Legal Q&A: Adjudication
Kathryn Moffett, Senior Associate, CMS Cameron McKenna Nabarro Olswang
UNDER the JCT Design & Build (D&B) standard forms, generally speaking, the final account is conclusive evidence of (i) the quality of materials and goods used are as described in the employer’s requirements; (ii) extensions of time; and (iii) loss and/or expense due. However, the effects of the final account are suspended until the conclusion of any adjudication, arbitration or other proceedings which are raised. The final account shall be subject to the terms of any decision, award or judgement in and any settlement of those proceedings.
What effect does raising proceedings have on the final account?
The TCC recently explored this question in the case of Battersea Project Phase 2 Dev Co Ltd (Battersea) v QFS Scaffolding Ltd (QFS) which focused on clause 1.8.1 of the JCT D&B 2011 standard form.
The facts
Battersea and QFS entered into a subcontract for asbestos scaffolding as part of the Battersea Power Station development. A £40m dispute arose over the final account. QFS commenced adjudication proceedings in respect of the final account on 19 December 2022. Battersea issued a final payment notice on 22 December 2022. The parties agreed to extend the timetable for service of the referral notice to 13 January 2023.
Settlement discussions took place between March and May 2023. The discussions were unsuccessful and QFS sought to recommence the adjudication. The adjudicator suggested that a fresh notice of adjudication be issued. QFS issued a new notice on 10 May 2023.
The arguments
QFS argued that the agreement to defer service of the first referral was open ended and until the adjudication proceedings ‘concluded’ the final account was not conclusive. Battersea argued that the first adjudication had ‘concluded’ because QFS’ failure to serve a referral notice on time. It argued this resulted in the final account being conclusive under the meaning of the party’s clause 1.8.1.2, therefore the adjudicator did not have jurisdiction in terms of the second notice. Battersea also sought to rely on the time QFS took to commence the second adjudication, arguing that the delay mounted to an abandonment of the adjudication proceedings.
Had the adjudication reached a conclusion?
The court rejected Battersea’s argument that the lapsing of the first adjudication was a conclusion of the proceedings. It found that Battersea’s interpretation would be too harsh where an adjudication had been rendered a nullity through no fault of the referring party, for example, where an adjudicator’s conduct or a breach of natural justice was to blame.
The court explained that provided the subject matter of the two adjudications were the same, it did not matter that a second notice of adjudication was required in order to reach a proper conclusion of the proceedings.
Did the delay in raising the second adjudication result in abandonment?
The court noted that any analysis of abuse of an obligation for timely commencement of proceedings was to be undertaken objectively, based on the specific words or conduct. The court found that while it was not possible for a party to keep adjudication proceedings in limbo by repeating that it intended to pursue proceedings without taking action, in these specific circumstances QFS’ actions did not result in abuse or unreasonable delay.
What should you take away from the decision?
For those advising main contractors (or subcontractors in respect of a subcontract) it means that as long as an intention to have the dispute determined within a reasonable timeframe is made clear, the final account will not be conclusive until those proceedings are concluded. This could allow additional time to prepare evidence to support an alternative position.
For those advising employers (or main contractors in respect of a subcontract) may wish to tighten the wording so that any proceedings raised in respect of the JCT clause 1.8.1 which have been rendered a nullity are to be recommenced within a certain period of time.
This may seek to limit any additional delays and provide clarity of the final account position. Drafters could look for inspiration in the JCT Standard Form Building Contract 2016 clause 1.9.3 which states ‘any proceedings shall be treated as concluded if during the period of 12 months commencing on or after the issue of the final certificate neither party takes a further step in them’.
Kathryn Moffett, Senior Associate, CMS
Cameron McKenna Nabarro Olswang LLP
For those advising main contractors (or subcontractors in respect of a subcontract) it means that as long as an intention to have the dispute determined within a reasonable timeframe is made clear, the final account will not conclusive until those proceedings are concluded.