Conclusivity clauses and mistakes in the adjudication process: what makes an effective conclusion?

In Battersea Project Phase 2 Development Co Ltd v QFS Scaffolding Ltd [2024] EWHC 591 (TCC) the TCC provided insight into when the Court will consider an adjudication to be “concluded” and under which circumstances a Final Payment Notice will be considered “conclusive evidence” under clauses 1.8.1 and 1.8.2 of the JCT Design and Build Sub-Contract, 2016 Edition.   

In making his decision, Alexander Nissen KC looked into the previous adjudications brought by the sub-contractor, QFS Scaffolding Ltd (“QFS”), which were decided by the very experienced adjudicator, Matt Molloy.

Battersea Project Phase 2 Development Company Limited (“BPS”) issued a  statement of the Final Sub-Contract Sum to QFS in October 2022. One month later, on 21 November, QFS gave notice that it disputed the content of that statement.

On 19 December 2022, QFS issued a notice of intention to refer a dispute to adjudication. The dispute in question was “the calculation of the Final Sub-Contract Sum i.e., the true value of the Final Sub-Contract Sum”.

This would be Adjudication 11 in a series of adjudications,  and Adjudications 8, 9 and 10 were all live at the time the notice was issued.

BPS objected to this latest adjudication on the grounds that it would breach natural justice. It argued that Mr Molloy should not be able to act on Adjudication 11 until the other current adjudications had been concluded. To combat this concern, on  19 December 2022, QFS offered to not serve its Referral until after  13 January 2023. The offer was constructed of five key clauses:

“1.  QFS will not serve its Referral in Adjudication 11 before Friday 13 January 2022.

2.  Thereafter, the usual timetable will follow in Adjudication 11 unless otherwise extended by the parties’ mutual consent or by the Referring Party by up to fourteen days, pursuant to Annex 8, clause 1.5.3.

3.  The Referring Party’s rights are preserved, pursuant to Annex 8, clause 1.5.3, to extend the period within which the Adjudicator shall reach his decision by up to fourteen days without the Respondent’s consent.

4.  Accordingly, the extension to the timetable required to effect the above is agreed to be with the consent of both parties.

5.  If for some unforeseen or unforeseeable reason QFS is delayed in serving its Referral in Adjudication 11 until after Friday 13 January 2022 then the parties both consent to extend the period within which the Adjudicator shall reach his decision by the same number of days that the service of the Referral is delayed. This consent shall not need further ratification by either party.”

BPS agreed, on the same day, that this would be an acceptable compromise.

Following this, on  22 December 2022, a Final Payment Notice was issued to QFS. The issuance of this Final Payment Notice fell within the parameters of clause 1.8.2 meaning that it would not become conclusive evidence for the purposes of clause 1.8.1 until the conclusion of Adjudication No.11.

On January 11 2023, QFS updated BPS and Mr Molloy to let them know that its Referral would not be served on the 13^th, and instead it should expect it served by 27 January 2023. Mr Molloy had no issue with this, BPS did not reply to the update. No Referral was served on  27 January.

On 31 January 2023, QFS sent a further update to explain that the Referral would not be served for another “two weeks or so”. BPS replied to this on the same day, explaining that it was not happy with the approach of QFS,  and gave notice that its previous  waiver of the right to receive the Referral would end on 3 February 2023.

When looking to the original agreement between the parties Alexander Nissen KC was clear in his judgment that, although paragraph 1 read in isolation could give QFS a right to serve its referral at any time, the agreement had to be read as a whole and that :

“clause 5 imposes a fetter on QFS’s ability to serve after that date, namely that it is only entitled to do so if unforeseen or unforeseeable reasons for delay arise.”

And went on to conclude on the point that:

“QFS was obliged to serve the Referral on 13 January 2023 unless an unforeseen or unforeseeable reason arises which precludes service on that date. If such were to occur, it was agreed that there would be an extension to cater for that reason and the time for reaching a decision would be extended in like manner.”

As there was no unforeseen reason for the delay, BPS had acted in a justified manner when asking for the Referral to be served by 3 February.

As QFS failed to serve its Referral for Adjudication No.11 in time,  Alexander Nissen KC took the view that:

“On this basis, absent any further agreement or waiver (neither of which is suggested), the prosecution of an effective adjudication based on the Notice of Adjudication dated 19 December 2022 was bound to fail because QFS had not served its Referral by the agreed date.”

As Adjudication No.11 could no longer have a Referral served, it became a nullity. It remained to be seen how clause 1.8.2 would be affected and whether the Final Payment Notice would be prevented from becoming conclusive evidence for the purposes of clause 1.8.1. 

In addressing this question, the judge was of the opinion that an adjudication that becomes a nullity had not reached a “conclusion”. Due to the construction of clause 1.8.2, an adjudication can only be found to have reached a “conclusion” following:

1. an adjudicator’s decision,
2. an arbitrator’s award,
3. a court judgement, or
4. a settlement.

Because a “conclusion” had not been reached on the proceedings, it was still able to be “concluded”. QFS served a new adjudication notice in May 2023 which was to all intents and purposes identical to the notice served for Adjudication No.11. In both the adjudication and the proceedings, BPS asserted that the Final Payment was conclusive as the previous adjudication had already concluded. The judge and Mr Molloy shared the opinion that clause 1.8.2 had continued to apply to the Final Payment Notice, and that the decision in respect of the later notice would conclude the dispute raised in the earlier version.

The Judge found that QFS  did not abandon the adjudication proceedings as it had continued to attempt to settle or reduce the scope of Adjudication No.11, even after missing the date for referral.

Conclusion

This was a complicated and technical decision arising from a series of unfortunate facts. Whilst it turns on its own facts, the judge did confirm the approach the court will take to interpretation of conclusiveness provisions.

The judge confirmed that clauses 1.8.1 and 1.8.2 of the JCT Design & Build 2016 operate as a two-stage process under which the commencement of adjudication or other proceedings will prevent the Final Payment Notice becoming conclusive, until those proceedings reach a decision, award, judgment or settlement, or, if the facts support it, they are abandoned.

The court gave detailed consideration to the previous line of cases on similar provisions and accepted that technical deficiencies in an adjudication referral which led to it being a nullity will not conclude those proceedings. Therefore, a decision on a further referral of the same dispute may be provide an effective conclusion for the purposes of clause 1.8.2. 

Ultimately, QFS was successful in preventing the Final Payment Notice from becoming conclusive evidence of sums due. QFS might have avoided the uncertainty had it approached the matter differently.

The Birketts view

The decision in Battersea highlights the importance of serving an adjudication referral on time. If you have made an agreement with the other party to adjudication that a referral will be served on or before a certain date, you should make every effort to serve the referral by that deadline.

You should never let the matter lie. If you are at risk of missing a referral deadline it is better to stay in contact with all of the parties involved and to be very clear as to the terms for any extensions of deadlines.

It is nearly always worth drafting a bespoke building contract that amend the conclusivity provisions. Not only will you be protecting yourself from unexpected outcomes, but you will also be gaining peace of mind.

If you have any concerns about the above, Birketts’ Construction Team is always happy to help.