The court provides clarity on when Final Statements become conclusive, when disputes crystallise for the purpose of adjudication, and when adjudicators have jurisdiction to consider a counter set-off claim.
Background to case
Mr Mincione (the employer) employed CC Construction Ltd (the contractor) for the design and construction of a new house under a JCT Design and Build (JCT D&B) Contract (2011 Edition). The contract sum was £3,130,062. Works started in April 2016 and practical completion took place in November 2019. The contractor issued its Final Statement of around £480,000 and the Employer disputed this sum. Consequently, the dispute went to adjudication and then legal proceedings. The dispute centred on the sums due under the contract, whether the employer was entitled to deduct liquidated damages and when these payments were to be paid.
The Final Payment Process under JCT Contract D&B 2016
The case in question centred on a JCT D&B contract 2011 edition, however the provisions are largely similar to those in the 2016 edition.
Within three months after practical completion the contractor submits its Final Statement. If the employer disputes the sum in the Final Statement it must give notice prior to the Due Date. If the employer does not provide notice before the Due Date the Final Statement becomes conclusive.
The Due Date is one month after the latest of:
- The end of the rectification period
- The date stated in the Notice of Making Good
- Or the date of submission of the Final Statement
No later than five days after the Due Date, the Contractor must then give a Final Payment Notice stating what it believes is due. If the employer believes the sum due is less, the employer must then issue a Pay Less Notice no later than five days before the Final Date for Payment (which is 14 days after the Due Date). The employer will either pay the amount stated in the Pay Less Notice, or if no Pay Less Notice is issued, the sum stated in the Final Payment Notice before the Final Date for Payment.
In the 2011 edition, the final date for payment is 28 days after the due date.
The key issues disputed in the adjudication were whether the Final Statement was conclusive, if the dispute had crystallised and if the employer had a right to set-off monies otherwise owed to the contractor due to liquidated and ascertained damages (LAD’s).
Issue one – Whether the Final Statement was conclusive
As explained above, the sum stated in the Final Statement becomes conclusive unless the employer issues a notice disputing the amount before the Due Date.
The contractor initially wrote to the employer with the final statement in December. The contractor then wrote again a month later, enclosing the previous letter and the Final Statement.
The contractor argued the employer’s notice disputing the Final Statement was not effective as it referred to the previous letter from the contractor rather than the latest letter. Therefore, the amount owed was the sum stated in the Final Statement.
Issue two – Whether the dispute had crystallised
Before a dispute can be referred to an adjudicator it must be said to have "crystallised". In simple terms a claim has to be advanced and then rejected. The employer argued that the dispute over the Final Statement had not "crystallised" so the adjudicator had no jurisdiction to determine the dispute above.
Issue three – Set-Off by LADs
The employer argued it could set off the majority of the sum claimed by the contractor further to liquidated damages that had accrued. The contractor contended that the LADs claim was not part of the dispute referred to the adjudicator so was beyond the adjudicator’s jurisdiction.
The adjudicator decided:
- The employer’s notice disputing the final sum was defective
- The jurisdiction challenge by the Employer was rejected
- However, he had no jurisdiction to consider the LADs claim as it was not an issue which had been referred to him
Therefore, the contractor was awarded the sum in the Final Statement.
Following the adjudicator’s decision, the contractor sought to enforce the decision. The employer brought Part 8 proceedings seeking declarations on whether the Final Statement was conclusive and whether the adjudicator’s decision was enforceable.
It was held:
- On issue 1, the Employer’s notice prevented the Final Statement from being conclusive. As the letter sending the Final Statement had enclosed the contractor’s previous letter it was deemed that the contractor had effectively re-sent the Final Statement. Accordingly, even though the employer’s letter referred to the earlier letter, the court held a reasonable recipient would be in no doubt that the employer was disputing the Final Statement. The court also found that, under the JCT D&B 2011, the parties did not need to start an adjudication or proceedings to prevent the Final Statement becoming conclusive.
- Regarding issue 2, on a "realistic" review of the parties’ correspondence prior to the adjudication the parties were certainly in dispute over the final statement.
- On the third issue, the adjudicator was wrong to conclude that he did not have jurisdiction to consider the defence of set-off, on the basis that this was not an issue in the Notice of Adjudication and therefore outside the dispute that had been referred. Paragraph 118 of the Judgement states:
While the claim for set-off was not a valid defence in this case (due to the absence of a payless notice), the key issue was the adjudicator’s failure to address it in his decision, which was a breach of natural justice.
Key points to take away
Firstly, when responding to a final statement, an employer must be a clear as possible that they are disputing the sum in the Final Statement to ensure they are not required to pay the sum in the Final Statement. Secondly, the court will very rarely come to the conclusion that a dispute has not crystallised. Finally, the decision reinforces the position that a responding party is entitled to raise any defence it considers are properly arguable to defend the claim and any failure by the adjudicator to take these defences into account (even if wrong in law) may invalidate the decision.