It is accepted that "conclusivity" clauses in commercial contracts provide parties with certainty and limit the scope for disputes. Although the Courts have examined conclusivity clauses on several occasions, there has been no previous decision on the meaning and effect of clause 1.9 of the JCT Standard Form of Building Contract until the recent case of Marc Gilbard 2009 Settlement Trust (trustees of) v. OD Developments and Projects Ltd [2015] EWHC 70.
The most commonly used JCT contracts ensure that, following completion of the works, disputes between the parties are resolved quickly and definitively. One way in which the JCT seeks to achieve this is by the use of a Final Certificate which sets out the Contractor's final entitlement to payment. The claim brought by the Trustees of the Marc Gilbard 2009 Settlement Trust (the Trust) raises a short but important point on the effect of the Final Certificate.
Clause 1.9.1 provides that the Final Certificate is conclusive evidence on a number of matters in any proceedings arising out of the Contract. It is evidence that the terms of the Contract, which require an addition or deduction from the Contract Sum, have been properly given effect to, especially in relation to deductions for defects, entitlements to Changes, extensions of time and consequent loss or expense. Therefore, Final Certificates are regularly the subject of disputes between contracting parties.
Clause 1.9.3 states: "If any adjudication, arbitration or other proceedings are commenced by either Party within 28 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."
It is widely accepted that if an Employer's Agent issues a Final Certificate, then clause 1.9.3 provides the Contractor with 28 days in which to challenge it. If there is no challenge within the 28 days, the Final Certificate is conclusive. The question of whether a challenge made in 28 days in one forum allows a party to challenge in another forum where no step has been taken in 28 days was decided in Gilbard.
The Trust's position in Gilbard was simple. The Final Certificate was not conclusive evidence in any proceedings issued within 28 days of the Final Certificate (such as any litigation or adjudication begun within these 28 days). However, the Final Certificate is conclusive evidence in proceedings not issued within that 28-day period, including any future adjudication. OD Developments and Projects Ltd (OD) argued that it had challenged the Final Certificate within 28 days by issuing Court proceedings. Therefore, the Final Certificate was now inconclusive in all other proceedings and as such it could now choose to refer a dispute over the valuation of the Final Certificate to adjudication. OD's reasoning relied on the wording "the matters to which those proceedings relate". It argued that providing the dispute resolution proceedings related to the same matters, there was nothing to prevent OD issuing Court proceedings, adjudication or arbitration concerning those matters once it had made a challenge in one forum or another within 28 days. The Court called this the "foot in the door" argument. In addition, OD argued that should the conclusivity provisions be given effect to in the present circumstances then OD's right to refer the dispute to adjudication "at any time" under the Housing Grants (Construction and Regeneration) Act 1996 (the Construction Act) would be fettered.
Mr Justice Coulson found 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." There is only one qualification, provided in clause 1.9.4. If adjudication is the first choice of the challenging party under clause 1.9.3, the challenging party can begin arbitration or court proceedings within 28 days of the date of the Adjudicator's decision.
Clause 1.9 did not fetter the right to adjudicate "at any time" under the Construction Act. OD had the right to challenge the Final Certificate within 28 days by way of an adjudication as well as in Court proceedings. However, OD chose to litigate only. After 28 days, OD was free to refer a dispute to adjudication. However, in that adjudication the Final Certificate would be conclusive.
Gilbard confirms the widely held view in the construction industry that if a party wishes to challenge the conclusivity of a Final Certificate, then it needs to act quickly (within 28 days) and consider the form of proceedings in which it is best placed to challenge the Final Certificate. This may include commencing an adjudication and/or issuing a Claim Form.
Gurbinder and James acted for the Trust in Gilbard.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
