The Technology & Construction Court (TCC) has made its decision in the case of Jerram Falkus Construction Ltd v Fenice Investments Inc [No 4]. The judgment provides useful guidance on conclusivity provisions in construction contracts relating to final accounts, final statements and adjudicators' decisions.
Rejecting Jerram's claims for an extension of time and loss and expense, Coulson J ruled that the issues had already been dealt with in an adjudication between the parties. Moreover the adjudicator's decision had become conclusive under the building contract. The judgment also provides useful guidance on the prevention principle and concurrent delay.
The claimant, Jerram Falkus Construction Ltd was engaged by the defendant, Fenice Investments Inc to carry out the development of a residential site in London. The contract incorporated the Joint Contracts Tribunal (JCT) Design & Build Form 2005 with amendments.
The works were delayed for 86 days and Fenice levied liquidated damages. In contrast, Jerram argued that Fenice was not entitled to any liquidated damages because Fenice had in fact prevented completion. Due to the deletion of the extension of time (EOT) provisions in the contract, no EOT could be granted in relation to the acts of prevention (by the Employer, Employer's Persons or by a Statutory Undertaker in pursuance of its statutory obligations) so that time was set at large.
Jerram also claimed it was entitled to loss and expense. It provided its Final Account on 17 November 2009 which included a claim for just under £200,000 by way of loss and expense. The total balance payable was said to be £311,393.78. The Final Statement in this sum was provided by Jerram on 1 July 2010.
The third adjudication
There had been two previous adjudications and in September and October 2010, the parties fought a third adjudication. Fenice requested a declaration that Jerram was not entitled to any further EOT for, amongst other things, alleged delays by British Gas and EDF and alleged late instructions relating to floor levels - both events being the employer Fenice's responsibility. Jerram argued that these delays had rendered time for completion at large. The adjudicator found in favour of Fenice on all the points and found that there had been no prevention by Fenice to render time at large.
The adjudicator's decision was dated 28 October 2010. The rectification period under the contract ended on 13 January 2011 and, subject to any challenge by Fenice, the Final Account was said to become conclusive on 13 February 2011 (clause 4.12.4 of the contract) with the final date for payment of the £311,393.78 (clause 4.12.9) being 13 March 2011.
On 24 January 2011, Fenice challenged Jerram's Final Account and Final Statement by letter and set out its own Final Account with an item-by-item reponse. Fenice submitted it had overpaid Jerram by £122,102.36, set out its entitlement to liquidated damages and rejected Jerram's claim for loss and expense. Jerram did not commence arbitration or litigation proceedings before 13 February 2011, challenging the adjudicator's decision on whether it was entitled to an EOT.
The issues in the TCC
In the TCC, Jerram issued proceedings in March 2011 seeking declarations. Broadly the issues between the parties comprised:
- The extent to which Jerram's claims were already dealt with in the third adjudication. Fenice argued that because Jerram had failed to challenge the decision in the third adjudication within the stated time, that decision was now conclusive.
- Was it now possible for Fenice to challenge Jerram's claim for loss and expense, or for Jerram to raise its delay claims? The Final Account becoming conclusive in February 2011 unless the 24 January letter was a valid challenge.
The decision - third adjudication was conclusive
Coulson J rejected Jerram's argument that the dispute before him (delays caused by alleged acts of prevention in respect of EDF, British Gas and late instructions relating to floor levels) and the dispute in the third adjudication were different.
Further, since the third adjudication took place after the Final Account and Final Statement had been submitted, clause 1.9.4 had been triggered. The clause provides that where an adjudicator gives his decision after the Final Account or Final Statement, either party can have that dispute or difference determined by arbitration or legal proceedings within 28 days of the adjudicator's decision. Jerram had not challenged the adjudication decision in that time.
Notwithstanding this, Jerram argued that the words of clause 1.9.4 did not say in terms, that if the adjudicator's decision was not challenged within 28 days that it was conclusive on the matters with which it dealt.
The judge was not persuaded by Jerram's arguments for two reasons:
- Clause 1.9.4 made commercial sense in line with the finality and certainty which clause 1.9 was designed to provide. "The clause [1.9] is designed to provide for various circumstances in which, following the provision of the Final Account, the position between the parties can become conclusive, thereby precluding any further dispute. Clause 1.9.4 must therefore be read in that context; it is providing a deadline beyond which something - in this case the decision in an adjudication started after the provision of the Final Account - becomes conclusive."
- Clause 1.9.4 would be entirely redundant if its effect was not to provide some sort of deadline beyond which the result in the post-Final Account adjudication could not be challenged. The judge acknowledged there was a gap in the language used in clause 1.9.4 and its intended purpose, but this did not affect the aim of the clause.
Consequently, Jerram was not entitled to loss and expense under the contract and Fenice was entitled to liquidated damages.
The remainder of the judgement was only relevant if the judge was wrong on the adjudcation being conclusive. The judge dealt with the following issues.
Loss and expense - Final Account was not conclusive
Jerram argued that following the Certificate of Making Good Defects (clause 4.12.4), the Final Account and Final Statement became conclusive as to the balance between the parties on 13 February 2011. Consequently, there could be no defence to the claim for £311,393.78. The problem was with the proviso at the end of the clause, which provided that the Final Account is said to be conclusive:
"...except to the extent that the Employer disputes anything in that Final Account or Final Statement before the date on which, but for the disputed matters, the balance would be conclusive."
Fenice had produced its own version of the Final Account on 24 January 2011. The judge found that:
"To the extent that it challenged JFC's [Jerram] Final Account, the letter of 24 January prevented that Final Account from becoming conclusive."
Jerram further argued that the Final Account became conclusive because no withholding notice was provided by Fenice pursuant to the contract. The judge rejected this argument because a withholding notice was only relevant where the Final Account had become conclusive. This had not happened because of Fenice's challenge of 24 January 2011. Coulson J commented that even if he was wrong and the withholding argument was relevant:
"...the dispute between the parties was now concerned with the parties' final entitlement on the substantive merits, not just interim cashflow (where the service of withholding notices is important)."
Interestingly, the judge rejected Jerram's alternative argument that the requirement that a notice challenging the Final Statement be served "not later than five days after" meant that it had to be served within the five days after service of the Final Statement failing which it became invalid. Indeed, there was nothing to prevent the notice being served before the Final Statement became conclusive (unless further information came to light).
Delay - Final Account was not conclusive
Fenice argued that as a result of clause 126.96.36.199 Jerram was not entitled to further EOTs and further it was barred from seeking to raise the alternative argument that time was at large. Clause 188.8.131.52 provided that when the Final Statement becomes conclusive it shall take effect in any subsequent legal proceedings as, among other things, "conclusive evidence that all and only such extensions of time, if any, as are due under clause 2.25 have been given."
The judge disagreed with this approach because Fenice's letter of 24 January 2011 had challenged Jerram's Final Account claim for loss and expense. The costs consequences of delay therefore remained in dispute between the parties.
The judge was also of the view that the words "have been given" in relation to EOTs could not mean that the Final Account was conclusive as to EOTs granted by the Employer's Agent as this would have the opposite effect of making the Final Account itself conclusive. The judge put this in the following way:
"How can the conclusivity of his [the contractor's] Final Account limit the contractor to an entitlement which that Final Account expressly challenges?"
Accordingly, Jerram's Final Account was not conclusive in relation to the parties' rights and liabilities in respect of delay. However, the judge concluded that this did not ultimately matter because of his view that the failure to challenge the decision in the third adjudication was conclusive of those same rights (issue one).
Prevention principle and time at large
The essence of the principle is that the employer cannot hold the contractor to a specified completion date if the employer has, by his own act or omission, prevented the contractor from completing by that date. Consequently, the contractor is required to complete the works within a reasonable time (time becomes at large) if the contract does not provide for an EOT in respect of the acts of prevention by the employer.
Prevention and concurrent delay
The judge concluded that for the prevention principle to apply the contractor had to be able to demonstrate that the employer's acts or omissions had prevented the contractor from achieving an earlier completion date. If that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor's own default, the prevention principle would not apply. Coulson J found that there had been no prevention on the part of Fenice and that the entirety of the delays were the sole responsibility of Jerram.
Further, the judge found that had the EOT provisions still been included in the contract, Jerram's EOT claim would have failed. Additionally, even if there had been delay to the works as a result of British Gas and/or EDF and even if Fenice was responsible for such delay under the contract, the judge would still have concluded that the prevention principle had not been triggered. This is because such delays would have been concurrent with the delays caused by matters for which Jerram was responsible.
The conclusivity arguments were necessarily based on the court's interpretation of the relevant contractual provisions. In order to ensure, as far as possible, certainty and clarity as to when and how documents or decisions become conclusive, it is best to try and detail this in the contract itself. This approach narrows the scope of any dispute coming before the courts.
Consideration should also be given to when and how challenges to documents or decisions should be constituted, again with consequences set out and clear timeframes. Ultimately, the judge identified that the problem with the conclusivity provision in the bespoke contract was that:
"...it is seeking to make the Final Account conclusive in the same way as, under the other JCT Forms of Contract which do not impose a design obligation on the contractor, the architect's Final Certificate is made conclusive."
Also, it is essential to consider the events for which the employer is responsible but for which there is no entitlement to an EOT. Where there is an entitlement to an EOT, time will not be at large and the completion date can be extended. Care therefore needs to be taken when removing certain events as relevant events that would otherwise justify an EOT.