Battersea Project Phase 2 Development Company Limited v QFS Scaffolding Limited

Citation: [2024] EWHC 591 (TCC)

Introduction

1. This was a combined hearing of a Part 8 claim by BPS seeking declaratory relief that a Final Payment Notice was conclusive of the matters set out in a conclusive evidence clause and a Part 7 claim by QFS to enforce by summary judgment the decision of an adjudicator that held that the CEC did not take effect. The Judge dismissed the declaration sought in the Part 8 proceedings and gave summary judgment enforcing the agreed monetary consequence of the adjudicator’s decision in the Part 7 proceedings, for £3,1777,462.85 plus VAT.
2. The issue arose from a sub-contract for the asbestos scaffolding package for the Battersea Power Station re-development on JCT DBSub/A 2011 Design and Build Subcontract 2011 Terms. BPS was the contractor and QFS was the subcontractor.
3. The relevant clause was that set out in the standard form. Clause 1.8 provided that the FPN was conclusive as to the matters set out in clause 1.8.1 unless clause 1.8.2 was engaged. Clause 1.8.2 provided:

1.8.2    If adjudication, arbitration or other proceedings are commenced:

1. by either Party prior to or within 10 days after the date of receipt of Final Payment Notice; or by the Employer at any time within the periods referred to in clause 1.8 of the Main Contract, where such proceedings relate in whole or in part to the Sub-Contract Works or other matters connected with this Sub-Contract and the Sub-Contractor is either a party to those proceedings or (if not then party to them) is notified of them within 14 days of their commencement; or
2. by the Contractor in relation to the subject matter of any proceedings by the Employer within clause 1.8.2.2 if the Employer’s proceedings are commenced after the Final Payment Notice, provided that the Sub-Contractor (if not then a party to the Employer’s proceedings) has been notified in accordance with that clause and the Contractor commences his proceedings within 28 days of the commencement of the Employer’s proceedings,

the Final Payment Notice shall not have the effects specified in clause 1.8.1 in relation to the subject matter of those proceedings pending their conclusion. Upon such conclusion, the effect of the Final Payment Notice shall be subject to the terms of any decision, award or judgement in or settlement of such proceedings.

1. Adjudication No. 11 had been commenced by QFS less than 10 days before the date of receipt of the FPN. It was therefore common ground that clause 1.8.2(a) was engaged.
2. The Referral in Adjudication 11 was originally due on 29 December 2022 pursuant to paragraph 1.4 of Annex 8 of the subcontract (the JCT standard subcontract adjudication rules applied). The parties agreed
3. An adjudication (‘No 11’) was commenced by QFS on 19 December 2022 to calculate the final sub-contract sum, i.e., the ‘true value’. QFS failed to issue a referral by 13 January 2023. QFS had the chance, by forbearance or waiver by BPS, to issue a referral by 3 February 2023 latest. QFS did not do so. The adjudicator reached his decision in No 11 on 29 September 2023.

  Parties’ submissions

1. An adjudication was commenced a few days before receipt of the FPN in this case, and so the saving provision was engaged. BPS submitted that QFS failed to serve a referral (for adjudication, under para 1.4 of Annex 8 of the subcontract) within the time required, so that the adjudication concluded without a decision. Thus, BPS argued that under clause 1.8.2, the FPN is not subject to any financial adjustment. Alternatively, BPS submitted that QFS abandoned the adjudication, leading to the same outcome.
2. QFS submitted that the parties agreed that the time for service of the referral would be extended so that there was no failure as alleged. When they pursued the subject matter of the adjudication, they served a new notice of intention to refer only because the adjudicator proposed it, but the dispute’s substance remained the same. Thus, the adjudicator was not bound by the conclusive evidence clause. QFS rejected the notion that they abandoned the proceedings. QFS interpreted clause 1.8.2 as meaning the FPN was meant to be adjusted by the adjudicator’s determination of the true value of the final sub-contract sum (FSCS).

Judgment Referral 

1. The Judge held that the parties had agreed to a variation where QFS was obliged to serve the referral 13 Jan 2023, unless unforeseen reasons precluded service on that date, in which case an extension would be grated. This variation was legally effective and binding, with consideration provided by BPS agreeing not to assert breach of natural justice. BPS’s silence in response to QFS’s email of 11 Jan 2023 did not constitute an agreement to extend time. QFS’s failure to provide an unforeseen reason for delay led to a breach of their obligation to serve the referral. BPS’s notice requiring service by 3 Feb 2023 was deemed reasonable, and since QFS did not serve the referral by that date, the adjudication was bound to fail.

Construction of clause 1.8.2

1. The Judge construed the conclusive evidence clause (CEC) with the following case law principles in mind:
2. A conclusive evidence clause (CEC) is a form of exclusion of what would otherwise be a party’s right to adduce evidence;
3. Triple Point Technology v PTT Public Co Ltd [2021] UKSC 29, where Lord Leggatt JSC reaffirmed the “Gilbert-Ash” principle of interpretation that clear and express words are needed to exclude common law and statutory rights and remedies;
4. The purpose of CECs are to provide limits to uncertainties and expense of litigation; to obviate cumbersome enquiries to prove outstandings on running accounts; and to provide clarity as to the parties’ obligations once a project is complete.

1. BPS argued that a “conclusion” under clause 1.8.2 was a wide concept that did not require either a decision, award or judgment or a settlement. An adjudication could come to a conclusion foreseeably where the proceedings were a nullity. No change to the FPN was required. “Any” in the penultimate line supports this, as it recognises there may not be a decision, award etc.
2. QFS argued that clause 1.8.2 does not require a decision for the first part of the saving provision to be effective, but proceedings only reach a conclusion once there has been a decision, award, settlement etc. When that occurs, the FPN takes effect subject to those matters. “Any” simply means any of a decision, award, judgment or settlement.
3. The Judge disagreed with BPS that an adjudication which becomes a nullity has reached a conclusion. First, the conclusion that the provision envisages is necessarily a decision etc. or a settlement. An adjudication that ends up being an nullity is neither of those. Second, BPS’ construction would lead to harsh outcomes. Where a valid adjudication notice is issued challenging an FPN, but the resulting decision is deemed unenforceable by the adjudicator for reasons unrelated to the referring party (e.g., breach of natural justice), the adjudication would be considered concluded, and subsequent notices would be too late. The referring party would be unable to present evidence contrary to the FPN. The Judge did not consider this represented the parties’ desire for finality.
4. The Judge held no distinction should be drawn between adjudication rendered a nullity by reason of fault of the referring party and those which are rendered null for reasons outside its control. What matters is the adjudication which becomes a nullity is not one which has ever reached a conclusion irrespective of the cause of it having become a nullity.
5. The first phase of the saving provision in clause 1.8.2 is engaged upon the commencement of relevant proceedings and continues to apply until the subject matter of proceedings has been concluded. Then the second phase of the saving provision is applicable. It is notable that clause 1.8.2 uses the expression “subject matter” in respect of the scope of that which is, pending a decision or settlement, not caught by the conclusive evidence. This shows the importance placed by the contracting parties upon the content of the underlying dispute. As the Judge put it at [66]:

“The clause as a whole contemplates that proceedings had to be commenced and, thereafter, concluded. The parties did not intend that the suspension of conclusivity in the first phase could continue to infinity.”

1. The Judge disagreed with BPS held that the reference to ‘adjudication proceedings’ must be the same as the adjudication referred to in the phrase ‘such proceedings’ in the same clause. The Judge disagreed and held that reference to ‘adjudication proceedings’ is generic, and that ‘such proceedings’ is broad enough to encompass adjudication proceedings relating to the same dispute as was the subject of the initial notice raised within time in respect of the FPN. There is no necessity for the adjudication decision to be responsive to the specific notice of adjudication by which the adjudication proceedings were commenced. However, the Judge did not agree with QFS that the appointment of the same adjudicator on in both proceedings was material to the conclusivity of the FPN.
2. The Judge concluded that, while QFS’s adjudication became a nullity as it failed to serve its referral notice by the date agreed, that has no bearing on whether the adjudication proceedings reached a ‘conclusion’ for the purposes of the CEC. Where, as here, the adjudication proceedings were validly commenced by the adjudication notice, the first part of the saving provision was engaged: i.e., the final payment notice (FPN) did not have the effects specified pending a conclusion. The only exception to this is if QFS abandoned the proceedings.

Abandonment

1. If the adjudication proceedings had been timeously commenced pursuant to clause 1.8.2, but were later abandoned, the parties were agreed that the saving provision would fall away. The Judge considered whether QFS abused its timely commencement of proceedings either by lacking or losing any genuine intention to resolve the underlying dispute raised by the Notice. If so, it would be taken to have abandoned the adjudication proceedings. This is an objective test: QFS must have made its intention manifest.
2. The Judge held that QFS did not serve a referral on 3 February 2023 was not because it intended to abandon the adjudication proceedings commenced on 19 December 2022, but because it thought it did not need to. While it is true that not serving the referral by 3 February 2023 meant QFS could no longer rely on the first adjudication notice to obtain an effective adjudication decision, it did not follow that QFS intended to abandon its pursuit of the subject matter of the dispute. It explained its (mistaken) view to BPS on 3 February 2023 so BPS knew that this was QFS’s position.
3. Therefore, the Judge concluded that QFS did not abuse the position or demonstrate that it lacked the requisite intention to resolve the dispute, and had not therefore abandoned the adjudication proceedings. Therefore, there was no conclusion of the proceedings until the adjudicator reached a decision. The second part of the saving provision in clause 1.8.2 was therefore effective. The FPN is subject to the terms of the decision by the adjudicator on 29 September 2023.