JCT/SBCC final account procedure: traps for the unwary

A recent decision of the Scottish Court of Session has considered the final account provisions of the JCT/SBCC Standard Building Contract. The case considers the conclusivity and time bar provisions in particular and their application to interim payment disputes. The Court’s decision highlights the importance of carefully considering the operation of these provisions and the strict time limits which apply, so as to avoid losing rights of challenge.

D McLaughlin & Sons Ltd v East Ayrshire Council

East Ayrshire Council (the “Council”) engaged D McLaughlin & Sons (“DMS”) to build an extension to a school, with work commencing on 30 May 2016. A dispute arose in relation to the sums claimed by DMS in terms of the contract (an amended Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) 2011 edition).

The payment dispute concerned the following sequence of events:

1. On 10 August 2017, no Interim Certificate had been issued by the Council as required by the contract and DMS issued an Interim Payment Notice to the Council.
2. No Pay Less Notice was issued on behalf of the Council. DMS therefore sought payment of the whole sum stated in the Interim Payment Notice. The Council refused to make payment.
3. Work continued and the Council made other interim payments to DMS under the contract.
4. On 17 July 2019, after the works were completed and the making good of defects had taken place, a Final Certificate was issued on behalf of the Council. The Final Certificate valued the works at £3,343,223.82. Payment was made in accordance with that sum.
5. DMS contended it was entitled to a higher sum. On 12 September 2019, it raised proceedings in the Sheriff Court, arguing that the Final Certificate did not accurately reflect the proper value of the works, including variations. It claimed a valuation of £3,711,242.80 and sought judgment for the unpaid balance of £441,622.78.
6. On 23 March 2020, DMS commenced an adjudication seeking payment of the full amount stated in its Interim Payment Notice issued on 10 August 2017.
7. The adjudicator found in favour of DMS and, in the absence of a Pay Less Notice, required the Council to pay £513,094.50 plus interest of £78,361.18.
8. DMS then raised an action for enforcement of the adjudicator’s decision, which was successful and the decision was ultimately paid by the Council. DMS had therefore been paid £3,934,680 – significantly more than the final account value it alleged in the Sheriff Court action.

As part of the enforcement proceedings, the Council lodged a counterclaim seeking declarations that the adjudicator was bound by the Final Certificate and also that the Interim Payment Notice was invalid. The effect of these declarations would be to reverse the adjudication decision. The Council was unable to have these declarations decided at the same time as the enforcement hearing (due to the priority given to the enforcement of adjudication decisions). They therefore came before the Scottish Court of Session on a separate hearing.

The conclusivity provisions

The Council argued that the Final Certificate was issued more than 60 days prior to the raising of the adjudication and was therefore conclusive evidence in the interim payment adjudication. The Council relied specifically on clause 1.9.3 contained within the JCT/SBCC SBC conditions:

“1.9.3 If adjudication, arbitration or other proceedings are commenced by either Party within 60 days after the Final Certificate has been issued, the Final Certificate shall have effect as conclusive evidence as provided in clause 1.9.1 save only in respect of the matters to which those proceedings relate.”

DMS argued that the Sheriff Court proceedings, having been issued within 60 days from the Final Certificate, were sufficient to prevent conclusivity and that this applied also to any later proceedings such as the adjudication.

A similar issue had been determined in the prior English case of Marc Gilbard 2009 Settlement Trust (trustees of) v OD Developments and Projects Ltd. Mr Justice Coulson (as he then was) rejected the so called “foot-in-the-door” approach argued for by DMS and held that conclusivity would continue to apply to any proceedings commenced after the time period, even if prior proceedings covering the same or similar issues had been commenced within the period. For our Law-Now on the Marc Gilbard decision please click here.

Was the final certificate conclusive in the interim payment adjudication?

The Court agreed with the decision in Marc Gilbard and applied the same robust approach, which had not yet been applied in Scotland, in this case. Accordingly, it was only in the Sheriff Court proceedings, raised within 60 days of the Final Certificate, where the Final Certificate would not be conclusive. This was the case even if subsequent proceedings dealt with the same subject matter.

However, the Court also determined that that the conclusivity provisions were intended to apply only to proceedings concerning the final account and not to interim payment disputes. Accordingly, the Final Certificate was still not conclusive in the interim payment adjudication even though the adjudication had been commenced more than 60 days after the Final Certificate.

Was the Employer barred from challenging the Interim Payment Adjudication?

In addition to conclusivity, clause 1.9 of the contract (in standard JCT/SBCC SBC form) provided as follows:

“ 1.9.4 In the case of a dispute or difference on which an Adjudicator gives his decision on a date after the date of issue of the Final Certificate, if either Party wishes to have that dispute or difference determined by arbitration or legal proceedings that Party may commence arbitration or legal proceedings within 28 days of the date on which the Adjudicator gives his decision.”

DMS argued that this clause barred the Council’s counterclaim in any event because the counterclaim was commenced more than 28 days after the date of the adjudicator’s decision. The Court agreed, meaning the counterclaim failed in its entirety.

Implications and conclusion

This case is significant in confirming that the approach to the JCT/SBCC conclusivity provisions taken in Marc Gilbard will also apply in Scotland and also for the Court’s comments as to interim payment disputes.

There would appear to be a tension between the Court’s twin conclusions that the adjudication was not subject to the conclusivity provisions, but was subject to the time-bar in clause 1.9.4. Why the interim nature of the adjudication dispute brought it outside the provisions in one respect, but not in the other, does not appear to have been explored.

The case highlights the difficult issues which can arise on the final account provisions of the JCT/SBCC Standard Building Contract. Parties should give careful consideration to how such provisions apply in specific scenarios to avoid losing rights of challenge as happened in this case. Parties should also note that the final account procedure is much simpler under the JCT/SBCC Design and Build form, where a written notice is sufficient to dispute the final account and prevent conclusivity (for our recent Law-Now on the final account provisions of the Design and Build form please click here).

References:

Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [2015] BLR 213

D Mclaughlin & Sons Ltd Against East Ayrshire Council [2021] CSOH 122