Understanding the Two-Stage Process of a Conclusivity Clause for Final Payment in JCT Contracts

Introduction

The Battersea Project Phase 2 Development Company Ltd (BPS)  v QFS Scaffolding Ltd (QFS) looks into the standard final conclusivity clause often found in construction contracts relating to final payment, and the deadline for commencing adjudication proceedings which prevents that clause from taking effect.

Key Contract Terms

BPS was the contractor and QFS was the subcontractor. The contract used was the JCT D&B Sub-Contract, 2011 Edition (as amended) (the Sub-Contract). 

The Sub-Contract contained a standard conclusivity clause (clause 1.8) whereby the sum set out in a Final Payment Notice (FPN) was conclusive between the parties unless one of the parties commenced adjudication, arbitration or other proceedings prior to or within 10 days after receipt of the FPN, in which case, the FPN would be subject to the terms of any decision, award or judgment in such proceedings.  

Background

Following practical completion of the sub-contract works, a dispute arose between the parties regarding the final contract sum.

In December 2022, QFS issued a notice of adjudication (Notice) over the true value of the final sub contract sum. Shortly after the Notice, Mace, the Employer’s Agent, issued a FPN whereby a sum became payable by QFS to BPS.

QFS had satisfied the first stage of clause 1.8 by serving its Notice prior to the FPN.

Under the second stage, in accordance with the Housing Grants, Construction and Regeneration Act 1996, QFS was required to serve the Referral Notice (Referral) within 7 days of the Notice. Failure to serve on time will generally render an adjudicator’s decision a nullity.

The parties agreed to extend the deadline for serving the Referral. However, the agreed extended deadline date remained a point of dispute between the parties.

Following advice from the adjudicator, QFS issued a new Notice in March 2023 which was identical to the  earlier Notice.

The adjudication under the March 2023 Notice was concluded in September 2023 and the adjudicator awarded QFS a monetary sum. 

The Dispute

BPS agreed that the December 2022 Notice was validly issued, but argued that QFS had fallen foul of the requirement  to issue its Referral within the agreed extended timeframe, and therefore those proceedings were either a nullity or had been abandoned. As such, BPS claimed that the FPN was conclusive between the parties. 

QFS contended that it did not miss the agreed extended deadline to serve the Referral, it had not abandoned the proceedings and the adjudication was concluded in September 2023. Therefore QFS claimed that the FPN was not conclusive and instead should be adjusted in accordance with the adjudicator's September 2023 decision. 

Court Judgment

Judge Nissen KC concluded that the FPN was not conclusive and was subject to the adjudicator's decision in September 2023. 

The following key points were considered:

1. Extension of Time for Referral

The Judge accepted that whilst the parties had agreed to vary the deadline date for serving the Referral, QFS was in breach for failing to serve the Referral by the agreed extended deadline date. 
However, the fact that QFS failed to issue its Referral on time did not mean the conclusivity clause took effect. 

    2. Conclusivity Clause

The conclusivity clause was considered in two stages. 

First stage; The party disputing a FPN must commence adjudication (or arbitration or other proceedings) within the time specified under the contract, and QFS satisfied this stage by issuing its Notice within the required timeframe under the Sub-Contract.  

Second stage; After the adjudication has ‘concluded’, the FPN is adjusted in accordance with the adjudicator’s decision. 

The fact that QFS had failed to issue its Referral on time was deemed irrelevant when considering whether the adjudication had concluded, because “conclusion” under the Sub-Contract meant either ‘a decision, award or judgment or a settlement’. The Judge held that the definition did not include situations where an adjudication had become a nullity due to a failure to serve a Referral on time. In essence, an adjudication which became a nullity was not considered to have reached a “conclusion”.  

The Judge further held that the definition of adjudication proceedings in the conclusivity clause was broad enough to include adjudication proceedings relating to the same dispute. In this case, the subject of dispute in the initial Notice served in December 2022  was the same subject matter as the second Notice served in March 2023, namely, the true value of the final sub-contract sum. Therefore, the subject of dispute was concluded by the adjudicator’s decision in September 2023. 

To summarise, although the initial Notice became a nullity because QFS failed to serve its Referral in time, the proceedings did reach a conclusion by way of the adjudicator's decision in September 2023. As a result, the FPN was adjusted in accordance with the adjudicator’s decision.

     3.  Abandonment

The Judge acknowledged that a conclusivity clause does have effect where a referring party abandons the adjudication proceedings. However the Judge determined that QFS had not abandoned the adjudication because:

1. QFS only failed to serve the initial Referral due to a mistaken belief that it did not need to;
2. it was clear from the correspondence between the parties that QFS had no intention of abandoning the adjudication; and 
3. it subsequently issued a second Notice, which was identical to the first, upon the recommendation of the adjudicator. 

Further Point to Note

Much of this case is specific to standard JCT suite of contracts and care should be taken when extrapolating the judgement to other contracts (e.g. NEC) where the conclusivity clauses may differ.