CC Construction Limited v Raffaele Mincione – JCT Final Statements and Adjudication enforcement
September 2021In CC Construction Limited (‘the Contractor’) v Raffaele Mincione (‘the Employer’) [2021] EWHC 2502 (TCC), the TCC concluded that the Adjudicator had jurisdiction to address a set off defence that they had disregarded prior to reaching the Adjudication decision (‘the Decision’), resulting in a material breach of the requirements of natural justice.
Background
This case concerns the design and construction of the shell and core of a new house at 57 – 59 Clabon Mews, London (‘the Property’). In 2016, the Employer engaged the Contractor using the JCT Design and Build Contract (2011 Edition) with a few variations. The initial contract sum was £2, 587, 250, which increased to £3,130,602 following amendments to the contract.
On 7 December 2018, the Employer took partial possession of the Property (‘the Relevant Part’) without possession of the external face of the boundary wall and under clause 2.30 of the Contract, the Contractor gave notice that partial possession of the Property had occurred. Practical completion was achieved for the whole of the Works on 15 November 2019, initiating the contractually agreed 12-month Rectification Period. A Notice of Completion of Making Good was issued by the Employer in respect of the Relevant Part on 14 February 2020 and both parties subsequently entered negotiations to settle the account.
The Rectification Period for the whole of the Works expired on 15 November 2020 and on 1 December 2020 the Contractor sent a Final Statement to the Employer pursuant to clause 4.12.6 of the contract detailing a balance of £479,957.80 owed by the Employer.
On 18 December 2020, the Employer responded by disputing the sum of the Final Statement, as (amongst other issues) it did not account for liquidated damages of £343,237.74 owed by the Contractor for delayed completion of the Property. On 13 January 2021 the Employer issued a further Notice of Completion of Making Good for the whole of the Works. The Contractor referred the dispute to adjudication.
In the Decision, the Adjudicator concluded that the due date for payment the Final Statement sum was 4 January 2021. In addition, the Adjudicator decided that the Final Statement was conclusive, and that the Employer owed the Contractor a final payment of £479,957.80, having failed to issue a valid payment notice or a pay less notice under clauses 4.12.7 and 4.12.8 of the contract.
Although the Employer had raised the defence of legal set off based on the liquidated damages, the Adjudicator declined to consider it on the grounds that they did not consider that they had jurisdiction to consider that issue.
Part 8 Claim
The Employer brought a Part 8 Claim on 9 April 2021 to ascertain the due date of the Final Statement, the conclusivity of the Final Statement and the enforceability of the Decision, in response to, the Contractor filing a Part 7 Claim to enforce the Adjudicator’s decision. In defence of the Part 7 proceedings, the Employer raised that the Adjudicator had breached their right to natural justice by failing to consider the set off defence for liquidated damages. The case was heard by HH Judge Eyre QC in the TCC on 13 July 2021.
Firstly, under clause 4.12.5 of the contract, the due date for final payment is defined as being one month after the last of the following to occur:
- The end of the Rectification Period;
- The date in the Notice of Completion of Making Good;
- The date of submission of the Final Statement.
HH Judge Eyre QC therefore agreed with the Decision relating to the due date, as 4 January 2021 was one month after the submission of the Final Statement on 1 December 2020, which was the last applicable event under clause 4.12.5 to occur. This was because the Judge considered a Notice of Completion of Making Good for the whole of the Works was not necessary. The Employer (or their agent) had not issued any notice identifying defects to be made good under clause 2.35 of the contract for the whole of the Works. This meant that the Employer could not rely on the Notice of Completion of Making Good issued on 13 January 2021 to claim the Contractor’s Final Statement was premature.
Regarding the conclusivity of the Final Statement, HH Judge Eyre QC considered clause 1.8.1 of the contract, which provides that the Final Statement can become conclusive as to any extension of time and loss and expense under 4.12.6 as to the sum due pursuant to clause 4.12.2. Clause 4.12.6 states that unless either the Employer or the Contractor dispute the contents of the Final Statement prior to the due date for the final payment, the Final Statement will be conclusive, subject to clause 1.8.2. Moreover, clause 1.8.2 states that the Employer must also commence proceedings before the due date in order to prevent the Final Statement being conclusive.
The Judge was inclined to interpret the requirements under clause 4.12.6 to serve a notice disputing the Final Statement and a notice to issue proceedings as alternative options to prevent conclusivity, rather than cumulative requirements.
Additionally, the Employer contended that the Adjudicator lacked jurisdiction to consider whether the Final Statement was conclusive, since the dispute had not crystallised prior to the referral to adjudication.
Lastly, the Employer’s argument that the Adjudicator had failed to consider the Employer’s defence was resisted by the Contractor, on the basis that the Adjudicator had acknowledged the Contractor’s argument referring to the lack of a Pay Less Notice, which in-turn precluded a set off for the Employer. The Judge established that while the Adjudicator’s decision relating to the lack of a Pay Less Notice may have been correct, their refusal to consider the liquidated damages claim was erroneously based on their consideration of their own jurisdiction.
Judgment
Following the Judge’s interpretation of clauses 4.12.6 and 1.8.2, it was held that the Employer’s letter dated 18 December 2020 was deemed as the Employer’s notice disputing the Final Statement and that was all that was required of the Employer to prevent conclusivity. No issuing of proceedings by the Employer was necessary prior to the due date.
Additionally, the Judge was satisfied that the pre-action exchanges between the parties sufficiently demonstrated that the issue had crystallised prior to the referral to adjudication and that the Adjudicator had correctly concluded that they had jurisdiction to determine the issue of conclusivity.
The Judge then determined that the Adjudicator’s failure to address a defence presented before them was a material breach of natural justice. However, the Judge emphasised that this was a discrete matter and so rather than rendering the whole Decision unenforceable, determined that amounts due to the Contractor in excess of £343,237.74 (i.e. the liquidated damages value) by the Decision could be enforced.
Implications
This decision is interesting for a number of reasons.
Firstly, the Judge’s interpretation that there was no requirement to issue a Notice of Completion of Making Good as no clause 2.35 defects notice had been issued may raise some eyebrows, as it effectively removes one of the triggers under clause 4.12.5 for the Final Statement. Typically, a Notice of Completion of Making Good, even when there were no reported defects, gives closure to the Rectification Period.
Secondly, although both Employers and Contractors within the construction industry can rely on a notice of dispute to a Final Statement to prevent the conclusivity of that Final Statement consideration should be given on a case-by-case basis to ensure any entitlement to challenge that Final Statement is not lost, and that the necessary payment and/or pay les notices are issued.
Finally, going forward Adjudicators would be advised to carefully consider their jurisdiction on arguments and defences presented to them. In addition, they should aim to provide clear and consistent reasonings as to their jurisdiction and the issues raised by both parties that are not open to interpretation, enabling the Adjudication process to run smoothly without ambiguity.
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