Everyone knows that a final certificate trumps an interim one – that’s the way a client ensures it pays the correct sum. But when an adjudicator is parachuted in to decide the interim account, that situation is reversed – as Camden council was surprised to discover
It is hardly surprising that the London borough of Camden resisted paying contractor William Verry the half a million pounds or so awarded by the adjudicator. The council didn’t like the idea of forking out all that money on an interim account when the certificated final account was a whole lot less. “Dear me,” said Camden, “isn’t it always the case that an interim account is superseded by the final certificate?” Well, let’s have a look at what Mr Justice Ramsey had to say, shall we?
Go back to when you and I were sprogs. Face up on the desk was that yellow-backed RIBA 1963 form. Actually it was JCT 1963 but we all called it the RIBA form. It was drummed into us that the architect’s monthly interim certificate did nothing more than identify on a “global” basis what the employer had to pay. The certificate did not indicate that the work was correct; it certainly did not indicate that it was valued correctly. Dear me, no. And if, between one month and the next, the certifier thought twice about what to pay, they were at liberty to issue a negative certificate. And, if the penultimate interim certificate was a tad high it would be reduced in the final account certificate. An overgenerous payment was just a temporary aberration; it would all come out in the wash.
William Verry said its interim valuation was a shade under £7m for the refurb housing scheme at Bourne Estate, London. The 13 blocks of flats were owned by Camden; the contract was the JCT intermediate form 1998. It is fair to say that the interim and final account machinery is of the same ilk as in the 1963 form. Camden’s certifier would not certify £7m; it was, he said, more like £5.7m. So Verry went to adjudication. The adjudicator fellow decided £6.5m-ish ought to have been certified in the interim award. Nobody had any quarrel with the adjudicator’s decision. But by the time of the £6.5m award on the interim certificate, Camden had done its sums on the final account. That certificate was issued at £5.8m. More than that, Camden had identified alleged defects worth about £2m. The upshot was that Camden argued in court that the final certificate trumped the interim certificate award.
Life becomes tricky when the final certificate does not trump the earlier award of an adjudicator on an interim account
Now then, the way you and I were brought up on these JCT contracts is that each month the valuation was a “fresh calculation”. We started from the bottom and re-valued every piece of work afresh and we ended up with the latest certificate payable. Previous certificates were irrelevant. The certifier is the bloke entrusted by contractor and employer to revalue each month. The only duty of the employer is to obey the certificate. Ah, but here is the difference. If the contractor or employer quarrels with the certificate, the adjudicator is empowered to “open-up, review and revise”. The big “but” is that an adjudicator’s decision is binding until revised in litigation. Contrast that binding decision with the architect’s “decision” about a certificate. It is non-binding. So, life becomes tricky if an adjudicator decides an interim certificate is worth £x but subsequent architect’s certificates are less. Even trickier with this William Verry and Camden case is that the final certificate does not trump the earlier award of an adjudicator on an interim account. So, Camden still had to obey the adjudicator’s award and pay up oodles more than the final certificate.
Oh don’t fret too much: there is an answer to all this, but it will take an adjudication on the final certificate rather than a mere interim certificate to get the money flowing back to Camden. Look, adjudication is a speedy mechanism for managing disputes on a provisional basis, requiring the decision of adjudicators to be enforced. William Verry quite properly adjudicated its interim valuation; it was valued by Camden too low. That binds. But adjudicating the final certificate, in the light of all the final information about the project will produce a binding final account instead of a binding interim account. So the final, final figure gets on to the desk. It may even mean money flowing back to employer. Go further: an award by an adjudicator on an interim account followed by another award on a subsequent interim account, which may account for a turn of events such as defective works, will trump the first adjudication … provided, of course, we can fathom what the first award decided. Interim certificates are not binding, but interim certificates that are adjudicated are. It wasn’t like this in 1963 …
Tony Bingham is a barrister and arbitrator