Tag Archives: Arbitration

Building Contracts: Act quickly if you wish to challenge a Final Certificate

JCT Forms of Contract try to ensure that, when works have been completed, outstanding disputes can be rapidly and finally resolved.

In part this is by the employer’s agent issuing a Final Certificate, whereupon the contractor (and sometimes the employer) has 28 days to challenge it.

In the absence of a challenge, the Final Certificate becomes conclusive evidence for a wide range of issues, including defects, delays and outstanding cash disputes.

In the High Court case of Marc Gilbard 2009 Settlement Trust (trustees of) v OD Developments and Projects Ltd [2015] the claimant employed the defendant contractor to carry out works. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009).

The Contract Administrator issued a Final Certificate showing the defendant owing the claimant £232,153.54 plus VAT.

Within the relevant 28 day period, the defendant issued Part 7 proceedings in the Technology and Construction Court disputing the validity and correctness of the Final Certificate. Those proceedings had proceeded so slowly that, 13 months on, the first Case Management Conference had yet to be scheduled.

The defendant now wished the issues raised in the Part 7 claim to be referred to adjudication.

The court said the real interpretation issue was whether clause 1.9.3 of the contract envisaged:

1. one set of proceedings (whether adjudication, arbitration or court proceedings) issued within the 28 days to challenge the Final Certificate, or

2. an initial set of proceedings in which the relevant “matters” could be raised, but then allowed the challenger to commence other proceedings, beyond the 28 days, which would be equally legitimate so long as those same matters were raised in those later proceedings.

The court ruled that interpretation 1 was the correct interpretation. The purpose of clause 1.9.3 was to limit issues for which the Final Certificate was not conclusive to matters raised in any proceedings issued within the 28 days of that certificate.

The clause assumed that the party challenging the Final Certificate could choose the venue in which that was to be done. It could choose one of adjudication, arbitration or other proceedings (that’s to say in court).

The clause did not envisage more than one set of proceedings.

Nothing in clause 1.9.3 allowed a series of subsequent proceedings, with the first being commenced within 28 days, and the others starting months or years afterwards.

However if adjudication is the first option of a challenger under clause 1.9.3:

A. a challenger under clause 1.9.3, can within the 28 days issue simultaneous protective arbitration or court proceedings. This would protect the challenger’s position if they have messed up the reference to adjudication or the outcome of adjudication was no decision or a decision which is unenforceable; and/or

B. clause 1.9.4 of the JCT provisions allows 28 days more for a party to issue arbitration or court proceedings to challenge an adjudicator’s decision as to the Final Certificate.

But, if arbitration or court proceedings are the first option of the challenger, or if the challenger messes up the reference to adjudication, a party may end up out of time to challenge the Final Certificate.

Subject only to the qualifications at A and B above, the challenger has to challenge the Final Certificate in one set of proceedings, and those proceedings are the only means by which the Final Certificate can be challenged.

The JCT Design and Build Contract has a provision very similar to clause 1.9 which additionally and usefully allows the employer or contractor, before the final date for payment, to give notice “disputing anything in the Final Statement”.

The moral of this case is, if you are thinking of challenging a Final Certificate, to act without delay within the 28 day period to secure your position as above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

“Friendly discussions” could be valid precondition to arbitration

Could a first instance Judge in England, rule that a time-limited obligation in a dispute resolution clause, to seek to resolve a dispute by friendly discussions, is enforceable, or would he or she be obliged by precedent to rule that it is unenforceable?

The requirement to try to settle a claim by friendly discussions might be considered, by the law, a mere agreement to negotiate and therefore unenforceable.

As an unenforceable condition precedent to arbitration it may be that, notwithstanding the commercial sense underlying the clause, a party was free to commence arbitration without having sought to resolve his claim by friendly discussions.

In Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd (“PMEPL”) [2014] a clause obliged the parties to seek to resolve a dispute by friendly discussions and provided for the parties to see if they could resolve it within 4 weeks before arbitration could be commenced.

The court decided that precedent did not bind it to rule to be unenforceable a dispute resolution clause which required the parties to seek to resolve a dispute by friendly discussions, in good faith, and within a limited time, before the dispute might be referred to arbitration.

Such an agreement was complete – no essential term was lacking. Since it is an obligation to seek to resolve a dispute arising under the Long Term Contract dated 20 October 2007 (“LTC”) the discussions would concern the rights and obligations under the LTC so as to try to reach a compromise of the dispute which reflected the bargain the parties had entered into. It would not entail an open-ended discussion of each party’s commercial interests without regard to their rights and obligations under the LTC.

So the agreement had sufficient certainty to be enforceable.

A court should be able to identify behaviour at variance with the conduct anticipated of parties who had agreed to seek to resolve contractual disputes by friendly discussions. For example, a party who refused to discuss his claim at all could easily be shown to have breached the obligation to seek to resolve his claim by friendly discussion.

Problems proving breach, sometimes, did not mean that the clause lacked substance.

If a party sought damages for breach of the obligation it might be difficult to establish what the result of the discussions would have been, had they taken place, in accordance with the clause, but damages could be awarded for “loss of a chance”.

Besides, concluding that the obligation was enforceable would match the public policy of encouraging parties to resolve disputes without costly arbitration or litigation.

The obligation to seek to resolve disputes by friendly discussions must imply an obligation to try to do that in good faith. Conventionally such an obligation went without saying and was necessary to be implied to give “business efficacy” to the contract.

Friendly discussions had taken place in Goa on 1 and 2 December 2009 in which the parties sought to resolve PMEPL’s claim for US$45 million. The giving of a actual notice to enter into friendly discussions was not a mandatory requirement here. If notice to resolve the dispute by friendly discussions had been a mandatory requirement in this case enough notice must have been given in circumstances where the parties had assembled in Goa to discuss the issues between the parties. If the relevant clause of the LTC had required a written notice such requirement must (in those circumstances) have been waived.

So the arbitrators had jurisdiction to decide the dispute between the parties because the condition precedent to arbitration, although enforceable, had been satisfied.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.