Making-good decisions

The recent case of CC Construction Ltd vs Raffaele Mincione [2021] EWHC 2502 (TCC) covers some interesting ground about final payments, final statements and severing adjudicators’ decisions.

Mr Mincione employed CC Construction on the shell and core of an expensive London property under an amended JCT Design and Build Contract 2011. He took possession of virtually all the works in December 2018, with only some boundary wall rendering outstanding. However, practical completion was not certified until November 2019, and the employer received the final statement on 4 December 2020. The contractor had been seeking engagement on the final account long before then.

Mr Minicone gave notice on 18 December 2020 disputing the amount claimed in the final statement (around £480,000) but did not issue a payment or pay less notice. In his view, the due date for the final payment had not yet arrived. The dispute involved his entitlement to liquidated damages for delay as against CC Construction’s entitlement to further time and money. It was not about the quality of the works.

In the absence of a schedule or instructions to make good defects within the contractual time permitted, it is now likely that a term will be implied into a JCT contract so that there is no requirement for a NCMG to trigger the final payment process

Adjudication followed, resulting in a decision that the contractor was owed the full sum claimed in the final statement. Mr Mincione did not pay and court proceedings were commenced, with the contractor seeking enforcement of the decision and Mr Mincione seeking Part 8 declarations. The court heard the claims together.

When is a final payment due?

A key issue is the role of the notice of completion of making good defects (NCMG) in fixing the due date for the final payment. Establishing the due date for the final payment was important as this would determine whether a purported payment notice issued on 10 February 2021 was in time or whether the final statement amount already stood as the sum to be paid.

Under the JCT contract, the due date for the final payment was one month after the last of:

• The end of the rectification period
• The date stated in the NCMG
• The date of submission of the final statement.

The dates of the end of the rectification period and submission of the final statement were not in dispute. The disagreement was about the date and purpose of the NCMG.

The employer first issued a NCMG on 14 February 2020 for the works taken into possession. He issued another notice on 13 January 2021, nearly two months after the rectification period, purportedly for the entire works. The contractor pointed out that no new defects had been notified and, therefore, it surely was not right that the due date for the final payment could be held up pending a second NCMG for non-existent defects.

His Honour Judge Eyre (as he was then) effectively agreed, holding that a NCMG can only be issued where defects have actually been required to be made good. Therefore the date of the second notice did not count as one of the three dates triggering the due date for the final payment. The due date was therefore 4 January 2021, one month after the final statement.

The case establishes a significant takeaway principle. In the absence of a schedule or instructions to make good defects within the contractual time permitted, it is now likely that a term will be implied into a JCT contract so that there is no requirement for a NCMG to trigger the final payment process. Attempts to use technical arguments to delay or thwart a final payment process are likely to fail.

Was the final statement conclusive?

Under the JCT D&B 2011, the final statement becomes conclusive evidence of various entitlements unless disputed. The contract also provides for proceedings to be commenced within strict timeframes to prevent certain conclusive effects.

The question was whether the employer needed to follow up his notice of dispute by commencing proceedings, before the due date, to prevent the final statement becoming conclusive evidence as to entitlements to extensions of time and loss and expense. 

The judge decided that a notice of dispute and proceedings were alternative routes to prevent conclusivity rather than cumulative requirements under this JCT. The notice of dispute was given in time and prevented the final statement from becoming conclusive under clause 4.12.6. The judge declined to make any further declarations as to conclusivity under clause 1.8.1.

Can part of an adjudicator’s decision be severed or salvaged?

In the adjudication, the employer sought to set off liquidated damages for delay (LADs) against the sum claimed. The contractor relied on the absence of any valid payment or pay less notice for the LADs rather than stating its full case as to why it otherwise disputed the LADs.

The employer argued that a breach of natural justice had arisen from the adjudicator concluding that the LADs did not form part of the dispute he was asked to decide. The contractor’s simple explanation was that no payment or pay less notice had been issued allowing the adjudicator to bring the LADs into the equation. Therefore, how could the adjudicator have taken the potential set-off into account when deciding the sum due?

The judge, after reviewing the decision, considered that the adjudicator had not addressed a defence before him and, as such, there had been a breach of natural justice. Did this render the whole decision void?

Mr Justice Eyre held that the adjudicator’s decision was severable because the balance of the contractor’s claim, after deduction of the employer’s damages, was not tainted or affected by the adjudicator’s other findings

This question was answered in a subsequent hearing when Mr Justice Eyre considered the law on severance. Could an adjudicator’s mistake as to one part of their jurisdiction, and any related consequences, be readily severed from the remainder of the decision?

The claim for LADs was £343,237.74. Even if the adjudicator had allowed this defence in full, it would only have reduced the final statement amount as opposed to extinguishing it completely.

Mr Justice Eyre explained the importance of identifying whether there is anything remaining which can safely be enforced. He held that the adjudicator’s decision was severable because the balance of the contractor’s claim, after deduction of the employer’s damages, was not tainted or affected by the adjudicator’s other findings. This is an important consideration.

It was pertinent, in the contractor’s submission, that the employer could not have done better than securing an entitlement to the LADs in full even if the adjudicator had considered the set-off defence. Mr Justice Eyre decided it was indeed safe to enforce the balance of the sum awarded by the adjudicator, namely £136,720.06. The contractor was awarded costs in respect of the combined Part 7 and Part 8 proceedings.

Patrick Blake is a partner and head of construction and infrastructure, and Lianne Edwards a senior associate, at Ashfords. The firm acted for the contractor, CC Construction Ltd, in this case.