R and C Electrical Engineers Ltd v Shaylor Construction Ltd [2012] EWHC 1254 (TCC)

[2012] EWHC 1254 (TCC)Case No HT-12-48
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15/05/2012
Before
MR JUSTICE EDWARDS-STUART
Between
R AND C ELECTRICAL ENGINEERS LIMITEDClaimantSHAYLOR CONSTRUCTION LIMITEDDefendant
Mr Allen Dyer (instructed by Contract Construction Consultants) for ClaimantMiss Stephanie Barwise QC (instructed by SGH Martineau LLP) for DefendantHearing Hearing dates: 29 March 2012
Judgment

Introduction

[1]This is a claim for declaratory and other relief in relation to a decision of an adjudicator. The Claimant ("R&C") is a sub-sub-contractor and the Defendant ("Shaylor") is a sub-contractor. The ultimate employer was Walsall LIFT Accommodation Services Ltd and the contractor was Ashley House PLC, who in turn entered into the Sub-Contract with Shaylor. R&C undertook to carry out the Mechanical and Electrical works. The project was the Goscote Palliative Care Centre, Goscote Hospital, Walsall.[2]There is a small complication in terminology in that in each of the contracts between Ashley House and Shaylor and between Shaylor and R&C, both Shaylor and R&C are referred to as “the Sub-Contractor”. Since throughout his Decision the Adjudicator referred to the sub-sub-contract between R&C and Shaylor as "the Sub-Contract" and the sub-contract between Ashley House and Shaylor as the Main Contract, I shall use the same expressions.[3]By November 2011 a dispute had arisen between R&C and Shaylor about R&C's financial and other entitlements under the sub-contract. By a notice dated 15 November 2011 R&C referred the dispute to adjudication and Mr Eric Mouzer was appointed adjudicator. The adjudication was conducted on the basis of submissions in writing.[4]In the adjudication R&C claimed that time was at large and it sought damages for delay, together with the determination of its final account. Shaylor responded by asserting that R&C had failed to complete by the date for completion and in turn sought to recover damages under the Sub-Contract for delay from R&C. It also disputed some of R&C’s claims for variations.[5]In essence the Adjudicator decided:(1) That time was at large and so R&C was entitled to a reasonable time within which to carry out and complete the Sub-Contract works.(2) The 39 weeks taken to complete the works was not a reasonable time because R&C was responsible for at least 4 weeks of delay. Accordingly, a reasonable time was something less than 35 weeks.(3) R&C failed to demonstrate any entitlement to damages arising out of delay.(4) Shaylor's cross claim for delay was based on the provisions in the contract relating to the time for completion (rather than as if time was at large) and so it failed to demonstrate any identifiable loss attributable to the 4 weeks delay for which R&C was responsible.(5) The Final Sub-Contract Sum was £1,495,034, of which R&C had been paid £1,298,071, leaving a balance representing the Final Payment of £196,963 (plus VAT). There were no contra charges since the Adjudicator found that none had been proved (with the result that the Final Sub-Contract Sum was the same as the Final Payment).(6) In view of the “pay-when-certified" provisions of clause 21.8 of the contract, this sum was not yet payable. In relation to this the adjudicator expressed his decision, at paragraph 9.1.6 of the Decision, as follows: “Any sum to which R&C are entitled to be paid by Shaylor shall not be paid forthwith (but only following issue of the Final Certificate under the Main Contract and then in accordance with clause 21.8 (b))." (Adjudicator's emphasis)[6]Accordingly, the upshot of the adjudication was that the Adjudicator found that R&C had an entitlement to £196,963 and that this sum, although not payable immediately, was payable in accordance with clause 21.8 (b) of the Sub-Contract. There is an issue about what he meant by the words "in accordance with clause 21.8 (b)", to which I will return later.[7]By this application R&C seeks an order for immediate payment of the sum found due by the Adjudicator in spite of the fact that the Adjudicator directed that it was not to be paid forthwith. The basis of R&C's claim is that the contractual machinery relating to certification in the Main Contract has broken down so that it is no longer possible for Ashley House to issue a Final Certificate. Under the terms of the Main Contract the issue of a Final Certificate is a precondition of R&C's right to payment of the money, but R&C submits that since the precondition is now a nullity it is entitled to immediate payment of the sum found due by the Adjudicator.[8]I now turn to the facts in a little more detail.

The facts

[9]In addition to the adjudication between R&C and Shaylor, there was also a dispute between Shaylor and Ashley House. The amount of Shaylor's final account was in dispute.[10]The completion of the relevant works, within the meaning of clause 19.3 of the Main Contract, was achieved under both the Sub-Contract and the Main Contract on 7 March 2011 Indeed there is a document prepared by Drivers Jonas Deloitte entitled “Record of Snagging Matters at Practical Completion" dated 7 March 2011 and showing the presence on that day of representatives from, amongst others, the Employer and Ashley House. . There is not an issue about this. By clause 19.3 of the Main Contract that is the date on which Shaylor became entitled to the issue of “the Certificate” which was to state "the date upon which the [Main Contract] Works were completed" (save for any snagging matters). At the same time R&C became entitled to the issue of a corresponding certificate under clause 19.3 of the Sub-Contract.[11]In a letter dated 23 February 2012, Ashley House wrote to Shaylor as follows:
"Dear Sirs, Walsall LIFT Accommodation Services - Goscote Palliative Care Centre COMPLETION CERTIFICATE "
THE CERTIFICATE" In accordance with Clause 19.3 of the Construction Sub-Contract, and after having taken account of all matters listed in Schedule 14, we hereby certify that the Sub-Contract Works were completed on the Actual Completion Date of: Monday 07 March 2011 We apologise that this Certificate was not issued at the time the Sub-Contract Works were completed. Yours faithfully"[12]A complication, which I will have to address in more detail later, is that in both the Main Contract and the Sub-Contract the Actual Date of Completion, which triggers the start of the Defects Liability Period, is defined as “the date of issue of the Certificate” (that is the Certificate issued under clause 19.3, which is what the above document purported to be). It does not provide, as one might expect, that it is the date stated in the Certificate as being the date on which the works were completed in accordance with the contract.[13]In about mid February 2012 Ashley House and Shaylor settled the outstanding disputes between them under the Main Contract and the result of that settlement was reflected in a deed dated 1 March 2012. Shaylor agreed to accept £125,000 in full and final settlement of all sums due under the Main Contract. Part of the sum was paid on 20 February 2012, in advance of the deed, and the balance was to be paid "following issue of the Final Certificate in accordance with clause 21.9 of the Contract". It provided that, save where expressly amended by the deed, the provisions of the Main Contract would remain in full force and effect. It seems that part of the negotiations leading to the settlement resulted in the issue of the Certificate on 23 February 2012.[14]There is no evidence before the court as to why the Certificate under clause 19.3 was not issued on 7 March 2011, or very shortly afterwards, but one possible inference is that it was being withheld by Ashley House pending the resolution of its dispute with Shaylor. However, I am in no position to make any finding to this effect.[15]At the time when the adjudication between R&C and Shaylor took place the dispute between Shaylor and Ashley House was still unresolved and negotiations in relation to that dispute were actually taking place whilst the adjudication was on foot. The Adjudicator was told that no Final Certificate had been issued, but he was not told that no certificate had been issued relating to completion under clause 19.3 of the Main Contract (it was just not mentioned at all). I will have to examine the relevant terms of the Main Contract in more detail later in this judgment, but for the moment it is sufficient to say that the issue of the Certificate under clause 19.3 of the Main Contract is a necessary precursor to the issue of the Final Certificate.

The issues

[16]Essentially, the principal issues on this application can be summarised as follows:(1) Had the contractual machinery in relation to certification in the Main Contract broken down with the result that it is no longer possible to issue a Final Certificate under the Main Contract?(2) If so, is R&C entitled to immediate payment of the Final Payment (or Final Sub-Contract Sum) as determined by the Adjudicator?(3) If the contractual machinery has not broken down, is R&C entitled to payment of the Final Payment (or Final Sub-Contract Sum) without any deduction or set off?[17]There is a further issue, which I will have to address, arising out of an allegation by R&C that Shaylor misled the Adjudicator in relation to the Final Certificate and that Shaylor did not disclose, either to the Adjudicator or to R&C, that the Certificate had not been issued under clause 19.3 of the Main Contract. Had this fact been disclosed, R&C submits, the Adjudicator ought to have concluded that R&C was entitled to immediate payment of the sum determined by the Adjudicator.[18]Before turning to the issues and the submissions of the parties, I must set out the relevant provisions of the Sub-Contract and the Main Contract.

The terms of the Sub-Contract

[19]Clause 1.1 contained the following definitions: Actual Completion Date means in respect of the Sub-Contract Works, the date of issue of the Certificate by the client’s representative. Certificate means that the certificate issued by the Employer’s Agent pursuant to Clause 19.3 indicating that the Sub-Contract Works have been completed in accordance with this Agreement. Completion Date means that of the Main Contract being Friday 12 November 2010 as extended in accordance with this Agreement. Defects Liability Period means the period commencing on the Actual Completion Date and expiring 12 Months thereafter.[20]Clause 19 included the following provisions: “19.1 Completion Date(a) The Sub-Contractor (acting reasonably) shall give Ashley House not less than 15 and not more than 20 Business Days notice in writing of the date when it considers that the Sub-Contract Works will be complete (Anticipated Date). Such notice shall only be given when all services and pre-completion commissioning has been completed and following such notice Ashley House and/or the Employer shall be entitled to carry out a direct testing of the completed services and commissioning.(b) The Sub-Contractor shall provide the following documentation to Shaylor Construction Ltd not less than 28 Business Days prior to the Anticipated Date: (i) any relevant documentation reasonably required by the Independent Tester under the DCC to demonstrate completion in accordance with the Completion Acceptance Schedule which is requested in writing by Shaylor Construction Ltd not less than 50 Business Days prior to the Anticipated Date; and (ii) the items set out in Schedule 16 (Sub-Contractor Requirements for Practical Completion). . . . 19.3 Issue of Certificate (a) Shaylor Construction Ltd shall: (i) within 10 Business Days of any inspection made pursuant to this Clause 19, notify the Sub-Contractor of any outstanding matters that are required to be attended to before the Sub-Contract Works can be considered to be complete in accordance with the Employer’s Requirements, the Contractor’s Proposals and the Completion Acceptance Schedule; or (ii) where it is satisfied that completion has occurred in accordance with this Agreement, taking into account all matters listed in the Completion Acceptance Schedule, issue the Certificate to that effect stating the date upon which the Sub-Contract Works were completed. 19.4 Effect of issue of Certificate (a) Except as expressly provided in Clause 16, the issue of the Certificate shall: (i) indicate only that the Sub-Contract Works are complete; . . .” (My emphasis) (a) The Sub-Contractor (acting reasonably) shall give Ashley House not less than 15 and not more than 20 Business Days notice in writing of the date when it considers that the Sub-Contract Works will be complete (Anticipated Date). Such notice shall only be given when all services and pre-completion commissioning has been completed and following such notice Ashley House and/or the Employer shall be entitled to carry out a direct testing of the completed services and commissioning. (b) The Sub-Contractor shall provide the following documentation to Shaylor Construction Ltd not less than 28 Business Days prior to the Anticipated Date: (i) any relevant documentation reasonably required by the Independent Tester under the DCC to demonstrate completion in accordance with the Completion Acceptance Schedule which is requested in writing by Shaylor Construction Ltd not less than 50 Business Days prior to the Anticipated Date; and (ii) the items set out in Schedule 16 (Sub-Contractor Requirements for Practical Completion). . . . (a) Shaylor Construction Ltd shall: (i) within 10 Business Days of any inspection made pursuant to this Clause 19, notify the Sub-Contractor of any outstanding matters that are required to be attended to before the Sub-Contract Works can be considered to be complete in accordance with the Employer’s Requirements, the Contractor’s Proposals and the Completion Acceptance Schedule; or (ii) where it is satisfied that completion has occurred in accordance with this Agreement, taking into account all matters listed in the Completion Acceptance Schedule, issue the Certificate to that effect stating the date upon which the Sub-Contract Works were completed. (a) Except as expressly provided in Clause 16, the issue of the Certificate shall: (i) indicate only that the Sub-Contract Works are complete; . . .” (My emphasis)[21]Clause 20 provided for the payment of damages for late completion in the following terms: “If the Actual Completion Date has not occurred by the Completion Date, the Sub-Contractor shall indemnify Shaylor Construction Ltd against, and shall pay or allow to Shaylor Construction Ltd a sum equivalent to any damage, loss, cost and/or expense suffered or incurred by Shaylor Construction Ltd arising out of or in any way connected with the failure to meet the Actual Completion Date."[22]Clause 21 included the following provisions:
“21.1 Payments . . . (b) If the Sub-Contractor is obliged to pay any monies to Shaylor Construction Limited pursuant to this Agreement, Shaylor Construction Ltd may require payment of the same by notice in writing or may deduct or withhold the amount in accordance with Clause 21.5. (c) . . . (d) Shaylor Construction Ltd shall be entitled to exercise any set off (whether at law or in equity) in respect of any sums due to them hereunder. . . . 21.5 Payment of Amount Certified Subject to compliance with Clause 21.5 and any withholding and/or deduction pursuant thereto, the Employer [Walsall] shall pay each Monthly Payment to the Sub-Contractor on or before the Final Date for Payment applicable thereto (together with VAT to the extent payable thereon). 21.8 (b) The Final Payment shall be due not later than 30 days after the date of issue of the Final Certificate to Shaylor Construction Ltd under the Main Contract conditions and within 7 days of the date on which the payment becomes due the Contractor shall send the Final Payment Notice notifying the Subcontractor of what the amount relates (sic) and the basis on which the account has been calculated. The final date for payment of the Final Payment shall be 52 days after the date it becomes due. Not later than 7 days before the final date for payment of the Final Payment the Contractor may give a notice to the Subcontractor which shall specify any amount proposed to be withheld or deducted from the amount notified under clause 21.9 (a) the ground or grounds for such withholding or deduction and the amount of the withholding or deduction attributable to each ground.” 21.10 (a) Not later than 3 months after practical completion of the Subcontract works the Subcontractor shall send to the Contractor all the documents necessary for calculating the Final Subcontract Sum. (b) Not later than 9 months after receipt by the Contractor of the documents referred to in Clause 21.10 (a) and before the issue of the Final Certificate under the Main Contract the Contractor shall prepare and send to the Subcontractor a statement of the calculation of the Final Subcontract Sum.”
Clauses 21.8 (b) and 21.10 (a) and (b) were added by amendment, which may explain why there is no clause 21.8 (a), and, perhaps less obviously, why clause 21.8 (b) refers to a clause 21.9 (a) which does not exist - there is no sub-clause 21.9 at all. Various suggestions were made during argument as to what clause this was intended to be a reference. For reasons that I will give later, I consider that it was probably intended to refer to the first part of clause 21.8 (b). . . . (b) If the Sub-Contractor is obliged to pay any monies to Shaylor Construction Limited pursuant to this Agreement, Shaylor Construction Ltd may require payment of the same by notice in writing or may deduct or withhold the amount in accordance with Clause 21.5. (c) . . . (d) Shaylor Construction Ltd shall be entitled to exercise any set off (whether at law or in equity) in respect of any sums due to them hereunder. . . . Subject to compliance with Clause 21.5 and any withholding and/or deduction pursuant thereto, the Employer [Walsall] shall pay each Monthly Payment to the Sub-Contractor on or before the Final Date for Payment applicable thereto (together with VAT to the extent payable thereon). Not later than 7 days before the final date for payment of the Final Payment the Contractor may give a notice to the Subcontractor which shall specify any amount proposed to be withheld or deducted from the amount notified under clause 21.9 (a) the ground or grounds for such withholding or deduction and the amount of the withholding or deduction attributable to each ground.” (b) Not later than 9 months after receipt by the Contractor of the documents referred to in Clause 21.10 (a) and before the issue of the Final Certificate under the Main Contract the Contractor shall prepare and send to the Subcontractor a statement of the calculation of the Final Subcontract Sum.”

The terms of the Main Contract

[23]The Main Contract contained the same definitions, although it also defined the Final Certificate as having the meaning given to it in clause 21.9.[24]Clause 19 of the Main Contract contained provisions similar to those of clause 19 of the Sub-Contract. Clause 20 similarly provided for payment of damages if the Actual Completion Date was not achieved by the Completion Date.[25]Clause 21, which contained the payment provisions, contained a provision identical to clause 21.1(d) of the-contract. Clause 21.9, which concerned the Final Certificate, provided as follows: “21.9 Final Certificate(a) As soon as practicable (and in any event within 25 Business Days) following the expiry of the Defects Liability Period applicable to the Sub-Contract Works, Ashley House’s Representative shall issue to both Ashley House and the Sub-Contractor a certificate confirming the same (the Final Certificate) save that Ashley House shall not be obliged to issue a Final Certificate until it is satisfied that (in its reasonable opinion) the Sub-Contractor has remedied all defects notified to it pursuant to Clause 22.1.(b) If Ashley House’s Representative fails to issue a Final Certificate in respect of the Sub-Contract Works within a period of 25 Business Days from the date of expiry of the Defects Liability Period applicable to the Sub-Contract Works then, unless Ashley House disputes that the Sub-Contractor has remedied all Defects notified to it pursuant to Clause 22.1 prior to the expiry of such period of 25 Business Days and refers the matter for determination under Clause 56, the Final Certificate in respect of the Sub-Contract Works shall the purposes of this Agreement be deemed to have been issued to the Sub-Contractor by Ashley House’s Representative. Any Dispute as to whether or not a Final Certificate should have been issued shall be settled in accordance with Clause 56." (a) As soon as practicable (and in any event within 25 Business Days) following the expiry of the Defects Liability Period applicable to the Sub-Contract Works, Ashley House’s Representative shall issue to both Ashley House and the Sub-Contractor a certificate confirming the same (the Final Certificate) save that Ashley House shall not be obliged to issue a Final Certificate until it is satisfied that (in its reasonable opinion) the Sub-Contractor has remedied all defects notified to it pursuant to Clause 22.1. (b) If Ashley House’s Representative fails to issue a Final Certificate in respect of the Sub-Contract Works within a period of 25 Business Days from the date of expiry of the Defects Liability Period applicable to the Sub-Contract Works then, unless Ashley House disputes that the Sub-Contractor has remedied all Defects notified to it pursuant to Clause 22.1 prior to the expiry of such period of 25 Business Days and refers the matter for determination under Clause 56, the Final Certificate in respect of the Sub-Contract Works shall the purposes of this Agreement be deemed to have been issued to the Sub-Contractor by Ashley House’s Representative. Any Dispute as to whether or not a Final Certificate should have been issued shall be settled in accordance with Clause 56."

The definition of Actual Completion Date

[26]Clause 19.3 in both the Main Contract and the Sub-Contract requires the Certificate to be issued when a completion has occurred in accordance with the contract "stating the date upon which the Sub-Contract Works were completed”. Leaving aside the confusing fact that in both contracts R&C and Shaylor are described as the Sub-Contractor, it is quite clear from the terms of the clause itself that the Certificate - being the document which indicates that the works have been completed - was intended to state the date upon which completion had taken place. As I have already noted, one would therefore expect that the Actual Completion Date would be defined as the date stated in the Certificate, but instead it is defined as "the date of issue of the Certificate by the client's representative".[27]In both contracts clause 20 provides for the payment of damages if the Actual Completion Date has not occurred by the Completion Date, and in both contracts the Defects Liability Period is defined as the 12 month period commencing on the Actual Completion Date. Under the terms of the Main Contract the requirement to issue the Final Certificate is linked to the end of the Defects Liability Period.[28]These provisions would all work perfectly well if it was not for the definition of the Actual Completion Date. Apart from that definition, they would amount to provisions fairly typical of those found in a construction contract. In my view, the definition of the Actual Completion Date must be an error because it does not give effect to the obvious intention of the parties as reflected by the other contractual provisions that I have summarised. It can never have been intended that the date of practical completion should be determined arbitrarily by the date upon which the relevant certificate was issued.[29]This is perhaps most clearly evident from the fact that if the Actual Completion Date is not before the original Completion Date the contractor is liable to pay damages for delay. Whilst it might be suggested that the conflict could be resolved by the implication of a suitable term, it is not clear to me precisely how such a term would be formulated. For example, should it be implied that the certificate must be issued on the day that completion is achieved, or would the presumed intentions of the parties be met by a term that the certificate must be issued on the day that completion is achieved or as soon as reasonably practicable thereafter? Only the former would be free of any potential conflict with clause 19.3. However, since neither of the parties raised the question of an implied term, I need say no more about it.[30]Miss Stephanie Barwise QC, who appeared for Shaylor, submitted that Ashley House and Shaylor had varied the Main Contract by agreeing that the Certificate, although not issued until February 2012, should state that completion had been achieved on 7 March 2011.[31]The submission of Mr Allen Dyer, who appeared for R&C, is that no Certificate was issued within the contractually stipulated period and that the contractual definition of Actual Completion Date does not permit the certificate to assert some date earlier than its date of issue as being the Date of Actual Completion. Mr Dyer did not say expressly what he meant by the "contractually stipulated period", but I take it to mean the actual day on which completion was achieved - no earlier and no later.[32]Basing himself on this submission, Mr Dyer argued that if no Certificate was issued on the correct day and there was no challenge to that failure by way of adjudication, the contractual machinery relating to certification must be taken to have broken down and it cannot be revived some 12 months later. In the light of this, Mr Dyer submitted that there was no legitimate basis upon which the Adjudicator could impose the condition contained in paragraph 9.1.6 of his Decision. He should have ordered the payment of the sum found due in respect of R&C's final account with immediate effect.[33]Although Mr Dyer made these points with great force and skill, I cannot accept them. However, before I give my reasons for this conclusion, it will be convenient to deal with the question of whether or not the Adjudicator was misled in relation to the issue of the Final Certificate or the absence of the Certificate under clause 19.3 of the Main Contract.

Was the Adjudicator misled in relation to the position about the Final Certificate?

[34]In paragraph 1.2 of its Response to the Referral Notice Shaylor set out the terms of clause 21.8 (b) of the Sub-Contract and then stated that the Final Certificate under the Main Contract had not been issued, with the result that R&C's claim for Final Payment under the Sub-Contract was premature. There was no reference in the paragraph to the content of any of the terms of the Main Contract.[35]R&C's response to this, at paragraph 11.2 of its Reply, was curious. It read as follows: “The payment provisions of the Main Contract are so uncertain as not to give an adequate mechanism for payment, meaning that the statutory provisions of the Scheme are brought into play instead. The adjudicator will note that Shaylor have not said on what event the Final Certificate may be issued, or when that might be;"[36]I find this response curious for two reasons. First, Shaylor's paragraph 1.2 of its Response dealt exclusively with the terms of the Sub-Contract. The only references to the Main Contract were in the phrase "Final Certificate under the Main Contract", which appeared several times in the paragraph. No-one reading this paragraph could have reasonably have formed any view about the relevant provisions of the Main Contract, so it is unclear why R&C responded by referring to them as "so uncertain". Second, and this really follows from the first observation, since Shaylor had not set out any of the terms of the Main Contract, the reader of R&C's paragraph 11.2 would reasonably assume that R&C must be in possession of a copy of the Main Contract. However, R&C asserted later that it did not have a copy of the Main Contract in its possession.[37]This assertion is surprising. By clause 5.1 of the Sub-Contract R&C was "deemed to be fully aware of the Project Documents" which included the Main Contract between Ashley House and Shaylor. By clause 32.1 of the Sub-Contract, which went even further, R&C acknowledged that "it has reviewed the [Main Contract] and is aware of the consequences and liabilities that Ashley House may face as a result of a breach by the Sub-Contractor of its obligations under this Agreement". R&C was undertaking to carry out certain obligations that Shaylor was required to perform under the Main Contract so one would expect it to know what those obligations were.[38]In the light of these considerations I would therefore expect those advising Shaylor to have assumed that R&C was in possession of a copy of the Main Contract. This assumption would have been reinforced by what R&C said in paragraph 11.2 of its Reply.[39]Insofar as those acting for Shaylor told the Adjudicator that the Final Certificate under the Main Contract had not been issued, they cannot be criticised. That was the position. However, R&C's criticism goes further and suggests that those acting for Shaylor either knew or ought to have known that the Final Certificate would never be issued. Conceptually, this might appear to be a difficult complaint to maintain when the likelihood, at the time of the hearing before me, was that the Final Certificate will be issued because Ashley House has acknowledged in the deed of settlement that the provisions of the Main Contract are to remain in full force and effect.[40]By a letter dated 6 January 2012, the day after the Adjudicator issued his Decision, Contract Construction Consultants (“CCC”), who were acting for R&C, wrote to Shaylor's solicitors in the following terms: “There is a problem with Mr Mouzer's conclusion as to payment timing. R&C understand that there never will be any "issue of the Final Certificate under the Main Contract" because that payment mechanism has been superseded by adjudication/a compromise agreement between Shaylor and the Employer. Mr Mouzer's conclusion insofar as it relates to payment timing is therefore (just as is the original contractual provision) inoperable and a nullity. Based as it is on factual and legal premises separate from those underpinning the remainder of the Decision, the payment timing parts of the Decision are severable from all other parts of the Decision. Other parts of the Decision remain binding and enforceable notwithstanding the inoperability and nullity of Mr Mouzer’s conclusion as to payment timing." In the same letter they went on to require disclosure of a number of documents, including the Main Contract.[41]Shaylor's solicitors replied on 9 January 2012 as follows: “R&C's understanding that the Final Certificate under the Main Contract will never be issued is incorrect. Without waiving any confidentiality the dispute between Shaylor and the Employer under the Main Contract was not in respect of the Final Account/Final Certificate. Shaylor is still liaising with the Employer under the Main Contract in respect of the Final Account/Final Certificate." The first and third sentences of this passage seemed to me to be a fair summary of the position at that time. Shaylor's solicitors then went on to refuse R&C's request for disclosure of documents and information, asserting that documentation relating to and generated during the adjudication between Shaylor and the Employer was confidential as between those parties. However, three days later they did agree to disclose a copy of the Main Contract.[42]Having received a copy of the Main Contract, CCC wrote again to Shaylor's solicitors on 17 January 2012 asking for the date of the Certificate and the date on which the Certificate indicated that Shaylor's work had been completed in accordance with the Agreement.[43]Mr Belshaw, the solicitor acting for Shaylor, replied by e-mail later the same day saying that, for present purposes, it was his understanding that no Certificate had been issued pursuant to clause 19.3 of the Main Contract. However, he said that he would seek confirmation from Shaylor and revert to CCC the following day, which he did.[44]On 20 January 2012 CCC responded in the following terms: “You freely admit that no Certificate has been issued to Shaylor. This is one of the most extraordinary admissions we have received in recent memory. Absent a Certificate, there can be no Final Certificate, the Final Certificate being that which is issued at the end of a DLP which itself only starts to run when a Certificate is issued. Your representations to the adjudicator regarding the Final Certificate were entirely misleading. This means that we were indeed correct in our submissions (for example, immediately post-adjudication) that the non-operation of the Shaylor/Ashley House certificate mechanism means that payment is due forthwith."[45]This somewhat emotive language rather overlooks the fact that no Certificate had been issued to R&C under clause 19.3 of the Sub-Contract either: a point that might have put R&C on notice in March 2011 of the possibility that the corresponding certificate had not been issued under the Main Contract.[46]However, leaving that point aside, I do not consider that it follows from the non-issue of the Certificate under clause 19.3 of the Main Contract that R&C was entitled to immediate payment of the sum determined by the Adjudicator as CCC asserted. Assuming, in R&C's favour and for the purpose of this question, that Ashley House had deliberately refused to issue the Certificate on 7 March 2011 in spite of the fact that all parties were agreed that the relevant works had been completed by that date, one has to ask what consequences would follow from this. The first, it seems to me, would be that Ashley House would be prevented from asserting that the Defects Liability Period had not started to run from the date on which completion was in fact achieved (and which should have been stated in the Certificate), namely 7 March 2011. This is simply an application of the doctrine that a party will not be permitted to benefit from its own wrong. A good example of this doctrine, in the context of a failure to issue a certificate under a building contractor, is Panamena Europea Navigacion v Frederick Leyland [1947] AC 428. The consequence of the wrongful failure to issue the certificate is that the employer could not rely on its absence.[47]The second consequence is that the Final Certificate under the Main Contract would then ordinarily fall to be issued within 25 days of the expiry of the Defects Liability Period, namely by 2 April 2012 The Defects Liability Period would have expired on 7 March 2012, so the Final Certificate would fall to be issued within a further 25 days, namely by 2 April 2012. . Once it was clear that Ashley House was not going to issue the Certificate, there being no issue about the fact that completion had taken place, Shaylor could have referred the matter to arbitration or litigation in order to obtain a declaration that the Certificate ought to have been issued by Ashley House on 7 March 2011 and that the Defects Liability Period started running from that date.[48]Turning back to the Sub-Contract, R&C was required to send Shaylor all the documents necessary for calculating the Final Sub-Contract Sum within 3 months of completion, that is to say by 7 June 2011. I do not know whether or not it did so. If it did, then no more than 9 months later Shaylor was required to prepare and send to R&C a statement of the calculation of the Final Sub-Contract Sum. This process should therefore have been completed by no later than 7 March 2012; that is some two months after the Adjudicator issued his Decision. The Final Payment to R&C would then have become due no later than 30 days after the issue of the Final Certificate (with actual payment, subject to set-off, taking place 52 days later).[49]If the question of the non-issue of the Certificate under clause 19.3 of the Main Contract had been raised before the Adjudicator, and if an analysis along these lines had been presented to or carried out by the Adjudicator in consequence, he would inevitably have concluded that the sum to which he found R&C was entitled on its final account, £196,963, was not payable immediately but only following the issue of the Final Certificate pursuant to the terms of clause 21.8 (b) of the Sub-Contract or, alternatively, by the latest date on which the Final Certificate ought to have been issued.[50]So, far from deciding that R&C was entitled to immediate payment, the Adjudicator would have been compelled to reach precisely the same conclusion that in fact he did. Even if the terms of the Main Contract had been scrupulously followed or, if not followed, had been the subject of a prompt dispute resolution process by Shaylor, I can see no way by which R&C could have become entitled to Final Payment at any time before the Adjudicator was required to give his Decision.[51]Mr Dyer referred me to the decision of the Court of Appeal in Crestar v Carr (1987) 37 BLR 113 in support of the proposition that where progress towards the issue of a Final Certificate proceeds through a sequence of prior certificates, no Final Certificate can be issued unless the necessary prior certificates have been issued. However, the position here is quite different. For the reasons that I have already given it would not be open to Ashley House to decline to issue a Final Certificate on the ground that it had deliberately (and wrongfully) refused to issue the prior Certificate under clause 19.3 when it was properly due.[52]In my view the Adjudicator was not deliberately misled by those acting for Shaylor. So far as what the Adjudicator was told about the Final Certificate is concerned, it was correct. So far as the issue of Certificate under clause 19.3 is concerned, it does not look as if any party gave the matter any thought in the context of the adjudication. I have already concluded that those acting for Shaylor were entitled to assume that R&C and CCC were in possession of a copy of the Main Contract and, if they were not, that was not the fault of those acting for Shaylor.[53]But, for the reasons I have given, even if the Adjudicator had been told (if it was the fact) that Ashley House had wrongly refused to issue the Certificate under clause 19.3, it would and should have made no difference to the outcome. There is accordingly no substance in the allegation that the result of the adjudication was procured by some form of misrepresentation on the part of those acting for Shaylor, but for which there would have been a different outcome.[54]Since the correspondence before the court indicates that Shaylor's solicitors have intimated a claim against CCC for defamation, I consider that I should say no more about this aspect of the dispute.

Whether or not the Main Contract machinery had otherwise broken down

[55]As I understood his submissions, Mr Dyer's argument was that if the Certificate under clause 19.3 was not issued on the day of completion itself, there was no contractual mechanism which allowed it to be issued thereafter. Thus, he submitted, the document dated 23 February 2012 is not and cannot be a valid clause 19.3 certificate.[56]As I have already noted, there is no evidence that the date of completion was ever a matter in dispute between Shaylor and Ashley House, or between Shaylor and R&C. There appears to have been an adjudication between Ashley House and Shaylor in relation to delay and, as I have indicated, Shaylor's solicitors said in correspondence that the issues in that adjudication did not have anything to do with the Final Certificate (and, by implication, any potential impact on the issue of the Final Certificate as a result of any delay in the commencement of the Defects Liability Period).[57]Mr Mark Rigby, the Commercial Manager of Shaylor, describes in his witness statement the dispute between Shaylor and Ashley House which concerned the amount of Shaylor's final account and its eventual resolution: having claimed about £196,000 Shaylor eventually accepted £125,000 in full satisfaction of its claim after several months of negotiation.[58]There is no evidence, either in this statement or elsewhere, that anyone gave any thought to the implications of Ashley House's failure to issue the Certificate or appreciated that anything might turn on it (although that is not to say that that did not happen). It has not been suggested - presumably because R&C was in no position to know - that Ashley House was asserting that the Defects Liability Period had not commenced because of the absence of the Certificate. Still less is there any evidence that anyone appreciated that the definition of the Actual Completion Date in clause 1.1 of the Main Contract conflicted with the provisions of clause 19.3 (in the respect that I have already explained) or that this might have relevant contractual implications.[59]Accordingly, there is no evidence before the court of the dispute (to the extent that there was one) between Shaylor and Ashley House about either the true actual date of completion or the failure to issue the Certificate under clause 19.3. Those parties seem to have been concerned principally with the true valuation of Shaylor's final account. If there is no evidence as to the existence of a dispute about the actual date of completion or the absence of the Certificate, then no inferences can be drawn from the fact that no-one had invoked the contractual dispute resolution process as a result.[60]In the absence of any such evidence, it follows that it cannot be inferred that the contractual machinery of the Main Contract had broken down. What may have happened, although it is only a matter of inference, was that since Shaylor and Ashley House were in dispute about the amount of Shaylor's final account Ashley House declined to issue the Certificate under clause 19.3. Although there was an adjudication between Shaylor and Ashley House (of which Shaylor has declined to disclose any details), there is no evidence that the machinery under clauses 21.8 (b) and 21.10 of the Sub-Contract was affected by it (as CCC at first suggested).[61]But a refusal by Ashley House to issue the clause 19.3 certificate (if there was such a refusal) does not in my view mean that the contractual machinery had broken down. In my judgment, there is a difference between circumstances which prevent the contractual machinery being operated, and circumstances in which one party refuses to operate it although in a position to do so.[62]In the latter situation the problem is capable of being cured. Miss Barwise submits that it was in fact cured in this case by the agreement to issue the Certificate in the form of the letter dated 23 February 2012. I agree.[63]Such a variation could not be impugned by R&C on the grounds that it was prejudicial to its interests, because it clearly was not. R&C’s interests, like those of Shaylor, were best served by having the Actual Completion Date sooner rather than later.[64]For these reasons I conclude that R&C has failed to show that the certification procedure under the Main Contract broke down in March/April 2011 and cannot now be revived.[65]Even if I had not reached my conclusion in relation to the breakdown of the contractual machinery, I would not have been prepared to accede to R&C's submissions on this application for two reasons. These are as follows:(1) The question of whether or not the Main Contract machinery had broken down is one that arises principally as between Shaylor and Ashley House. It is not one that can be properly determined in the absence of any evidence from Ashley House. There is no such evidence on this application.(2) Whether or not the Main Contract machinery had broken down in relation to any particular aspect is essentially a question of fact. Unless that question was very straightforward and the relevant issues to which it gave rise were narrow, it would not be suitable for determination on a Part 8 claim. But without knowing what evidence might emerge from Ashley House in relation to the alleged breakdown of the Main Contract machinery, it is impossible to say that the issue does not raise a serious dispute of fact (it would be surprising if it did not, given that the application is made on the footing that there was such a breakdown).[66]In the light of the conclusions that I have reached in relation to the breakdown of the contractual machinery, the question of whether R&C is entitled to immediate payment of the Final Sub-Contract Sum as determined by the Adjudicator does not arise.[67]However, even if the Adjudicator had been told (if it was the case) that Ashley House had deliberately and wrongfully refused to issue the Certificate, I consider for the reasons that I have given above that R&C would not have been entitled to a decision from the Adjudicator to the effect that it was entitled to immediate payment of the sum found due by the Adjudicator. In other words, the conclusion reached by the Adjudicator would still have been correct even if Ashley House had deliberately withheld the Certificate under clause 19.3.[68]This raises the issue that I have already mentioned about what is meant by the words "in accordance with clause 21.8 (b)", in paragraph 9.1.6 of the Adjudicator's decision.[69]Mr Dyer submitted that the use of the phrase "in accordance with" suggests reference to the time periods for payment set out in clause 21.8, rather than to the provisions relating to the withholding or deducting of an amount from the final payment to R&C. He submits that if this is what the Adjudicator had intended, he would have used a phrase such as "subject to".[70]Clause 21.8 (b) of the Sub-Contract does four things:(1) It provides that the Final Payment shall be due not later than 30 days after the date of the issue of the Final Certificate under the Main Contract.(2) That, within 7 days of the date on which the Final Payment is due, Shaylor is to send R&C the Final Payment Notice notifying R&C (i) as to what the payment relates and (ii) the basis on which it has been calculated.(3) The final date for payment of the Final Payment is to be 52 days after the date on which it becomes due.(4) Not later than 7 days before the final date for payment of the Final Payment Shaylor may give notice to R&C "which shall specify any amount proposed to be withheld or deducted from the amount notified under Clause 21.9 (a)" together with the grounds on which the amount is being withheld and the amount withheld that is attributable to each such ground.[71]For convenience, I will set out again the terms of paragraph 9.1.6 of the Decision: “Any sum to which R&C are entitled to be paid by Shaylor shall not be paid forthwith (but only at following issue of the Final Certificate under the Name Contract and then in accordance with clause 21.8 (b))." (Adjudicator’s emphasis) (Adjudicator’s emphasis)[72]It is important to note that three paragraphs earlier the Adjudicator had said that R&C was entitled to payment under the Sub-Contract in the sum of £196,963. In these circumstances, the Adjudicator's use of the words "Any sum" to introduce paragraph 9.1.6 is in my view of significance. If, as Mr Dyer submits, the Adjudicator was intending only to refer to the first three of the four consequences of clause 21.8 (b) that I have set out above, then one might have expected him to use words such as "The sum which I have found R&C is entitled to be paid by Shaylor shall not ...". I agree with Miss Barwise that the reference to "Any sum" is a pointer to the fact that the Adjudicator had the withholding provisions set out in clause 21.8 in mind when he wrote that paragraph.[73]I also do not accept Mr Dyer's submission that the expression "in accordance with" is, in this context, any narrower than the expression "subject to". In my judgment it means in accordance with the provisions of clause 21.8 (b). Since those provisions specifically confer on Shaylor a right to withhold a sum against the Final Payment on giving at least 7 days notice, I cannot see how that can be excluded from the scope of paragraph 9.1.6 of the Decision.[74]At this stage it is necessary to consider clause 21.8 in a little more detail because both parties advanced different arguments as to the true meaning of the expression "Final Payment". I have already mentioned that there is no clause 21.9, and so the reference to clause 21.9 (a) in clause 21.8 is puzzling. Clause 21.10 (a) requires R&C, not later than 3 months after practical completion, to send Shaylor “all the documents necessary for calculating the Final Subcontract sum”. It is to be noted that R&C is not required to notify Shaylor of the amount which it says is the Final Subcontract Sum: it is simply required to send the relevant documents.[75]Clause 21.10 (b) requires Shaylor, within 9 months after receipt from R&C of the relevant documents and before the issue of the Final certificate under the Main Contract, to prepare and send to R&C “a statement of the calculation of the Final Subcontract Sum”.[76]Ms Barwise submitted that the Final Payment referred to in clause 21.8 (b) would in practice be the same as the Final Sub-Contract Sum notified to R&C under clause 21.10 (b). Mr Dyer disagreed. He submitted that the amount of the Final Payment would be the amount of the Final Sub-Contract Sum less any contra charges. He submitted that this was the exercise carried out by the Adjudicator at paragraphs 8.127 to 8.132, although in fact the contra charges amounted to nil because Shaylor had failed to prove the loss caused by the four weeks delay that the Adjudicator had attributed to R&C.[77]On this point I accept Mr Dyer's submissions. The Final Sub-Contract Sum has to be ascertained before the issue of the Final Certificate, the Final Payment being due no later than 30 days after the issue of the Final Certificate. It seems to me that the Final Sub-Contract Sum can only represent the value of R&C's account because it is based on the documents provided by R&C. Those documents would not, for example, provide material from which could be assessed the amount of any damages for delay in completion by R&C, or the cost of remedying any defects that R&C had failed to put right. In my judgment, those would be matters that Shaylor would be entitled to take into account when arriving at the amount of the Final Payment.[78]In the ordinary course of events I would expect that most contra charges would be known before Shaylor had to send the Final Payment Notice to R&C under clause 21.8 (b) so that they could be taken into account when arriving at the Final Payment (as clause 21.1 (d) permits). However, it may be that a relevant contra charge is overlooked or is the subject of a contra charge notified to Shaylor by Ashley House after the issue of the Final Payment Notice to R&C. In these circumstances Shaylor would in principle be entitled to deduct that charge from the amount of the Final Payment provided that it complied with the notice requirements of the second part of clause 21.8 (b). If this was not the case, the second part of clause 21.8 (b) would be otiose.[79]Mr Dyer argued also that the Adjudicator had considered Shaylor's claim for delay in the adjudication and had rejected it. That is correct in the sense that Shaylor's claim was advanced only under clause 20.1 which, since the Adjudicator held the time was at large, was an approach that was bound to fail. The Adjudicator did not suggest that Shaylor was not entitled to advance a claim for damages for R&C's failure to carry out and complete the works within a reasonable time, nor did he reject such a claim: on the contrary, he said that no such claim had been made and, as I read it, he indicated that such a claim would have been open to Shaylor as a matter of principle in the adjudication if it had chosen to make it.[80]In these circumstances I consider that there is nothing to prevent Shaylor from setting off against the sum found due by the Adjudicator any sum that it would have been entitled to set off against either the Final Sub-Contract Sum (when arriving at the amount of the Final Payment) or the Final Payment itself under clause 21.8.[81]I should add that Miss Barwise relied on the decision of HH Judge Kirkham in Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] BLR 381. In that case an adjudicator decided that Shimizuhad no right to set off against the sum which would become due to LBJ, the sums which Shimizuhad identified and claimed in the adjudication (which was a claim for set off of amounts set out in a letter). He decided what sum would become due to LBJ after taking account of the matters identified in that letter, but not matters which might arise in the future. However, the adjudicator decided that payment of the sum determined did not become due until LBJ had submitted a VAT invoice, which they did immediately after the decision was issued. He also decided that the final date for payment was 28 days after the date of the VAT invoice.[82]To understand the decision it is important to appreciate that the adjudicator rejected Shimizu’s cross-claim set out in its letter on the ground that it was not the subject of an effective set off or withholding notice against LBJ's application which was the subject of the claim in the adjudication. In one sense, therefore, the situation was not that different from that in the present case. The adjudicator in Shimizu’s case did not reject Shimizu’s cross-claim on its merits, but on the basis that it was not the subject of an effective withholding notice. In this case, the Adjudicator did not decide the question of whether or not Shaylor had a valid claim for delay, he simply rejected the claim that was actually made in the adjudication on the ground that it was put forward on a basis which was not sustainable in the light of his decision that time was at large.[83]It seems to me that the decision in Shimizu applies a chain of reasoning very similar to that which I have applied in this case, and so in my view it supports Shaylor's position. I do not accept Mr Dyer's submission that Shaylor's claim for damages for delay that it now seeks to set off against the amount determined by the Adjudicator is the same claim that the Adjudicator rejected. As I have already explained, the Adjudicator never determined whether or not Shaylor had a valid claim for delay in a situation where time was at large, because it did not put forward its delay claim on that basis.[84]However, Mr Dyer had a further argument. He submits, correctly, that the adjudication was subject to the TeCSA Adjudication Rules, rule 33 of which provides as follows: “No party shall be entitled to raise any right of set-off, counterclaim or abatement in connection with any enforcement proceedings."[85]I consider that there is a short answer to this submission. Shaylor is not seeking to exercise a right of set-off or to deploy a counterclaim in the enforcement proceedings, that is to say this action. Rather it is seeking to exercise a contractual right that, in my judgment, has been expressly preserved by the Adjudicator’s Decision itself. Miss Barwise submits in effect that the decision that R&C is seeking to enforce it is one that has built-in to it the right to Shaylor to exercise any right of deduction or set-off that it would be entitled to exercise under clause 21.8 (b).[86]I note in that paragraph 9.2 of the Decision the Adjudicator drew the parties’ attention to rule 33 in regard to the implementation of the decision, but I do not see any particular significance in this.

Other matters

[87]The court heard an interesting debate about whether or not R&C was seeking both to approbate and reprobate the Adjudicator’s Decision. In the light of the conclusions that I have reached and set out above, it is not necessary to lengthen this judgment by dealing with these arguments.[88]A further alternative claim was raised by R&C following the disclosure of the deed of settlement seeking a declaration that it will become entitled to payment of the sum determined by the Adjudicator "on or about 3rd July 2012".[89]Whilst it may well be that R&C will become entitled to payment of a sum of money on that date, it seems to me that it is not a matter that can properly form the subject of a declaration by the court. There are two difficulties. The first is the obvious one: namely that I have now rejected R&C's submission that Shaylor has no right of set-off against the sum found due by the Adjudicator. Second, as Miss Barwise has pointed out, whether or not money will become payable on 3 July 2012 may depend on steps taken by either the Employer or Ashley House between now and then.[90]I therefore refuse R&C's alternative claim for relief. If permission is required to amend its claim form, which I suspect it is, then I refuse permission on the grounds that no useful purpose would be served by allowing the amendment for the reasons that I have just given.

Conclusion

[91]For the reasons that I have given this application fails. However, for the avoidance of doubt, I must make it clear that nothing in this judgment is intended to affect the binding nature of the Adjudicator’s finding that the amount of the Final Payment under the Sub-Contract is £196,963 (plus VAT). Unless and until the dispute is finally resolved by litigation (or arbitration), this finding remains binding on the parties.[92]I will hear counsel on any questions of costs or the appropriate form of relief that cannot be agreed.

Cited in 3 later judgments