Background
Oakland was the claimant and the “Employer” under a building contract dated 9 August 2019 which engaged Stepnell, the defendant and the “Contractor”, to design and construct a 65 bed care home at Grove Road, Wantage, OX12 7BZ. The building contract consisted of a JCT Design and Build Contract (2016 edition) with bespoke amendments.
The works carried out by the Contractor achieved practical completion on 26 April 2021, with a 12 month rectification period following.
In February 2022, the Contractor sent a statement to the Employer’s Agent, which was the focus of this case. In March 2022, the Employer’s Agent responded to an interim valuation (which had also been issued in February 2022) with a payment certification and also disputed the Contractor’s entitlement to the amounts claimed in the statement. The Employer’s Agent’s response stated that the final account figure was £7,988,593.74 (excluding VAT).
There was no activity until February 2024 when the Contractor sent a further final account statement.
In March 2024, the Contractor commenced adjudication proceedings for payment of the amount set out in the statement from February 2024. This was a typical “smash and grab” adjudication on the basis that no payment notice or payless notice had been issued in response to the statement. The adjudication was successful for the Contractor, with the adjudicator holding that the February 2024 statement was the relevant final statement.
The Contract
The arguments in this case centred around clause 4.24 of the contract, which dealt with the submission of a “Final Statement” following practical completion (either by the Employer or the Contractor). The most relevant clause to this case was as follows:-
“4.24.6 Except to the extent prior to the due date for the final payment the Employer gives notice to the Contractor disputing anything in the Final Statement or the Contractor gives notice to the Employer disputing anything in the Employer’s Final Statement, and subject to clause 1.8.2 the relevant statement shall upon the due date become conclusive as to the sum due under clause 4.24.2 and have the further effects statement in clause 1.8.”
Current proceedings
The Employer paid the adjudicator’s award and commenced Part 8 proceedings for various declarations in relation to which statement was the “Final Statement” under the contract.
The Employer argued that the relevant statement was the one given in February 2022 and not the February 2024 statement. The Employer had given notice disputing the sums in the February 2022 statement in March 2022. Alternatively, if the relevant statement was the February 2024 statement, the Employer had already given sufficient notice disputing the sums in prior communications, so this was not conclusive.
The Employer put to the court that the February 2022 statement should be interpreted in line with how a reasonable recipient aware of the surrounding facts would have understood the document. The parties were already having final account discussions at this point and correspondence had culminated in the February 2022 statement being issued. The Contractor’s email sending the statement had also referred to it being the final account. The Employer’s Agent had also treated it as requiring a formal response and had disputed the sums claimed.
The Employer was also of the view that if the February 2024 statement was the relevant statement under clause 4.24, then it was not conclusive, as sums under that statement had been disputed prior to the due date, by way of the discussions and the Employer’s response in 2022 and the February 2024 statement itself which particularised the areas of dispute.
The Contractor argued that a reasonable recipient would not have considered the February 2022 statement to be the relevant statement on the basis that it was in the form of previous interim applications, had been headed as “draft FA”, contained figures which were draft/budget/estimate and was presented as a forecast, with the Contractor’ final account still to come.
Decision
The Court agreed with the Contractor, in that it was not plain that a reasonable recipient would regard the February 2022 statement as being the Contractor’s final statement. The February 2024 statement was therefore the final statement for clause 4.24.6.
The Employer also failed on its arguments in relation to conclusivity, as it had not given notice disputing anything “in” the Final Statement. The court ruled that the Final Statement must have first been given and correspondence prior to its issue is not notice for the purposes of clause 4.24.6.
Comments
The Court took an objective view of the final statement in this case. However, parties to a building contract who are serving final statements they wish to be effective, should ensure that they are clearly identified as being final statements, as documents which are draft or provisional in nature may not be considered to be contractually compliant as a final statement.
Where an Employer receives a document purporting to be a final statement, they should ensure that any payment notice or pay less notice is served accordingly and in line with the timings set out in the contract, if they wish to prevent such a statement becoming conclusive.
Parties to these types of contract should also be aware that for any notice of a dispute in relation to a final statement to be effective, it must be given after the final statement has been issued and before the contractual due date. You cannot rely on disputes raised in final account discussions/correspondence prior to the document being issued.
