What's the deadline for challenging the final statement under JCT Contracts? (...and how to ensure your challenge is effective)

13 minute read
04 October 2021

In the recent decision of CC Construction Ltd v Mincione [2021], the Technology and Construction Court (the TCC) considered various issues relating to the interpretation of standard Joint Contract Tribunal (JCT) wording. Of particular interest are those parts of the judgment relating to the due date for final payment, which determines the deadline for challenging the Final Statement, and the need for the written challenge to be clear and unambiguous to ensure it constitutes an effective challenge.

Read our analysis below.



Summary

Points to watch out for under JCT standard wording:

  • Don't miss the deadline for challenging the Final Statement in order to prevent it becoming conclusive - assume you have to work to the earliest possible due date for final payment (under e.g. clause 4.24.5 of JCT DB 2016).
  • Make sure the written challenge to the Final Statement is unambiguous in terms of identifying the Final Statement that is being challenged (e.g. specifying date, name, covering letter).

Background

  • In 2016, Mr Mincione (the Employer) appointed CC Construction Ltd (the Contractor) to design and build the shell and core of a new house in London under a JCT Design and Build Contract 2011 form with amendments (the Contract).
  • Practical Completion was on 15 November 2019.
  • On 5 October 2020, the Contractor sent a Final Statement to the Employer showing a balance of £479,957.80 owing to the Contractor. As there was later some debate about whether or not that letter had been received, the Contractor wrote again on 1 December 2020 attaching the 5 October letter and enclosures, including the Final Statement.
  • The Employer replied on 18 December 2020 giving notice that it disputed the content of the Final Statement under clause 4.12.6 of the Contract and contending delay in completing the works, claiming that liquidated damages (LDs) in excess of £340,000 were due from the Contractor.
  • Although there had been no related schedule of defects or instructions for rectification under clause 2.35, the Employer issued a Notice of Completion of Making Good on 13 January 2021.
  • A dispute arose centring round the Final Statement and an adjudication followed, in which the Contractor was awarded £483,512.12 in a decision issued on 26 March 2021 (the Decision) - the Employer did not pay.

Both parties commenced these proceedings in April 2021.

The issues

We summarise the issues in terms of principle.

  1. What was the due date for the final payment?
    1. Employer - claimed it was 13 February 2021, being one month after the purported Notice of Completion of Making Good on 13 January 2021.
    2. Contractor - the due date was no later than 4 January 2021, being one month from the Employer's receipt of the Final Statement on 4 December 2020.
  2. What was the status of the Employer's letter of 18 December 2020? Two sub-issues here:
    1. was it effective to prevent the Final Statement received on 4 December 2020 becoming conclusive? (Employer said yes; Contractor said no);
    2. to prevent the Final Statement becoming conclusive, did clause 4.12.6 also require the commencement of adjudication, arbitration or other proceedings? (Employer said no; Contractor said yes).
  3. Should there be a declaration as to the effect of clause 1.8.1 in relation to the Final Statement and the extent of its conclusivity as to sums due?
  4. Was the Decision enforceable? Two sub-issues:
    1. did the Adjudicator have jurisdiction to address the issue of conclusivity of the Final Statement?;
    2. had there been a breach of natural justice in the Adjudicator's treatment of the Employer's claim to be entitled to set off LDs?

TCC decision

Due date

It was contended on behalf of the Employer that as the Contract was based on a standard form JCT contract, it had to be interpreted in "such a way as to promote certainty". The Judge did not accept the contention that because of this, some special rule of interpretation applied. His Honour Judge Eyre QC emphasised that the Court's task was to "ascertain the intention of the parties by reference to the language used when seen in context".

Clause 4.12.5 of the Contract (which is the unamended wording of this sub-clause in the standard form JCT DB 2011 and the equivalent clause 4.24.5 in JCT DB 2016) provided as follows:

"The due date for the final payment shall be the date one month after whichever of the following occurs last:

  • .1 the end of the Rectification Period in respect of the Works or (where there are Sections) the last such period to expire;
  • .2 the date stated in the Notice of Completion of Making Good under clause 2.36 or (where there are Sections) in the last such notice to be issued unless no defects are issued; or
  • .3 the date of submission to the other Party of the Final Statement or, if issued first, the Employers Final Statement."

The Judge's conclusion was that clause 4.12.5.2 can only apply when a Notice of Completion of Making Good has to be issued under clause 2.36. As here, no defects were specified by the Employer under clause 2.35, there was no scope for a Notice of Completion of Making Good; as a result, the Employer's communication of 13 January 2021 was not a notice under clause 2.36. In that case, clause 4.12.5.2 simply did not come into operation.

The Judge's conclusion therefore was that under clause 4.12.5.3, the due date was 4 January 2021, being one month from the Final Statement.

Conclusivity of the Final Statement

Clause 4.12.6 of the Contract (which is the unamended wording of this sub-clause in the standard form JCT DB 2011 and the equivalent clause 4.24.6 in JCT DB 2016) provides:

"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."

Did the letter correctly reference the Final Statement?

  • The Contractor argued that the Employer's letter of 18 December 2020 was not effective as a notice disputing the Final Statement prior to the due date for the final payment for the purposes of clause 4.12.6, as it referenced the Final Statement enclosed with the Contractor's letter of 5 October 2020 and not the Final Statement received on 4 December 2020. They were in fact one and the same; the entire letter and attachments of 5 October 2020 were simply re-attached to the letter of 1 December by the Contractor.
  • As the Judge stated therefore, "a reasonable recipient of the Employer's letter of 18th December 2020 would be in no doubt that the Employer was disputing the Final Statement which had been re-sent on 1st December 2020 after having been originally sent on 5th October 2020".
  • The Employer's letter of 18 December 2020 did therefore operate as an effective notice of dispute under clause 4.12.6.

Did clause 4.12.6 also require commencement of proceedings in order to prevent the Final Statement becoming conclusive?

  • The Contractor also argued that clause 4.12.6 additionally required the commencement of proceedings (adjudication, arbitration or otherwise) before the due date and this was not done by the Employer. The Contractor relied on the words "subject to clause 1.8.2" in clause 4.12.6, contending that those words govern the entirety of the preceding words of clause 4.12.6 and that a two stage process was therefore required to prevent the conclusivity of the Final Statement i.e. a notice and commencement of proceedings.
  • The Judge disagreed and held that the words "and subject to clause 1.8.2" in fact govern the words that follow, not the words that precede them and that as a matter of language therefore, clause 4.12.6 provides for different rather than cumulative means of preventing a Final Statement becoming conclusive. If proceedings have been started before the due date then the Final Statement does not become conclusive, even if no notice of dispute has been given.

The TCC therefore held that the Employer's letter of 18 December 2020 was effective to prevent the Final Statement becoming conclusive under clause 4.12.6.

Should there be a declaration as to the effect of clause 1.8.1?

The Employer sought a wide-ranging declaration relating to the conclusivity of the Final Statement under clause 1.8.1 of the Contract; one of the effects of the declaration sought would be to preclude arguments by the Contractor that it was entitled to an extension of time.

The Contractor's position was that such a declaration was not appropriate. In response to the Employer's liquidated damages claim, the Contractor would wish to argue that it had been prevented from completing the Works meaning that the prevention principle operated and that time for completion had therefore been at large; alternatively, at the least, that the Employer was not able to claim LDs on the basis of the Contractor's alleged delay.

The Judge held that as there was real potential for a dispute relating to delay that was fact-specific, it was not appropriate to make a ruling on the operation of clause 1.8.1 in these proceedings.

Was the Decision enforceable?

Did the Adjudicator have jurisdiction to determine whether the Final Statement was conclusive?

The TCC held that the Adjudicator did have jurisdiction as it was inherent from the exchanges between the Employer and the Contractor that there was a dispute as to the conclusivity of the Final Statement.

Had there been a breach of natural justice in the Adjudicator's treatment of the Employer's claim to be entitled to set off LDs?

The Adjudicator had concluded that the issue of LDs was not a part of the dispute he had been asked to decide and therefore the LDs could not be raised in set off. He stated he had no power to open up the Final Statement once conclusive.

The Employer said that the Adjudicator deliberately declined to consider the set off defence while the Contractor said he did consider and reject it, on the basis of the Employer's failure to serve a Pay Less Notice.

The Judge agreed with the Employer on this and found that the Adjudicator's view was incorrect. This was a failure by the Adjudicator to exercise his jurisdiction which amounted to a material breach of the rules of natural justice. As a result, the Adjudicator's decision was only enforceable to the extent of the balance of the award over the amount of the LDs claim.

Commentary

This decision is of particular interest as parts of the judgment relate to the standard JCT contract wording setting out the due date for the final payment, and the requirements for an effective challenge to the Final Statement.

The direct practical relevance is to be aware that the due date for final payment (and therefore the date by which the final account must be challenged to avoid it becoming conclusive) may be earlier than you had assumed.

  • Clause 4.12.5.2 of the JCT DB 2011 wording (and the equivalent clause in JCT DB 2016) only becomes operative where the requirement for a Notice of Completion of Making Good is triggered by the Employer specifying defects under clause 2.35.
  • If clause 2.36 is not triggered, even if you purport to send a Notice of Completion of Making Good (as the Employer did in this case) then clause 4.12.5.2 will not be operative meaning that:

"The due date for the final payment shall be the date one month after whichever of the following occurs last:

  • .1 the end of the Rectification Period in respect of the Works or (where there are Sections) the last such period to expire;
  • .2 the date stated in the Notice of Completion of Making Good under clause 2.36 or (where there are Sections) in the last such notice to be issued unless no defects are issued; or
  • .3 the date of submission to the other Party of the Final Statement or, if issued first, the Employers Final Statement." [Sub-clause shown as struck out here merely to highlight the provisions that will take effect if clause 2.36 is NOT triggered].
  • In that scenario, the due date for the final payment will pivot off either the end of the Rectification Period or the date of submission of the Final Statement.

Best to err on the side of caution - when challenging the Final Statement to prevent it becoming conclusive, work back from the earliest possible end date under clause 4.12.5. This will remove the risk of challenging out of time, when the Final Statement has already become conclusive.

As well as ensuring that you don't miss the deadline for the challenge, the written challenge to the Final Statement needs to be unambiguous in terms of identifying the Final Statement that is being challenged (e.g. specifying date, name, covering letter).

If you have any queries on this or any construction issue, contact Ashley Pigott.


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