Conclusive evidence clauses under JCT contracts

Conclusive evidence clauses giving a time bar to challenge final accounts have been a regular feature of construction contracts for many years, but to what extent do they affect the ability to adjudicate and under what circumstances?

In the case of Battersea Project Phase 2 Development Company Ltd vs QFS Scaffolding Ltd [15.03.2024], the Technology & Construction Court (TCC) had to consider the relationship between a "conclusive evidence" provision, and adjudication proceedings issued for the purposes of preventing the "conclusive evidence" provision from taking effect. Here, Battersea Project Phase 2 Development Ltd (BPS) argued that the Final Payment Notice issued to QFS Scaffolding Ltd (QFS) was conclusive of the matters set out in the relevant provisions of the contract. Thus the adjudication proceedings issued to provide an adjustment to this should be void.

Facts

In November 2015, a sub-contract for the asbestos scaffolding package was entered into as part of the Battersea Power Station development between BPS (the contractor) and QFS (the sub-contractor).  

The sub-contract followed the standard JCT design and build sub-contract agreement (DBSub/A 2011), with some amendments, which provided that:

• Any dispute could be referred to adjudication pursuant to the provisions of Annex 8
• The final payment notice was conclusive evidence that the final sub-contract sum had been correctly calculated and took account of all extensions of time and loss and expense (cl.1.8.1) and
• If adjudication proceedings were commenced prior to or within 10 days after the date of receipt of the final payment notice, the notice would not have conclusive effect "in relation to the subject matter of those proceedings pending their conclusion" and on their conclusion, the effect of the notice would be "subject to the terms of any decision, award or judgment in or settlement of such proceedings" (cl.1.8.2).

On 1 February 2022, Mace, the construction managers for the project, issued a notice declaring that practical completion had been achieved on 27 January 2022. However, after QFS provided the necessary documents for calculation of the Final Sub-Contract Sum, a dispute arose. This led to four separate adjudications all heard by the same adjudicator.  The fourth adjudication notice (Adjudication No. 11), issued in December 2022 concerned the above stated dispute over the calculation of the final sub-contract sum. According to Annex 8, QFS was required to submit its referral within 7 days.

Shortly after, Mace issued a final payment notice to QFS, stating the final sub-contract sum as £31,041,884 (excluding VAT), but noted that this was subject to the resolution of all ongoing adjudications. Given the multiple adjudications in progress, both parties agreed to extend the referral deadline to at least 13 January 2023. However, at the end of January, BPS informed QFS that the waiver of its right to receive the referral within 7 days would end on 3 February 2023. QFS maintained that the parties had agreed to an extension of time, not a waiver, and argued that Mace could not unilaterally terminate this arrangement.

BPS argued that QFS failed to serve the referral within the required time, causing Adjudication No. 11 to conclude without a decision. As a result, they argued that under a proper interpretation of clause 1.8.2, the Final payment notice would not be subject to any financial adjustment. BPS also claimed that QFS had abandoned Adjudication No. 11, which would lead to the same conclusion.

However, QFS asserted that both parties had agreed to a general extension of time for serving the Referral, meaning there was no failure as alleged. When QFS revisited the subject matter of Adjudication No. 11 in May 2023, it issued a new notice of intention to refer, but only at the adjudicator's suggestion, with the dispute remaining identical to the earlier notice. QFS argued that the adjudicator was not bound by the conclusive evidence clause. QFS also denied having abandoned the proceedings and maintained that, under its interpretation of clause 1.8.2, the Final payment notice should be adjusted according to the adjudicator's determination of the true value of the Final sub-contract sum.

Decision

The TCC decided in QFS’s favour.

The court held that under Clause 1.8.2 of the JCT sub-contract, the commencement of proceedings is marked by the issuance of a notice of adjudication. Referring to Bennett v FMK Construction Ltd [2005] and Brighton University v Dovehouse Interiors Ltd [2014], the court outlined that under Clause 1.8.2, once proceedings are started in time, the final payment notice is not conclusive in relation to the matters in dispute.  The final payment notice is subject to the outcome of those proceedings, whether by decision, award, judgment or settlement.

The court clarified that if an adjudication becomes a nullity (e.g. due to a failure to serve a referral in time), it does not reach a conclusion. However, issuing a second notice of adjudication to resolve the dispute is permitted, and the final payment notice remains subject to the ultimate adjudication decision. The court determined that, although the adjudication initiated in December 2022 became a nullity due to the lack of timely referral, the adjudication reached a conclusion with the adjudicator’s decision in September 2023. 

As a result, the Final payment notice was not deemed conclusive, and the court awarded summary judgment in favour of QFS. The notice was subject to the adjudicator's decision of September 2023 which determined that the true value of QFS's account and the correct final sub-contract sum was £35,115,581.85. Consequently, QFS was entitled to a summary judgment for £3,177,462.85 plus VAT.

Comment

This judgment is interesting for a number of reasons - it clarifies important legal principles, particularly regarding the interpretation of "conclusive evidence" clauses in construction contracts and the effects of adjudication proceedings on these clauses. It explains that although contractors need to carefully follow adjudication deadlines, missing one doesn’t automatically mean they lose out on payment. The dispute may still go forward, unless it is clear they have stopped trying to resolve it.  The court also appears to encourage those who frequently use JCT contracts, to utilise the adjudication process to resolve disputes regarding conclusive clauses.

For many in the construction industry facing challenges related to these types of clauses, this ruling is likely to be seen as a positive development.