Challenging conclusivity and “playing for time” under the JCT final account process

A recent TCC decision has considered the final account conclusivity provisions of the JCT form and the circumstances in which an adjudication commenced to preserve a challenge to the final account can be re-commenced without triggering conclusivity and losing the right to challenge the final account. In this case, the adjudication was re-commenced four months after it had initially lapsed, but was found not to have triggered conclusivity. The court’s judgment raises the prospect of parties “playing for time” by commencing adjudications and allowing them to lapse, however drafting solutions are likely to be available to parties who wish to preserve a tighter final account process.  

Battersea Project Phase 2 Dev Co Ltd v QFS Scaffolding Ltd

Battersea and QFS entered into a sub-contract for asbestos scaffolding as part of the Battersea Power Station Development. The contract was an amended 2011 JCT Design & Build Sub-Contract. A dispute arose over the final account, with the parties being roughly £40m apart.

The final account provisions of the contract were, in relevant respects, unamended. Clause 1.8.1.2 of the sub-contract stated that if adjudication proceedings were commenced prior to or within 10 days after the date of receipt of the Final Payment Notice, then:

“the Final Payment Notice shall not have the effects specified in clause 1.8.1 in relation to the subject matter of those proceedings pending their conclusion. Upon such conclusion, the effect of the Final Payment Notice shall be subject to the terms of any decision, award or judgement in or settlement of such proceedings.”

These provisions applied to an adjudication in respect of the final account commenced by QFS on 19 December 2022, as a Final Payment Notice was issued by Battersea three days later on 22 December 2022. It was subsequently agreed that the date for QFS to serve its Referral Notice in the adjudication was to be extended until 13 January 2023. This deadline was not met, as QFS believed that the agreement was for an open-ended extension with no long stop date.

The parties engaged in settlement negotiations between March to May 2023. When these negotiations were unsuccessful, QFS noted its intent to proceed with the adjudication and the adjudicator suggested that QFS serve a fresh Notice of Adjudication, which it did on 10 May 2023. In response, Battersea claimed that QFS’ failure to serve its Referral Notice on time (i.e. by 13 January 2023) meant that the first adjudication had become a nullity and had therefore reached a “conclusion” within the meaning of clause 1.8.1.2. As such, Battersea contended that its Final Payment Notice was now conclusive and could not be adjusted by the adjudicator.

Battersea’s argument was not accepted by the adjudicator, who went on to reach a decision in QFS’ favour, but was raised again before the court on enforcement. The court rejected QFS’ preliminary point that the extension agreement was open-ended and proceeded to consider whether the lapsing of the first adjudication had triggered the conclusivity of the Final Payment Notice under clause 1.8.1.2.

Had the adjudication reached a conclusion? 

The court rejected Battersea’s contention that the lapsing of the first adjudication was a “conclusion” of the proceedings under clause 1.8.1.2. In this regard, the court relied on two previous cases where fresh adjudications had been commenced to overcome procedural irregularities which had caused an initial adjudication to miscarry (Bennett v FMK Construction Ltd and University of Brighton v Dovehouse Interiors Ltd).

The court noted that Battersea’s interpretation would operate harshly where an adjudication had been rendered a nullity through no fault of the Referring Party, such as where an adjudicator’s conduct or a breach of natural justice was to blame. Subject to the question of abandonment, and provided the subject matter of the two adjudications was the same, it did not matter that a second Notice of Adjudication had been required in order to reach a proper “conclusion” of the proceedings.

Abandonment

Battersea argued, as a fallback, that even if the adjudication had not reached a conclusion when QFS failed to serve a Referral Notice on time, the delay in commencing the second adjudication until some four months later nevertheless amounted to an abandonment of the proceedings. The two previous cases noted above had recognised that the suspensory effect of commencing adjudication proceedings would no longer apply if those proceedings had been abandoned. However, in those cases fresh adjudications had been commenced with only minor delays to the adjudication timetable (lasting mere days) and abandonment was not discussed in any detail.

In considering this issue, the court gave the following guidance as to when abandonment will arise:

“I need to consider whether QFS abused its timely commencement of proceedings either by lacking or losing any genuine intention to resolve the underlying dispute raised by the Notice. If so, it will be taken to have abandoned the adjudication proceedings. I accept that this should be analysed objectively. It would not be enough for QFS privately to have intended to pursue the adjudication proceedings if it did not in fact make its intention manifest. It could do that by its words or conduct (or both) although I accept there may come a point when words would, in themselves, be insufficient to demonstrate that proceedings had not been abandoned. [Battersea] argued that it ought not to be possible to keep adjudication proceedings ‘in limbo’ forever, simply by repeating that you intend to pursue them but without taking action. I agree. When it becomes necessary to take action depends on the circumstances.”

Adopting this approach, the court’s analysis of the evidence pointed firmly against any intention to abandon. In particular:

• QFS believed (albeit incorrectly) that it had an open-ended extension for the service of its Referral Notice.
• The settlement discussions provided a reasonable explanation for the delay and were premised on the fact that the adjudication could be pursued in the event that no settlement was reached.
• The very large amounts at stake and the fact that the parties were aware of the conclusivity provisions and the impact they could have on the dispute pointed against an intention to abandon. 

Conclusions and implications

This decision provides helpful guidance on the conclusivity provisions of the JCT final account procedure and the suspensory effect of adjudication proceedings in particular. As this decision highlights, where an adjudication commenced in accordance with the procedure proves to be abortive, the key issue is likely to be whether the party in question has shown an intention to abandon the adjudication process or whether it intends to continue with an adjudication at some later date through a fresh Notice of Adjudication.

The fact that a four-month period was found not to amount to abandonment raises the prospect that contractors and sub-contractors may seek to stall the final account procedure by commencing an adjudication under clause 1.8.1.2 and letting the adjudication lapse to allow further time for negotiation or information exchanges. Provided the intention to pursue the adjudication is expressly confirmed, the decision in this case would provide some support for such an approach. Whether this would extend to reasons which have nothing to do with the employer or main contractor, such as a need for more time to prepare for an adjudication, remains to be seen.

It is worth noting in this context that the JCT Standard Building Contract and the Design and Build Contract – but not the Design and Build Sub-Contract considered in this case – contain some protection against delays by stating that “any proceedings shall be treated as concluded if during the period of 12 months commencing on or after the issue of the Final Certificate [or relevant statement in the DB form] neither Party takes a further step in them.” Allowing an adjudication to lapse for more than 12 months before issuing a fresh Notice of Adjudication may fall foul of this provision.

Parties may also wish to consider bespoke amendments to avoid the potential for such delays. One possible approach could be to make clear that any adjudication which is a nullity will be deemed to have reached a “conclusion”. The problem with this wording, as the court in this case pointed out, is that an adjudication could become a nullity due to breaches of natural justice by the adjudicator which have nothing to do with either of the parties and yet one party would be stripped of its ability to challenge the final account as a result. An alternative approach would be to require any adjudication proceedings which are rendered a nullity to be recommenced within a given period of time and/or to deem only the intentional lapsing of an adjudication as a “conclusion” of proceedings.

References:

Bennett v FMK Construction Ltd [2005] EWHC 1268 (TCC) 

University of Brighton v Dovehouse Interiors Ltd [2014] EWHC 940 (TCC)

Battersea Project Phase 2 Dev Co Ltd v QFS Scaffolding Ltd [2024] EWHC 591 (TCC)