CC CONSTRUCTION LTD v MINCIONE

CC CONSTRUCTION LTD v MINCIONE

The adjudicator in declining to consider the employer’s defence that it was entitled to set off its claim for liquidated damages against the sum awarded to the contractor was in material breach of the rules of natural justice
 

CC CONSTRUCTION LTD v MINCIONE

Technology and Construction Court

His Honour Judge Stephen Eyre QC

15 September 2021

 

The adjudicator in declining to consider the employer’s defence that it was entitled to set off its claim for liquidated damages against the sum awarded to the contractor was in material breach of the rules of natural justice

 

In coming to the conclusion that the adjudicator was in breach of the rules of natural justice, Judge Eyre stated that where there is a claim for payment a defence of set off can be raised and will necessarily be part of the dispute which an adjudicator addressing such a claim has to determine. He further stated that it is important to keep in mind the distinction between (i) considering an asserted defence and then concluding as a result of that consideration that it is not a tenable defence in the particular circumstances and (ii) declining to consider an asserted defence. The former will be an exercise which the adjudicator will have jurisdiction to undertake and a conclusion that the defence is not tenable even if expressed in short terms is unlikely to involve a breach of the rules of natural justice.

 

Judge Eyre in giving his decision pointed out that the adjudicator stated that the liquidated damages claim was not part of the dispute which the adjudicator had been asked to decide and that, as a consequence, it could not be raised by way of set off. The adjudicator (i) deliberately declined to consider the defence that the liquidated damages claim operated as a set off and did so because of the view he took of the scope of the dispute before him. That view was incorrect and meant that the adjudicator failed to address a defence which was before him. The defence advanced a set off in the sum of £343,237 against the amount sought by the contractor of £479,957. In those circumstances there was a failure by the adjudicator to exercise his jurisdiction which amounted to a material breach of the rules of natural justice. A conclusion that the absence of a pay less notice prevented the employer advancing the liquidated damages claim as a set off may or may not have been correct and would have been a decision within the adjudicator's jurisdiction. But that was not the conclusion reached by the adjudicator and instead he declined to consider the set off defence.

 

THE FULL TEXT OF THE JUDGMENT OF JUDGE EYRE

 

Introduction.

 

  1. Mr. Raffaele Mincione ("the Employer") owns 57 – 59 Clabon Mews, London SW1 ("the Property"). In 2016 the Employer engaged CC Construction Ltd ("the Contractor") to design and build the shell and core of a new house at the Property. The new house was to be of three storeys with three basement levels and the works included the demolition of the two existing mews houses. The written agreement of 21st April 2016 ("the Contract") adopted the JCT Design and Build Contract (2011 Edition) albeit with a number of amendments and the works were to be performed for the sum of £2,587,250. The Contract was varied in September 2017 when the Contract Sum was increased to £3,130,602 and the completion date postponed.

 

  1. The Employer has declined to pay the sum of £483,512.12 (net of VAT but inclusive of interest) which the Contractor says is due following the service of a Final Statement and pursuant to an adjudication decision ("the Decision") determining that this sum is payable. The Employer's case is that the operation of the terms of the Contract in the circumstances of this case and in the light of the parties' actions means that the Final Statement served by the Contractor was not conclusive; that in fact a balance is owing to the Employer; and that the Decision is not enforceable. The Contractor disputes the Employer's interpretation of the Contract and contends that it is entitled to enforce the Decision.

 

  1. The matter came before me on 13th July 2021 for a remote hearing by way of MS Teams of the Employer's Part 8 Claim seeking declarations as to the effect of the Contract in the circumstances which had arisen and of the Contractor's claim for summary judgment in respect of its Part 7 Claim to enforce the Decision.

 

The Factual Background.

 

  1. The Contract was dated 21st April 2016 but the Contractor had in fact taken possession of the site about a fortnight earlier.

 

  1. The Works were defined as:

 

"The design and construction of a new three storey single dwelling including three basement levels at the property shown edged red on the site plan annexed at Annex B."

 

  1. The Contract did not utilise the provision in the standard form of contract for the division of the Works into Sections.

 

  1. Clause 1.7.1 provided that:

 

"Any notice or other communication between the Employer … and the Contractor that is expressly referred to in the Agreement for these Conditions (including without limitation, each application, approval, consent, confirmation counter-notice, decision, instruction or other notification) shall be in writing."

 

  1. The Contract defined "Final Statement" as having the meaning provided in clauses 1.8 and 4.12. Clause 1.8.1.1 of the standard form of contract had been deleted and as a consequence clause 1.8 provided for the effect of the Final Statement as follows:

 

".1 As from the due date for the final payment specified in clause 4.12.5 and in addition to the effect referred to in clause 4.12.6, the Final Statement or, as the case may be, the Employers Final Statement (`the relevant statement') shall, except as provided in clauses 1.8.2, 1.8.3 and 1.8.4 (and save in respect of fraud), have effect in any proceedings under or arising out of or in connection with this Contract (whether by adjudication, arbitration or legal proceedings) as:

.2 conclusive evidence that all and only such extensions of time, if any, as are due under clause 2.25 have been given: and

 

.3 conclusive evidence that the reimbursement of direct loss and/or expense, if any, to the Contractor pursuant to clause 4.20 is in final settlement of all and any claims which the Contractor has or may have arising out of the occurrence of any of the Relevant Matters whether such claim be for breach of contract, duty of care, statutory duty or otherwise.

 

.2 If adjudication, arbitration or other proceedings have been commenced by either Party before the due date for the final payment the relevant statement shall have effect as provided in clause 1.8.1 upon and from the earlier of either:

 

.1 the conclusion of such proceedings in which case the statement shall be subject to the terms of any decision, award or judgement in or any settlement of such proceedings; or

 

.2 the expiry of any period of 12 months from or after the submission of the statement, during which neither Party takes any further step in such proceedings…

 

.3 Subject to clause 4.12.6, if adjudication, arbitration or other proceedings are commenced by either Party on or after the due date for the final payment and not later than 28 days after the due date, the relevant statement shall have effect as conclusive evidence as provided in clause 1.8.1 save only in respect of the matters to which those proceedings relate.

 

.4 …"

 

  1. Clause 2.28 provided for the issue of a Non-Completion Notice if the Contractor failed to complete the Works by the Completion Date. Clause 2.29 then provided for the Employer to withhold or to deduct or to require the payment of liquidated damages by a notice given no later than 5 days before the final date for payment provided that a Non-Completion Notice had been served and the Employer had given notice before the due date that he may so withhold, deduct, or require.

 

  1. Clause 2.30 provided thus for the Employer to take possession of a part or parts of the Works:

 

"If at any time or times before the Practical Completion Statement or relevant Section Completion Statement the Employer wishes to take possession of any part or parts of the Works or a Section and the Contractor's consent has been obtained (which consent shall not be unreasonably delayed or withheld), then, notwithstanding anything expressed or implied elsewhere in this Contract, the Employer may take possession of such part or parts. The Contractor shall thereupon give the Employer notice identifying the part or parts taken into possession and giving the date when the Employer took possession ('the Relevant Part' and 'the Relevant Date' respectively)."

 

  1. Clause 2.32 (incorporating the amendment of the standard form) provided as follows for a notice to be issued when defects in a Relevant Part had been made good:

 

"When any defects, shrinkages or other faults in the Relevant Part which the Employer has required to be made good under clause 2.35 have been made good, he shall issue a notice to that effect provided that the Employer shall not be required to issue that notice earlier than the expiry of the Rectification Period for the Relevant Part."

 

  1. Clause 2.35 provided that:

 

"If any defects, shrinkages or other faults in the Works or a Section appear within the relevant Rectification Period due to any failure of the Contractor to comply with his obligations under this Contract:

 

.1 such defects, shrinkages and other faults shall be specified by the Employer in a schedule of defects which he shall deliver to the Contractor as an instruction not later than 14 days after the expiry of that Rectification Period; and

 

.2 notwithstanding clause 2.35.1, the Employer may whenever he considers it necessary issue instructions requiring any such defect, shrinkage or other fault to be made good, provided no instructions under this clause 2.35.2 shall be issued after delivery of a schedule of defects or more than 14 days after the expiry of the relevant Rectification Period.

 

Within a reasonable time after receipt of such schedule or instructions, the defects, shrinkages and other faults shall at no cost to the Employer made good by the Contractor unless the Employer shall otherwise instruct…."

 

  1. At 2.36 the Contract (again incorporating the amendment of the standard form) dealt as follows with the issuing of a Notice of Completion of Making Good:

 

"When the defects, shrinkages or other faults in the Works or a Section which the Employer has required to be made good under clause 2.35 have been made good, he shall issue a notice to that effect (a "Notice of Completion of Making Good") provided that the Employer shall not be required to issue any Notice of Completion of Making Good earlier than the expiry of the Rectification Period. That notice shall not be unreasonably delayed or withheld, and completion of that making good shall for the purposes of this Contract be deemed to have taken place on the date stated that notice."

 

  1. Clauses 4.1 – 4.3 dealt with adjustments to the Contract Sum. For present purposes it is to be noted that those clauses did not make provision for the Contract Sum to be adjusted to take account of liquidated damages under clause 2.29.

 

  1. Clause 4.12.1 provided for the Contractor to submit the Final Statement together with such supporting documents as the Employer may reasonably require following practical completion.

 

  1. The calculation of the Final Statement was addressed thus at clause 4.12.2:

 

"The Final Statement shall set out the adjustments to the Contract Sum to be made in accordance with clause 4.2 and shall state:

 

.1 the Contract Sum. as so adjusted; and

 

.2 the sum of amounts already paid by the Employer to the Contractor,

 

and the final payment shall be the difference (if any) between the two sums, which shall be shown as a balance due to the Contractor from the Employer or to the Employer from the Contractor, as the case may be. The Final Statement shall state the basis on which that amount has been calculated, including details of all such adjustments."

 

  1. Clause 4.12.5 provided thus for the due date for payment:

 

"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; or

 

.3 the date of submission to the other Party of the Final Statement or, if issued first, the Employers Final Statement ("the relevant statement")."

 

  1. The conclusivity of the Final Statement was addressed in clause 4.12.6 stating:

 

"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."

 

  1. Clause 4.12.7 - 9 provided that:

 

".7 The final date for payment shall be 28 days from the due date. Not later than 5 days after the due date, and notwithstanding any dispute regarding the relevant statement, the Party by whom the statement shows the final payment as payable ('the payer") shall give a Payment Notice to the other Party with the details specified in clause 4.10.1. Subject to any Pay Less Notice under clause 4.12.8 the payment to be made on or before the final date for payment shall be the sum stated in the Payment Notice or, if such notice is not given, the balance stated in the relevant statement.

 

.8 if the payer intends to pay less than the sum stated in the Payment Notice or, in default of such notice, less than the amount stated in the relevant statement, he shall not later than 5 days before the final date for payment give the other Party a Pay Less Notice in accordance with clause 4.10.2

 

.9 Where a Pay Less Notice is given, the payment to be made on or before the final date for payment shall not be less than the amount stated as due in the notice."

 

  1. The effect of the Contract Particulars, the definitions in clause 1.1, and clause 2.35 was that the Rectification Period was the period of 12 months from Practical Completion.

 

  1. On 2nd October 2018 the Employer issued a non-completion notice. This was followed, on 19th October 2018, by the Employer's notification of his intention to require the payment of and/or to withhold liquidated damages by reason of the delay in completion.

 

  1. On 7th December 2018 the Employer took partial possession of the Property. He took possession of the entirety of the Property apart from the external face of the boundary wall of 57 Clabon Mews. The Contractor has contended that this amounted to 99.86% by value of the Works. Even without regard to precise percentages it is clear that the Employer was then in possession of the substantial bulk of the Property. On the same date the Contractor gave notice pursuant to clause 2.30 of the Contract that the Employer had taken partial possession of the Property to that extent.

 

  1. Practical Completion was on 15th November 2019.

 

  1. On 14th February 2020 the agents then acting for the Employer issued a document entitled "Notice of Completion of Making Good" using the standard JCT form for such a notice. This document stated that it referred "solely to the Relevant Part" identified in the Contractor's notice of 7th December 2018 and in a subsequent letter of the Employer's Agents. It then said:

 

"Under the terms of the above Contract, I/We certify that in accordance with Clause 2.32 of the Contract, all defects, shrinkage is and/or other faults in the Works due to materials, goods or workmanship not in accordance with this Contract, which the Employer has required the Contractor to rectify, have been made good as of 7 February 2020."

 

  1. On 5th March 2020 the Contractor sent by email a Final Account and invited the Employer's Agents to engage in negotiations with a view to settling the account and closing out the Contract.

 

  1. In April 2020 the Employer dispensed with the services of his agents. There was a subsequent re-engagement but nothing turns on whether at the relevant times the Employer was or was not acting through agents.

 

  1. On 5th October 2020 the Contractor sent the Employer a letter attaching a Final Statement. This was said to be based on the Final Account which had been sent in March 2020. The Final Statement showed a balance of £479,957.80 owing to the Contractor.

 

  1. As already noted, Practical Completion had been on 15th November 2019 and so the Rectification Period expired on 15th November 2020.

 

  1. There is some suggestion that the letter of 5th October 2020 was not received and certainly the Employer made no response to it. In any event the Contractor sent a further letter on 1st December 2020 which was received by the Employer on 4th December 2020. This letter attached the 5th October 2020 letter and the material which had accompanied that letter. In the letter of 1st December 2020 the Contractor stated:

 

"We are nearing the end of the Making Good Defects Period for the rear wall of Nr 57 Clabon Mews and it would be appreciated if the Final Statement could be agreed as soon as possible to tie in with the end of this period."

 

  1. The Employer replied on 18th December 2020. That letter was headed "57 – 59 Clabon Mews – Final Statement" and in it the Employer stated:

 

"I also refer to the Final Statement enclosed with your letter dated 5 October 2020.

 

In accordance with clause 4.12.6 I give notice that I dispute the content of the Final Statement in its entirety. In particular, and without limitation:…"

 

  1. The letter then said the Employer took issue with the inclusion in the Final Statement of the Contractor's cost of obtaining access to complete the works to the rear wall and with the failure to take account of delay in completing the works which, the Employer contended, meant that liquidated damages in excess of £340,000 were due. He concluded by saying:

 

"On this basis alone (and, for the avoidance of doubt, I dispute all items in your Final Statement), the final payment would be a sum due from CC Construction to me.

 

In accordance with clause 4.12.7, I will provide a Payment Notice in due course."

 

  1. The Employer had not delivered any schedule of defects pursuant to clause 2.35.1 nor issued instructions for rectification under clause 2.35.2 after the service of the Notice of Completion of Making Good of 14th February 2020. However, on 13th January 2021 he issued a Notice of Completion of Making Good, again in the standard JCT form. This stated:

 

"This Notice refers to the whole of the Works.

 

Under the terms of the above Contract, I/We certify that in accordance with Clause 2.36 of the Contract, all defects, shrinkages and or other faults in the Works due to materials, goods or workmanship not in accordance with this Contract, which the Employer has required the Contractor to rectify, have been made good as at 13 January 2021."

 

  1. On 19th January 2021 the Contractor sent an invoice for £479,957.80. The covering email stated that this sum was "payable pursuant to clauses 4.12.6 and 4.12.7 of the JCT contract" and that "the contractual final date for payment of the Final Statement balance was Saturday 15th January 2021".

 

  1. On 20th January 2021 Miss. Forsyth replied on behalf of the Employer saying:

 

"The final date for payment is not 15 January 2021. As you are aware, clause 4.12.5 of the building contract provides that the due date for final payment is 28 days after the last of the following:

 

- The end of the Rectification Period

 

- The date stated in the Notice of Completion of Making good

 

- The date of submission of the final Statement.

 

The date stated in the Notice of Completion of Making Good was 13 January 2021. Therefore, neither the due date for the final date for payment has occurred."

 

  1. There then followed correspondence in which the parties set out their differing contentions as to the due date.

 

  1. On 9th February 2021 the Contractor gave notice of intention to make a referral to adjudication and on 16th February 2021 the referral was made.

 

  1. In the meantime, on 10th February 2021, the Employer had served a payment notice asserting that there had been an overpayment of £254,656.58 to the Contractor.

 

  1. The Employer contends that the effect of these dealings was that the due date for the purposes of the Contract was 13th February 2021 being one month after the service of the Notice of Completion of Making Good on 13th January 2021. He says that the Payment Notice of 10th February 2021 was, accordingly, served before the due date. In addition the Employer contends that the letter of 18th December 2020 was effective to prevent the Final Statement being conclusive for the purposes of clause 4.12.6. The Contractor says that the letter was not effective for that purpose and that at the latest the due date was 4th January 2021 being one month after the Employer's receipt of the Contractor's letter of 1st December 2020 with the consequence that the Payment Notice was not served until more than five days after the due date.

 

  1. The adjudicator was Mr. Siamak Soudagar and he gave his decision on 26th March 2021.

 

  1. Mr. Soudagar explained that the Contractor had argued that the relevant date in a Notice of Completion of Making Good was 7th February 2020 that having been the date stated in the notice of 14th February 2020. As no defects had been notified after that no further Notice of Completion of Making Good could have been issued. That conclusion was said to follow as a matter of construction of the Contract or by way of implication with the words "unless no defects are issued" being added to clause 4.12.5.2 in order to ensure business efficacy. Alternatively, the Contractor said that any such notice should have been issued by 30th November 2020 that being the end of the Rectification Period and the notice was to be treated as having been so issued. It followed, the Contractor said, that the due date was 4th January 2021 being one month from receipt of the Final Statement on 4th December 2020. The Contractor also contended that the letter of 18th December 2020 had not been effective to prevent the Final Statement becoming conclusive because that letter had not been directed at the 1st December 2020 Final Statement and also because the Employer had not commenced proceedings, whether for arbitration, adjudication, or otherwise, in the period before the due date. It was in those circumstances that the Contractor sought payment of £479,957.80.

 

  1. The Employer contended that the due date was 13th February 2021 being one month after the Notice of Completion of Making Good of 13th January 2021 and that as his Payment Notice had been issued before the due date the Contractor was not entitled to rely on the Final Statement. The Employer disputed the Contractor's construction of the provisions as to the Notice of Completion of Making Good and said that the preconditions for the implication of a further term had not been satisfied. The Final Statement was not conclusive for the purposes of clause 4.12.6 because of the effective challenge in the letter of 18th December 2020. Alternatively, account should have been taken of the Employer's liquidated damages claim in the sum of £343,237.74 in calculating the sum due. Moreover, the Employer was, in any event, entitled to set off the liquidated damages claim by way of a legal set off. The Employer also contended that the adjudicator had no jurisdiction to reach a decision as to the conclusivity of the Final Statement because no dispute in relation to that issue had crystallised before the reference to adjudication.

 

  1. The Contractor's response to the liquidated damages claim was threefold. First, it said that the Employer's failure to serve a Pay Less Notice precluded any reduction of the final payment to take account of such damages. Second, it contended that as a matter of fact no such damages were payable and provided witness evidence in support of that assertion. Finally, it said that in any event the issue of liquidated damages was not part of the dispute which the adjudicator had been asked to determine and so could not be raised in the adjudication.

 

  1. The adjudicator concluded that a Notice of Completion of Making Good was only to be issued when defects had been specified under clause 2.35. In the circumstances of this case no further defects had been notified under that clause after the 14th February 2020 notice. Accordingly, the notice of 13th January 2021 was not necessary and was not to be seen as the last Notice of Completion of Making Good. There had only been one such notice which had been that of 14th February 2020. The adjudicator accepted the Contractor's argument that the proposed words were to be added to clause 4.12.5.2 by way of implication. He also accepted the alternative contention that the Notice of Completion of Making Good was to be treated as having been issued on the date when it should have been issued which was no later than 30th November 2020. In the light of those conclusions the adjudicator found that the due date was 4th January 2021.

 

  1. The adjudicator also decided that he had jurisdiction to determine the question of the conclusivity of the Final Statement. The adjudicator dealt with that matter in short terms. He had noted that the Employer had said that the dispute as to the conclusivity of that statement had not crystallised before the start of the adjudication. He concluded, at [218], that the answer to the issue of jurisdiction was to be found in the Notice of Intention to refer a Dispute to Adjudication. The adjudicator noted that the Contractor had there sought a declaration as to the conclusivity of the Final Statement and he took the view that this demonstrated that there was a crystallised dispute between the parties as to conclusivity such as to give him jurisdiction.

 

  1. On the issue of conclusivity the adjudicator found that the letter of 18th December 2020 was ineffective to prevent the Final Statement attaining conclusivity. The adjudicator gave two reasons for that conclusion. The first was that the letter was, he found, to be read as a challenge to the Final Statement of 5th October 2020 and not to that received on 4th December 2020. The second was that he interpreted clause 4.12.6 as providing for a two-stage process of challenge. In his view the giving of notice and the commencement of adjudication or other proceedings were not alternative means of challenge but were separate stages in a two-stage process both of which had to occur before the due date.

 

  1. In the light of those findings the adjudicator found that the Final Statement was conclusive and that no Payment Notice or Pay Less Notice had been issued before or in the requisite period after the due date. It followed, the adjudicator found, that the sum in the Final Statement of £479,957.80 net of VAT was payable.

 

  1. The adjudicator then dealt very briefly with the Employer's liquidated damages argument saying, at [238], that:

 

"It is established law that an Adjudicator cannot open up a certificate considered to be conclusive, as such, once the due date has been determined, the Adjudicator will have no further power to open up the Final Statement. In respect of liquidated damages, I conclude that it is not a part of the dispute I have been asked to decide and therefore cannot be raised in set off in these circumstances."

 

  1. The Contractor says that the Decision is enforceable. The Employer for his part says that the adjudicator did not have jurisdiction to consider the question of the conclusivity of the Final Statement and that there was a material breach of the requirements of natural justice in that he contends that the adjudicator failed to address his case as to the deduction of liquidated damages.

 

The Procedural History.

 

  1. On 9th April 2021 both the Employer and the Contractor commenced proceedings.

 

  1. The Employer filed a Part 8 Claim seeking declarations as to the due date and the consequences said to flow from the conclusion reached in that regard; as to the conclusivity of the Final Statement in respect of the value of the account between the parties; as to the conclusivity of the Final Statement in respect of extensions of time and any loss and expense claims by the Contractor; and as to the enforceability of the Decision. The Employer's contention that the Final Statement was not conclusive as to value depended on his contention that the letter of 18th December 2020 was an effective notice for the purposes of clause 4.12.6. In the Part 8 Claim the Employer asserted an alternative claim contending that if the letter of 18th December 2020 was ineffective as a notice for the purposes of clause 4.12.6 then that clause was unfair within the meaning of section 62 of the Consumer Rights Act 2015 and as such was not binding on the Employer.

 

  1. The Contractor's Part 7 Claim was filed on the same day. In that the Contractor sought orders for the payment of the sums awarded in its favour by the adjudicator. The Contractor applied concurrently for summary judgment.

 

  1. On 19th April 2021 O'Farrell J ordered that both matters be heard together on 9th June 2021 (that date was later varied by consent). That order was made without a hearing and O'Farrell J provided for either party to have permission to apply to vary the directions contained in the order.

 

  1. On 28th April 2021 the Contractor acknowledged service of the Part 8 Claim. In the Acknowledgement of Service the Contractor objected to the Employer's use of the Part 8 procedure. However, despite that objection the Contractor did not seek to exercise the permission given to apply to vary O'Farrell J's order.

 

  1. On the day of the hearing before me the Contractor, through Mr. Collings, contended that the matters raised in the Part 8 Claim were not apt for determination in Part 8 proceedings. He said that either the Employer's claim should be dismissed or that directions should be given for it to continue by way of Part 7 proceedings while the court proceeded to determine the Contractor's summary judgment application.

 

  1. For the reasons I gave orally on 13th July 2021 I concluded that the allegation of unfairness under the 2015 Act was not suitable for determination by way of the Part 8 procedure but that the other elements of the Part 8 claim were so suitable. In the light of that ruling the Employer abandoned his argument that clause 4.12.6 was not binding on him by reason of unfairness and the hearing continued before me.

 

The Issues.

 

  1. The first issue arose in relation to the Employer's claim for a declaration that the due date was 13th February 2021. The Contractor said that the due date was 4th January 2021 at the latest (being one month from the Employer's receipt of the Final Statement on 4th December 2020) but submitted that no declaration should be made and that I should confine myself to declining to make the declaration sought by the Employer.

 

  1. Next there was dispute as to whether the Employer's letter had been effective to prevent the Final Statement becoming conclusive by virtue of clause 4.12.6. This involved two sub-issues. First, whether the Employer's letter of 18th December 2020 was properly to be read as disputing the Final Statement received on 4th December 2020. Second, whether clause 4.12.6 required not just a notice of dispute but also the commencement of adjudication, arbitration, or other proceedings in order to prevent the Final Statement becoming conclusive. The Employer submitted that the letter was indeed disputing the Final Statement received on 4th December 2020 and that it sufficed to prevent conclusivity without the need for proceedings to be commenced. The Contractor said that the letter was not properly to be read as disputing that Final Statement and that in any event it was ineffective to prevent conclusivity in the absence of proceedings having been commenced before the due date.

 

  1. The Employer sought a declaration as to the effect of clause 1.8.1. The Contractor contended that such a declaration was neither necessary nor appropriate and that it could have the effect of precluding fact-specific arguments which it would seek to advance in response to the Employer's potential liquidated damages claim.

 

  1. There was also dispute as to the enforceability of the Decision. This resolved into two sub-issues namely whether the adjudicator had had jurisdiction to address the question of the conclusivity of the Final Statement and whether there had been a material breach of the rules of natural justice in his treatment of the Employer's claim to be entitled to set off liquidated damages.

 

The Due Date.

 

  1. The nature of the court's task in interpreting a contract can in general terms be stated shortly. As was enunciated in Arnold v Britton[2015] UKSC 36, [2015] AC 1619 and explained in Wood v Capita Insurance Services Ltd[2017] UKSC 24, [2017] AC 1173 the court is to seek to ascertain the intention of the parties by reference to the language used when seen in context.

 

  1. Mr. Shirazi placed considerable emphasis on the fact that the parties here had used a standard form JCT contract albeit with modifications. He said that this had the consequence that the Contract was to be interpreted in such a way as to promote certainty. This was important in order to enable others who made agreements using the same standard form to be confident of the consequences which would follow from the use of the terms of the standard form. To the extent that Mr. Shirazi contended that there is a special rule of interpretation applying to such contracts or that the principles laid down by the Supreme Court in Arnold v Brittonand Wood v Capita Insurance Services Ltdare in some way modified in the case of such contracts I do not accept that to be the law. The principles set out by the Supreme Court are of general application. Mr. Shirazi supported his contention by reference to the speech of Lord Bridge in The Chikuma [1981] 1 WLR 314 at 322 A – B. However, the words of Lord Bridge are to be seen in the light of his lordship's preceding analysis of instances where problems had arisen from attempts to place artificial or strained interpretations on clauses in standard form contracts so as to meet the perceived needs of justice in particular cases. Lord Bridge cautioned against the exercise of "judicial ingenuity" in that way because of the impact which such strained interpretations can have on other users of the standard form in question. Lord Bridge was not saying that a different approach was to be taken in construing standard form contracts but was instead emphasising the particular importance when dealing with such contracts of not departing from the normal rules of construction.

 

  1. Similarly, Mr. Shirazi's invocation of section 69 (1) of the Consumer Rights Act 2015 does not advance matters here. That section provides that:

 

"If a term in a consumer contract … could have different meanings the meaning that is most favourable to the consumer is to prevail."

 

  1. Here both sides contend that the meaning of the Contract is clear and as will be seen below I have concluded that the meaning is, indeed, clear. In my judgement section 69 (1) can only come into effect when there is genuine ambiguity after the proper application of the normal principles of contractual interpretation. The section does not come into play simply because it is possible to argue for differing interpretations at the start of the exercise of interpreting a contractual term. Instead for the provision to operate there must be genuine ambiguity after the normal process of analysing the language used in its context to determine the intention of the parties has been undertaken. In reaching that conclusion I have adopted the approach taken by HH Judge Keyser QC in AJ Building and Plastering Ltd v Turner[2013] EWHC 484 (QB), [2013] Lloyds LR 629 and by HH Judge Stephen Davies in Khurana v Webster Construction Ltd[2015] EWHC 758 (TCC). Those judges were considering the effect of regulation 7 (2) of the Unfair Terms in Consumer Contracts Regulations 1999 which addressed the situation where there was "doubt about the meaning of a written term". Although the language of the provisions is different the effect is the same and a term can only have different meanings if there is doubt about its true meaning. Judge Keyser's analysis as adopted by Judge Stephen Davies is equally applicable to section 69 (1) and has the effect that the section only avails a consumer if genuine ambiguity remains after the rigorous application of the generally applicable rules of interpretation. That is not the position here and so I am not assisted by section 69 (1).

 

  1. Finally, by way of setting out the approach which he said was applicable Mr. Shirazi invoked the "Clear Words Principle" as set out at section 18 of Lewison's The Interpretation of Contracts(7th Ed) namely that "where a construction would produce an unfair result, the court will often require clear words to support the construction in question". The principle in those terms echoes the language used by Coulson J in Persimmon Homes (South Coast) Ltd v Hall Aggregates (South Coast) Ltd[2008] EWHC 2379 (TCC). The effect of the principle is that in the absence of clear language the court is unlikely to conclude that the parties to a contract intended their contract to operate so as to create an unfair result. I do not, however, find that principle of assistance when interpreting the provisions in the Contract as to the due date. If when properly construed the provisions of the Contract have the effect that in the circumstances of this case the due date is to be determined without reference to the issue of the Notice of Completion of Making Good on 13th January 2021 that would be an outcome adverse to the Employer's interests but it would not be an unfair result of a kind which would bring the Clear Words Principle into play.

 

  1. Accordingly, the due date is to be determined by the application of the normal principles of construction to the terms of the Contract.

 

  1. Applying that approach I am satisfied that the correct interpretation of clause 4.12.5.2 is that where in the operation the Contract the circumstances are such that there is scope for a Notice of Completion of Making Good to be issued under clause 2.36 then the due date will be one month from the issue of that Notice of Completion of Making Good (or the last such notice in a case where there are Sections which is not the position here) provided that date is or could be later than one month from either the expiry of the Rectification Period or the date of submission of the Final Statement. However, where there is no scope for the issue of a Notice of Completion of Making Good under clause 2.36 or is no longer any possibility of such a notice then clause 4.12.5.2 cannot come into operation and no account is to be taken of that sub-clause in calculating the due date. That will be the position in a case where the Employer has not issued an instruction in the form of a schedule of defects for the purpose of clause 2.35.1 or has not issued instructions under clause 2.35.2 and where the time for doing so has passed (as will be the position with the passage of 14 days from the expiry of the Rectification Period).

 

  1. The crucial question in considering how clause 4.12.5.2 is to be interpreted is that of whether the effect of the Contract is that there needs to be a Notice of Completion of Making Good regardless of the other circumstances. If there does then there is considerable force in Mr Shirazi's analysis and it would then be necessary for there to be such a notice in every circumstance with the effect that the due date can never arise until there has been a Notice of Completion of Making Good. However, I am satisfied that when the Contract is properly interpreted the correct analysis is that it will only be possible for there to be a Notice of Completion of Making Good for the purposes of clause 4.12.5.2 in particular circumstances. If there comes a time when not only have those circumstances not arisen but there is also no possibility of them arising then there is no scope for a Notice of Completion of Making Good for the purposes of that sub-clause. In such a case the sub-clause simply does not come into operation.

 

  1. That assessment follows from the wording of clause 4.12.5.2 which identifies two scenarios. The first is where there has been a single Notice of Completion of Making Good under clause 2.36 and the second is where provision has been made for Sections and where there have been more than one such notice under clause 2.36. It follows that for clause 4.12.5.2 to come into operation there must either have been a notice under clause 2.36 or scope for such a notice still to be served. If there has been no such notice and no possibility of one being served then clause 4.12.5.2 cannot assist in determining the due date. This is a consequence of the fact that the notice in which the date is to be stated for the purposes of clause 4.12.5.2 is one "under clause 2.36".

 

  1. It becomes necessary to consider the circumstances in which a Notice of Completion of Making Good can be issued under clause 2.36. As noted above that provides for the notice to be issued:

 

"When the defects, shrinkages or other faults in the Works or a Section which the Employer has required to be made good under clause 2.35 have been made good".

 

  1. It follows that a notice under clause 2.36 can only be issued where defects and so forth have been required to be made good under clause 2.35. Clause 2.35 in turn provides that such a requirement can only arise through an instruction in the form of a schedule of defects delivered not later than 14 days after the expiry of the Rectification Period (clause 2.35.1) or by instructions issued either before delivery of the schedule of defects or again no more than 14 days after the expiry of the Rectification Period (clause 2.35.2).

 

  1. The effect is that it will be possible to determine at the latest by 14 days after the expiry of the Rectification Period whether there is any scope for the issuing of a Notice of Completion of Making Good under clause 2.36 and hence whether there is any scope for clause 4.12.5.2 to have any relevance. If by that date no schedule of defects has been delivered under clause 2.35.1 and no instructions under clause 2.35.2 issued then the time for the delivery of such a schedule or the issuing of such instructions will have passed and as a consequence there will be no possibility of a Notice of Completion of Making Good ever being issued under clause 2.36.

 

  1. It is to be noted that clause 2.32 provides for the Employer to "issue a notice to that effect" when defects in a Relevant Part which the Employer required to be made good under clause 2.35 have been made good. However, such a notice will be a notice under clause 2.32 and not under clause 2.36 and so cannot be relevant for the purposes of clause 4.12.5.2. The Contract draws a distinction between (a) instructions for the making good of defects in the Works as a whole or in a Section or Sections thereof the completion of which making good will lead to the issuing of a Notice of Completion of Making Good under clause 2.36 and (b) instructions for the making good of defects in a Relevant Part the completion of which will lead to the issuing of a notice under clause 2.32. It is only the former which is potentially relevant for the purposes of clause 4.12.5.2.

 

  1. It is also to be noted that clause 2.32 although dealing with a notice in respect of a Relevant Part makes reference to the requirement to make good having been made under clause 2.35. It could be said that this means that a notice under clause 2.32 is also a Notice of Completion of Making Good or that a notice under clause 2.32 can also be a Notice of Completion of Making Good within the meaning of clause 2.36. On that view such a notice could also be relevant for the purposes of clause 4.12.5.2. In my judgement the better view is that such a notice is not within the scope of clause 4.12.5.2. That is, first, because such a notice will avowedly have been issued under clause 2.32 and not clause 2.36. Second, clause 4.12.5.2 makes reference to "the" Notice of Completion of Making Good and only contemplates there having been more than one such notice where there are Sections. It does not contemplate notices relating to the completion of making good in respect of a Relevant Part being relevant for the purpose of determining the due date. However, the question is not relevant for current purposes. That is because a notice under clause 2.32 can only be in respect of defects which the Employer has required to be made good under clause 2.35 and as explained above it will be possible to know by 14 days after the expiry of the Rectification Period whether there has been any such requirement and so any possibility of such a notice. Moreover, on the facts of this case the only notice under clause 2.32 which was or could have been issued was that of 14th February 2020 which being more than one month before both the expiry of the Rectification Period and the date of the submission of the Final Statement can have no impact on the due date on the facts of this case.

 

  1. Mr. Shirazi made reference to the use of the word "shall" in the phrase "he shall issue a notice to that effect" in clause 2.36. He contended that this means that there must inevitably be the issue of a Notice of Completion of Making Good with the consequence that there must always be a date in such a notice which will need to be taken into account by reason of clause 4.12.5.2. That argument overlooks the preceding part of the clause which makes it clear that the Employer's obligation to issue such a notice only arises if the Employer has required making good under clause 2.35.

 

  1. It is right that the language of clause 2.36 suggests that the Employer will almost inevitably have required making good under clause 2.35. That may very well be likely in most cases but it is not inevitable.

 

  1. Mr. Shirazi referred me to clause 4.18.3. Clause 4.18 addressed the amount and periods of retention in respect of interim payments and clause 4.18.3 provided that:

 

"half the Retention Percentage may be deducted from so much of the total amount as relates to work where the Works or relevant Section(s) have reached practical completion but in respect of which a Notice of Completion of Making Good under clause 2.36 has not been issued or relates to work in a Relevant Part where a notice under clause 2.32 has not been issued."

 

  1. That provision is addressing retention from interim payments and so is not directly relevant here but it is right to note that the language used there suggests that in all cases there will have to be a Notice of Completion of Making Good when there has been Practical Completion of the Works as a whole or of a Section. However, such an interpretation cannot prevail against the fact that the notices to which reference is made are to be under either clause 2.36 or clause 2.32 and for such a notice to be issued there has first to have been a requirement under clause 2.35. It is, moreover, of note that clause 4.18.3 makes separate reference to notices under clause 2.36 and those under clause 2.32. That provides some, albeit limited, support for the conclusion set out above that a notice under clause 2.32 is not also a notice under clause 2.36. It also suggests that the omission of any reference to a clause 2.32 notice from clause 4.12.5.2 was deliberate with the consequence that such a notice has no relevance for the purposes of that clause.

 

  1. The Contractor's letter of 1st December 2020 which I have quoted at [29] above made reference to the parties "nearing the end of the Making Good Defects Period" for the rear wall. The letter is a somewhat puzzling one because the expression "Making Good Defects Period" is not a defined term for the purposes of the Contract and the Rectification Period had expired shortly before the date of the letter. The similarity of language might suggest that a Notice of Completion of Making Good was expected and potentially being sought. However, I have concluded that is not an appropriate reading of the letter which did not ask for such a notice but instead sought agreement of the Final Statement. In any event the letter cannot affect the proper interpretation of the Contract which must be determined as at the date of the Contract.

 

  1. The Employer said that the effect of his action in taking partial possession on 7th December 2018 was that the Works were thereafter divided into Sections. This argument was advanced on the footing that it had the consequence, the Employer said, that as there were Sections regard was to be had only to the last Notice of Completion of Making Good and that until 13th January 2021 there had not been a Notice of Completion of Making Good in respect of the Works as a whole and that there was a Section in respect of which there had been no such notice. In the light of the conclusion which I have reached as to the proper interpretation of clause 4.12.5.2 this argument has no impact on the ultimate outcome. However, it is right that I explain why this argument is misconceived. The provisions in the standard JCT Design and Build Contract form for division of the Works into Sections were left blank in the Contract. Clauses 2.30 – 2.34 of the Contract dealt with partial possession and it is apparent from those provisions that the taking of partial possession did not create a division into Sections. Not only is there no express provision to the effect that a partial possession creates a Section but the contrary is apparent from the provision that partial possession creates a Relevant Part. By virtue of clause 1.1 that is a defined term the meaning of which is to be found in clause 2.30. The Contract is clear that partial possession creates a Relevant Part and not a Section. That is, moreover, apparent from the fact that clause 2.30 envisages partial possession of either a part of the Works as a whole or of a part of a Section. Partial Possession of a Section creates a Relevant Part of the Section but does not convert a Section into separate Sections. Similarly partial possession of the Works as a whole does not divide the Works into Sections.

 

  1. In support of his contention that the Contract was to be interpreted as necessarily requiring a Notice of Completion of Making Good before the due date could arise Mr. Shirazi referred me to the decision of the House of Lords in Reinwood Ltd v L Brown & Sons Ltd[2008] UKHL 18, [2008] 1 WLR 696. He said that in that case the House of Lords had been influenced by the need for the parties to construction contracts readily to know where they stand (see per Lord Walker at [19] and per Lord Neuberger at [40] and [45]). Mr. Shirazi said that his interpretation was consistent with that requirement because it meant that both parties would know in advance that a Notice of Completion of Making Good was required for calculation of the due date and also that when such a notice came after the end of the Rectification Period and the submission of the Final Statement then the due date was one month from the date of the notice. It would also be conducive of certainty because it would enable both parties to know that the Employer had accepted that the making good work had been completed. It is right that in Reinwoodthe importance of enabling the parties to know in advance where they stood was emphasised but that principle does not assist the Employer here and in my judgement it rather favours the contrary interpretation. In Reinwood the House of Lords held that the effect of a valid certificate could not be altered retrospectively. However, that does not assist with the question here of how the due date is to be calculated and Mr. Shirazi's approach begs the question of the validity or effectiveness of the purported Notice of Completion of Making Good of 13th January 2021. The interpretation of the Contract which I have set out above does enable the parties to know where they stand because it means that by 14 days after the end of the Rectification Period they will be able to see whether a schedule of defects has been delivered under clause 2.35.1 or instructions issued under clause 2.35.2 and if that has not occurred to know, first, that the Employer's opportunity for seeking making good has passed and, second, that clause 4.12.5.2 cannot come into play and that the due date is to be calculated by reference to the later of the expiry of the Rectification Period or the submission of the Final Statement. As Mr. Collings pointed out Mr. Shirazi's interpretation would create uncertainty because it would lie in the discretion of the Employer (subject perhaps to the requirement in clause 2.36 that the notice not be "unreasonably delayed") to decide when the Notice of Completion of Making Good was to be served with the consequence that until the Employer chose to do that the due date could not be determined.

 

  1. In the adjudication the Contractor had argued that if a final Notice of Completion of Making Good was necessary then the notice of January 2021 should have been served earlier. It said that such a notice should have been served on the date by when the Employer could no longer instruct the rectification of defects under clause 2.35. That was 30th November 2020 which was 14 days after the expiry of the Rectification Period. The Contractor contended that the notice should be regarded as having been served when it should have been on 30th November 2020. That argument invoked the approach in DR Jones Yeovil Ltd v Stepping Stone Group Ltd[2020] EWHC 2308 where, at [89], HH Judge Russen QC had based such an approach on the decision in Henry Boot Construction Ltd v Alstom Combined Cycles Ltd[2005] EWCA Civ 814, [2005] 1 WLR 3850. Mr. Shirazi countered that argument by saying that it was not open to the court retrospectively to rewrite notices or certificates to give them a different date thereby giving one party a retrospective right to "smash and grab". Instead in Mr. Shirazi's submission the parties' rights were to be determined by reference to the actual date on which the Notice of Completion of Making Good was given even if the court was of the view that it should have been issued at a different time. There would be force in the Employer's argument if I were to accept the interpretation of the Contract as necessarily requiring a Notice of Completion of Making Good before the due date could occur. The question does not, however, arise on the view I have set out above. The difficulty for the Employer's argument is not the proposition that the purported Notice of Completion of Making Good of January 2021 should have been issued at a different date. Instead, the difficulty is that in the absence of a schedule of defects or instructions pursuant to clause 2.35 there was no scope for issuing the notice at all or rather that the notice could not operate as a Notice of Completion of Making Good under clause 2.36 and so was ineffective and irrelevant for the purposes of clause 4.12.5.2.

 

  1. Although he expressed it in different language the adjudicator reached a conclusion to the same effect as that which I have set out above. At [194] – [196] Mr. Soudagar noted that a Notice of Completion of Making Good is only required when defects in respect of which the Employer had required rectification had been made good. He said that in the absence of such defects such a notice is not necessary. The adjudicator found that the only Notice of Completion of Making Good which had been required under the Contract was that which had been issued on 14th February 2020. After that there was no need for any further such notice and he said that the notice of 13th January 2021 did not "change the date when all defects had been made good which was 7th February 2020".

 

  1. At [196] the adjudicator expressed his finding in terms very similar to the construction I have set out above saying:

 

"It is my finding that a NMG is only issued under clause 2.36, where there are defects specified under clause 2.35, and if there are no defects, clause 4.12.5 cannot require the issue of a NMG for the purposes of calculating the due date for the final payment."

 

  1. The adjudicator also considered and accepted the Contractor's alternative argument. First, he found that if necessary words to the effect of "unless no defects are issued" should be added to clause 4.12.5.2 by way of implication. Second, he found that if a further Notice of Completion of Making Good was needed to trigger the due date then it should have been issued by 30th November 2020 and that applying the approach in DR Jones Yeovil Ltd v Stepping Stone Group Ltdhe found it was to be regarded as having been issued on that date. Neither of those arguments becomes relevant in the light of the conclusion which I have reached as to the proper interpretation of clause 4.12.5.2.

 

  1. The result of my interpretation of the Contract is that the notice of February 2020 was not a notice for the purposes of clause 4.12.5.2 because it was not issued pursuant to clause 2.36. However, even if that view is wrong and the notice is to be regarded as having been a notice under clause 2.36 and as such relevant by reason of clause 4.12.5.2 that notice can have no impact on the due date having been issued in February 2020.

 

  1. In summary the core of Mr. Shirazi's argument was the contention that there must always be a Notice of Completion of Making Good the date of which will always need to be taken into account in determining the due date by virtue of clause 4.12.5.2. In my judgement the fundamental flaw in that approach is that it overlooks the provision in clause 4.12.5.2 that the relevant Notice of Completion of Making Good be one "under clause 2.36" and the facts that a notice under that clause can only be issued in particular circumstances and that it is possible to identify a date by when all will know there will be no scope for such a notice (because the time for a schedule of defects or instructions under clause 2.35 will have passed). If there are circumstances in which it is clear that a notice under clause 2.36 is an impossibility then it must follow that there are circumstances in which clause 4.12.5.2 cannot come into operation and when that clause will be irrelevant for the purposes of determining the due date.

 

  1. The Employer sought a declaration that the due date was 13th February 2021 being one month from the Notice of Completion of Making Good of 13th January 2021. The effect of my conclusion as to the proper construction of the Contract is that the January 2021 notice was not a notice for the purposes of clause 4.12.5.2. This is because there had not been the delivery of any schedule of defects or the issuing of instructions under either clause 2.35.1 or 2.35.2 with the consequence that the January 2021 notice was not a notice pursuant to clause 2.36. The January 2021 notice was, accordingly, irrelevant for the purposes of determining the due date.

 

  1. It follows that the due date was not 13th February 2021 and the Employer is not entitled to a declaration to that effect.

 

  1. In the circumstances here clause 4.12.5.2 does not come into play at all because by 14 days after the end of the Rectification Period the Employer had not delivered either a schedule of defects under clause 2.35.1 or issued instructions under clause 2.35.2 and this meant that there was no scope for a subsequent Notice of Completion of Making Good under clause 2.36. It follows that by virtue of clause 4.12.5.3 the due date wou