Legal Q&A: Final account conclusivity clauses
Rachel Todd, Associate, CMS Cameron McKenna Nabarro Olswang LLP
A RECENT Scottish court case has considered a clause in a building contract stipulating legal proceedings need to be started within a short timeframe, to prevent a final account statement from becoming final and binding. The case did not follow the approach taken in previous English and Scottish decisions, as it found the final account was not binding once challenged within the specified timeframe and essentially removed that finality, even in later proceedings outside the timeframe. The case will be of interest to anyone dealing with similar clauses.
The Standard Building Contract published by JCT/SBCC (SBC) has a process whereby the contract administrator issues a final certificate after completion and after the rectification period has passed.
The final certificate is to set out a final assessment of the contract sum and any balancing payment to be made to one party or the other, depending on previous interim payments or certificates. Importantly, the SBC states that the final certificate becomes conclusive as to the valuation of the contract sum unless, within a certain timeframe, legal proceedings (which could include adjudication) are started which challenge that final certificate. Only if they are, will the final certificate be adjusted accordingly.
In previous English and Scottish decisions looking at this type of clause, a ‘foot in the door approach’ (i.e. arguing that a party starting one set of legal proceedings can then start further proceedings outside of the contractual timeframe) has been rejected. The courts have said that conclusivity applies to any proceedings started after the timeframe, even if the same (or similar) matters were by proceedings that had been started within the timeframe.
This case has now considered the position under a bespoke form of contract. In short, the contractor, Atalian Servest AMK Limited, was appointed as a subcontractor for construction works at Lord’s Cricket Ground, London. The contractor in turn appointed BW (Electrical Contractors) Limited as its own Subcontractor for certain electrical works. The works did not go as planned and at the final account stage the parties had claims against each other.
The Standard Building Contract published by JCT/ SBCC (SBC) has a process whereby the contract administrator issues a final certificate after completion and after the rectification period has passed.
The contract stated: ‘Within 28 days of the receipt of the final account, the contractor shall state the amount which it considers to be due to the subcontractor (‘ the final account statement’ ).
The final account statement shall be final and binding on the subcontractor unless the parties agree to any modification of it or, where the subcontractor disagrees with the contractor final account statement, unless the subcontractor has commenced adjudication or court proceedings within 20 working days of the date of the ASAL final account statement’.
The subcontractor submitted its final account.
The contractor in turn issued its final account statement on 6 May 2022 claiming a sum was due, which the Subcontractor disputed. The subcontractor started adjudication proceedings on 19 May 2022 and then court proceedings on 27 May 2022.
However, the adjudicator resigned on 15 June 2022 and so the subcontractor started a second set of adjudication proceedings on 8 September 2022, more than 20 working days from the final account statement.
The contractor said the final account statement was therefore final and binding on the subcontractor in that adjudication and raising the first timeous challenge did not mean the subcontractor could make another challenge in other proceedings started after the timeframe.
It remains to be seen however whether there is a middle ground which will emerge between this minimal degree of finality and the ‘extreme degree of intended finality’ identified in the SBC.
The court disagreed. It distinguished the bespoke conclusivity clauses in this contract, with those in the SBC.
The court noted that in this case there was no standard form to derive the intention of the finality of the final account statement from i.e. the contract did not contemplate the extreme degree of intended finality which has been ascribed to the JCT/SBC standard form; its basic position as to the effect of the final account statement is far less emphatically stated than is the case in the JCT/SBC form concerning final certificates.
Accordingly, the court found that a single set of legal proceedings started within the 20 working day timeframe was sufficient to prevent the final account statement from becoming binding for all purposes thereafter.
This decision therefore opens a line of argument that the ‘foot in the door approach’ could be used in bespoke contracts, or possibly heavily amended standard forms. It remains to be seen however whether there is a middle ground which will emerge between this minimal degree of finality and the ‘extreme degree of intended finality’ identified in the SBC.
Rachel Todd, Associate, CMS Cameron McKenna Nabarro Olswang LLP
