else becoming final.
In Gilbard, the parties did start court proceedings on the disputed matters within the 28 day period but the litigation became long and drawn out, continuing for well over a year. The defendant decided that enough was enough and tried to refer the dispute to adjudication instead. However, the court held that by this time the right to adjudicate had been lost as the adjudication had not been started in the 28 day period. It did not matter that the parties had got a “foot in the door” on the subject matter of the dispute; the ability to challenge the certificate was limited to the actual proceedings started within that period.
The circumstances of the case may be unusual but it has wider implications. What if, for example, you dispute elements of a Final Certificate by adjudication but through no fault of your own (e.g. the adjudicator reaching the decision out of time) the adjudication process fails? The proceedings would come to an end without resolution, but the ability to pursue an alternative is also gone.
The court suggested that this is consistent with the certainty demanded by business common sense. Whilst it is the letter of the law, I question whether it is indeed the common sense view. Do parties genuinely intend to put themselves at the mercy of potential failures by a third party adjudicator over whom they have very little control or influence, in full knowledge that their unequivocal expression of a dispute could be considered irrelevant on such a technicality with all chance of addressing it in the future being taken away? It seems unlikely. But it is something many parties will have signed up to.
So how do you protect yourself against this? The only absolute safeguard is to also issue protective court or arbitration proceedings within the 28 day period, in parallel with the adjudication. If the adjudication did fail, you could then rely on the parallel proceedings and serve the claim which was issued in time. This involves additional investment in a process which you would hope never to rely on, but for many claims the risk associated with the adjudication going wrong could justify it.
Regardless, when preparing contracts or disputing a final account, parties should pay close attention to conclusivity provisions or risk the consequences.
Alan Woolston, Partner, Fladgate LLP (email@example.com)