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The outcome of a recent court case has significant implications for those working in the construction sector. The decision in The Trustees of the Marc Gilbard 2009 Settlement Trust v. OD Developments and Projections Ltd [2015] EWHC 70 is a warning to all contractors, as it restricts their ability to challenge the Final Certificate to a 28-day period.

This legal update intends to provide you with an overview of the decision in the Technology and Construction Court, and the impact it will have on parties to construction contracts.

The Facts…

The Trustees of the Marc Gilbard 2009 Settlement Trust (the Employer) appointed OD Developments and Projects Ltd (the Contractor) to carry out work on a Mayfair property.  The contract between the parties incorporated the commonly used ‘JCT Standard Building Contract, Without Quantities, Revision 2 (2009)’ which provides that the Final Certificate is conclusive evidence of certain matters unless challenged within 28 days.

At the end of the project the Final Certificate was issued showing £232,153.54 owed to the Employer.  Within 28 days the Contractor commenced Court proceedings to challenge the validity of the Final Certificate. The Court proceedings progressed slowly, and fourteen months later, the Contractor commenced adjudication proceedings in respect of the same dispute.

The Dispute…

Under the provisions of the Construction Act 1996, any party to a construction contract has the right to refer a dispute to adjudication ‘at any time’. However, the problem in this case was that the contract terms specifically stated that: “if any adjudication, arbitration or other proceedings are not commenced by either Party within 28 days after the Final Certificate has been issued, the Final Certificate shall have effect as conclusive evidence […] in respect of the matter to which those proceedings relate”.

The Employer therefore asked the Court for a declaration that the Contractor was barred from adjudicating the dispute as they were outside the 28 day limitation period contained within the Contract. In response the Contractor argued that this would be an “unwarranted prohibition or fetter on their right to adjudicate ‘at any time’.”

The Judge deciding the case, Coulson J, adopted a common sense interpretation of the Contract and decided that, if a party wants to challenge the Final Certificate in one set of proceedings, those proceedings will be the only vehicle by which the Final Certificate is capable of challenge. However, there is an exception to this rule: if adjudication is the first method of challenge, simultaneous protective Court proceedings may be commenced provided it is within the 28-day limitation period.

Coulson J rejected the argument that this limits the Contractor’s right to adjudicate per se. The Contractor was free to adjudicate in relation to the Final Certificate, provided that they did so within 28 days. On expiry, they remain free to adjudicate on other issues, but not in relation to the Final Certificate which will be conclusive evidence for the purpose of the contract and not capable of dispute.

Impact of the Judgment on Building Contracts…

This decision suggests that, in respect of the Final Certificate, the need for commercial certainty should prevail over the freedom to litigate, or the right to adjudicate ‘at any time’. Whilst contractors will be relieved that claims cannot be brought long after the Final Certificate is issued, the decision highlights the need to act quickly in the event of a disagreement. Careful consideration must be given to the points in dispute, and a swift decision made on the best route to challenge the Final Certificate.

It may be that the safest option is to commence adjudication and court proceedings simultaneously within 28 days, with court proceedings being a fall back provision in the event that the adjudication is in some way flawed or unenforceable. This will limit the risk of parties finding themselves time barred from challenging the Final Certificate, which may have far reaching financial consequences.

 

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