Cantrell & Anor v Wright & Fuller Ltd

INTRODUCTION

This is an appeal brought under section 69(1) of the Arbitration Act 1996 from the award of an Arbitrator, Professor Mark Cato. The appeal on the questions of law arising out of the award on certain preliminary issues answered by the arbitrator is brought without leave since the contract, in the JCT standard form, 1980 edition, contains a provision, in clause 41.6.1, which satisfies the statutory requirement that leave to appeal is not required. This consequence of the combined effect of section 69(1) of the Arbitration Act 1996 and clause 41.6.1 of the JCT Conditions accords with a long line of authorities including How Engineering & Services Ltd v Lindner Ceiling and Floors Plc, unreported, 17 May 1995, Judge Thornton QC; Panatown Ltd v Alfred McAlpine Ltd 58 Con LR 46, Judge Thornton QC; Vatcroft (Contractors) Ltd v Seeboard Plc, 78 BLR 138, Judge Lloyd QC, Taylor Woodrow Civil Engineering Ltd v Hutchinson Development Ltd (1999) ADRLJ 83, Clarke J, Fence Gate Limited v NEL Construction Limited, 82 Con LR 41, Judge Thornton QC and Robin Ellis Ltd v Vinexsa International Ltd [2003] EWHC 1352 TCC, unreported, 13 June 2003, Judge Thornton QC.

The appeal arises out of a contract between the claimants, as employers, and the respondent, as contractors, that incorporated the JCT Standard Conditions of Contract, 1980 edition. This contract, entered into on 1 April 1997, provided for the construction of phase one of a new extension, being an Elderly Mental Institution unit, for the claimants who own and operate a nursing home at Saxted, near Woodbridge, in Suffolk. The contract Works achieved Practical Completion on 23 February 1998, the Defects Liability Period expired on 23 August 1998, a document relied on by the respondent as being the Final Certificate was issued on 29 March 1999 and a notice of arbitration was served by the respondent on 1 May 2002. Professor Cato was then appointed as arbitrator by the RIBA, the nominating body named in the contract.

The disputes referred to arbitration involve claims by the respondent for the unpaid balance of the sum certified as due and claims by the claimants that the Adjusted Contract Sum certified by the architect was erroneous, that alleged over payments to the respondent should be repaid, for both direct and consequential damages arising out of defects in the works and for liquidated damages for delayed completion.

Underlying these disputes is a major dispute between the parties as to whether the Final Certificate had validly been issued under clause 30.8 in a manner and form which brought clause 30.9 into effect so as to provide that certain matters are to be regarded in any subsequent proceedings as having been conclusively proved. The respondent contends that a valid and effective Final Certificate was issued with the result that the claimants’ claims can no longer be pursued and that the effective defences to its own claims have been eliminated or significantly diminished. In consequence, without any pleadings having been served and with no precise definition of issues having being agreed, the arbitrator, with the consent of the parties, directed that he would determine as preliminary issues five items: “as broadly set out in the [respondent’s] skeleton submission dated 25 November 2002 to be amended as agreed by counsel”, to quote from his Order no 2 dated 27 November 2002. In his award he stated that the parties had agreed that these issues, if determined as preliminary issues, would result in a saving of costs and time.

The parties subsequently agreed that there were two issues that should be determined in this way which were:

“1.

Whether or not the certificate issued by the architect on 29 March 1999 was validly issued in accordance with clause 30.8 of the contract conditions.

2.

Whether or not the certificate issued by the architect on 29 March 1999 is the final certificate for the purpose of clause 30.9 of the contract conditions.”

The parties had also agreed that five further issues should be decided relating to the effect of the Final Certificate, if it be one, on various aspects of the claimants’ claims and defences. However, during the hearing of the preliminary issues, the parties agreed what the relevant effects of the Final Certificate would be if the arbitrator found that the certificate in question was the Final Certificate and a consent award was made in relation to those further issues.

The parties did not agree what factual background should be assumed by the arbitrator in answering these two issues and no oral evidence was adduced. However, pursuant to his direction, an agreed bundle of documents was placed before him for use at the hearing. The parties agreed the arbitrator could refer to these documents as evidence. The parties also put before the arbitrator an agreed chronology.

The parties placed before me, in addition to the arbitrator’s award dated 16 March 2003, the additional documents that had been placed before the arbitrator. These included the entire contract Conditions, the written submissions of the parties submitted to the arbitrator, the relevant certificates and some of the correspondence passing between the parties prior and subsequent to the issue of the suggested Final Certificate. Much of this material is referred to in the award. Given the informality of the procedure adopted by the arbitrator with the agreement of the parties, I have considered this additional material although, ordinarily, I would have considered the questions of law being appealed by reference only to the contents of the award and the contract (see my recent judgment in the arbitration appeal of Hok Sport Limited (formerly Lobb Partnership Limited) v Aintree Racecourse Company Limited, unreported, TCC, 12 November 2002, Judge Thornton QC at paragraphs 16 - 20).

The respondent submitted that it was clear from the material placed before me that the parties had agreed during the hearing that the scope of the two issues whose wording it had previously agreed that the arbitrator should answer would be narrowed to the sole question of whether the relevant certificate was invalid as the Final Certificate on the sole ground that time limits set out in clauses 30.6 and 30.8 had not been observed. The respondent also contended that if the award was not so narrowly confined, it was only wider by an agreed and limited extent in answering a second question as to the construction of the certificate in order to ascertain whether, in form, it was the Final Certificate given that those precise words did not appear on its face. I will have to address this submission later in this judgment.

Finally, I should explain how the parties were represented at the hearing of the appeal. Before the arbitrator, the claimants were represented by counsel instructed by solicitors. The notice of appeal on behalf of both claimants was then settled by Mr Cantrell and he also settled the written submission submitted prior to the hearing. At the hearing, Mr Cantrell applied and was given leave to represent his wife whilst also representing himself. He did, however, have sitting with him Mr French, the solicitor who had acted for him at the arbitration hearing. Mr French meticulously complied with the role permitted to a so-called McKenzie friend of making notes and offering to Mr Cantrell occasional advice which was inaudible to others in court. It is also right to record that Mr Royce, counsel for the respondent, fairly and uncontentiously brought to my attention such facts and legal authorities as were relevant to the hearing of the appeal.

BACKGROUND FACTS

I have derived the factual background from the award and from the contents of the agreed bundle of background documents placed before the arbitrator and which the parties agreed should be provided to me. The contract entered into by the parties required the respondent to construct the EMI unit for the claimants’ nursing home with a contract sum of £494,682.22. The Architect and the Quantity Surveyor named in the contract was Hollins, a firm of architects and surveyors of Framlingham. The partner within that firm who acted as the Architect was Mr C R Tanner. The contract incorporated the JCT Standard Form of Contract, 1980 edition, incorporating amendments 1 to 6, 8 to 16. Completion was fixed for 15 December 1997 and Practical Completion was certified as occurring on 23 February 1998. The Defects Liability Period ended on 23 August 1998. Since no schedule of defects was issued by the Architect, no Certificate of Making Good Defects was issued.

From an early stage of the discussions between the Architect with both parties as to the content and size of the adjustments to be made to the Contract Sum, it was clear that the claimants believed that many of the claimed variations were ones for which they had no liability to pay, principally because they regarded the work involved as being included within the original Contract Sum or as having been instructed without appropriate written instructions or at a time after Practical Completion when such instructions could no longer be given. Moreover, the claimants made known to the Architect their view that the Works contained defects and that the respondent was liable to pay liquidated damages for delayed completion. Equally, the respondent made known its views to the Architect that there were no such defects and that it was entitled to a full extension of time.

However, at no stage did the Architect, as required since Practical Completion had occurred nine weeks after the Completion Date, take one or other of the mandatory steps required in such circumstances. Thus, he neither fixed a new Completion Date and granted the respondent an extension of time nor, alternatively, did he issue a certificate that the respondent had failed to complete the works by the Completion Date, being the necessary precursor to the claimants’ deduction of liquidated damages from sums becoming due to the respondent. The claimants subsequently contended that the Architect had formed the opinion that at least five weeks’ liquated damages were payable by the respondent and there is some indication in the documents that the Architect shared their belief that the respondent was culpable for at least some defects and delay. Thus, on 22 June 1998, the Architect wrote to the respondent stating that liquidated and ascertained damages for delayed completion needed to be considered.

Equally, the Architect neither prepared nor served a Schedule of Defects on the respondent. The Architect did, however, prepare a list of defects at the end of the Defects Liability Period and identified the existence of defects that the claimants have subsequently used as the basis of their claims for abatement and damages. The claimants were contending and still contend that many of these defects were omissions which should be reflected not by remedial work but by an appropriate deduction from the Contract Sum. By way of example, the claimants are claiming that £24,000 should be deducted to reflect a saving because 40 metres of a mass retaining wall, at a contract rate of £600 per metre, had not been constructed although required by the Contract and which sum had never been deducted from the Contract Sum.

As early as 22 June 1998, the Architect wrote to the claimants and stated that it was probably unlikely that the situation between the claimants and the respondent could be finalised without going to arbitration. Thereafter, the relationship between the claimants and the respondent deteriorated and their correspondence became somewhat heated.

As required by the contract, the respondent submitted to the Architect the documents necessary for the purposes of the adjustment of the Contract Sum by 20 July 1998 so that the statement of all adjustments to be made by the Architect was required to be sent to the respondent by 20 October 1998. In circumstances and pursuant to terms that were not identified in the documents placed before the court, the respondent, in May 1998, and the Architect, in October 1998, appointed separate quantity surveyors to act. The quantity surveyor appointed by the architect was never appointed as the Quantity Surveyor under the contract in substitution for the Architect who, as already stated, had been appointed to that role by the Conditions.

These two quantity surveyors met briefly with the claimants, two directors for the respondent and the Architect on 9 October 1998 but the meeting only lasted fifteen minutes. It is clear that the claimants had, by the time of that meeting, communicated their dissatisfaction as to the excessive amounts that they perceived had been previously been certified in favour of the respondent, as to the absence of a schedule of defects and as to their perception of the respondent’s culpability in the delay to the completion of the Works. This dissatisfaction was particularly communicated on 11 October 1998 when Mr Cantrell wrote a letter to the Architect which set out their views as to the value of the respondent’s work and asked the Architect to give written notice forthwith to the respondent requiring the disputed matters to be referred to arbitration under the terms of clause 41.1 of the Conditions. On 14 October 1998, the Architect replied to the claimants and stated that he believed that he was not in a position to issue an arbitration notice since this was for the parties to initiate. However, he felt that it would be premature at that stage to enter into arbitration and suggested that the claimants’ decision as to whether or not to arbitrate should be left, presumably for discussion with him, until after the list of variations had been addressed in the Final Account.

On 20 November 1998, the claimants’ solicitors wrote to the Architect and asked to be supplied with a certain information and a number of documents including the Architect’s Instructions, the basis upon which the Architect’s Instructions issued after Practical Completion had come to be issued and the Architect’s terms of reference provided to him by the claimants. These were supplied on 4 January 1999. The letter informed the claimants that:

“We have been issuing instructions under contract clauses .3.2.2 and 13.2.4 which empowers us to do this but this does not mean that we have agreed any costs or liability or payment, merely that the variations and alterations have occurred factually.”

On 4 March 1999, the respondent’s quantity surveyor faxed the Architect’s quantity surveyor a note which read:

“Agree to your final account as attached. Please could you or Ray Harris [of Hollins, the Architect] advise when the final certificate will be issued.”

The document referred to had been the subject of discussions involving the two quantity surveyors and its contents had agreed at a meeting held between the Architect Mr Ray Harris and the two directors of the respondent responsible for this contract, Mr M and Mr N Fuller and the two quantity surveyors on 2 March 1999.

This document was then sent to the Architect and the respondent. It was entitled “Final Account”.

On 12 March 1999, Mr Tanner wrote to Mr Cantrell, without apparently sending a copy to the respondent and certainly without also addressing it to the respondent or recording on the letter that a copy was being sent to the respondent, as follows:

“It is my duty, under the terms of the Contract, to identify all the variations, which we have done, copies of which you have had, and prepare a final account statement, in which we have been aided by Messrs Hyams and Partners [the quantity surveyor appointed by the Architect]. I now report to you that this figure is £548,799 25.

Under Clause 30.7 I enclose a Certificate which authorises payments to nominated subcontractors, when fair proof of payment from [the respondent] has been received we will issue the final certificate.

I enclose copies of the final account documentation from Hyams for your information.”

Enclosed was the final account document discussed and agreed at the meeting held on 2 March 1999 and the Certificate which was dated 10 March 1999 and was in the sum of £25,194.09.

On 26 March 1999, Warrington Martin, the respondent’s quantity surveyor, wrote to the claimants on behalf of the respondent requesting payment of £25,194.09 certified in this certificate and stating that a further final account balance of £50,509.62 would become due on receipt of “the Architect’s final account”.

On 29 March 1999, the Architect wrote to Mr Cantrell a letter that enclosed the certificate also dated 29 March 1999 which give rise to the questions of law for decision on this appeal. The certificate was as follows:

Issue date 29 March 1999

This certificate was identical in form to the previous certificate issued on 10 March 1999 save that in the earlier certificate the item for variations had been omitted so that the “Net amount due” was certified as £451,880.73 and the “Payment now due” was certified as £25,194.09. The other difference was that the earlier certificate stated at its foot that it was certified “as an interim payment” for works completed rather than “as a final payment” for works completed and it also stated that the sum certified was “including VAT”, although in context that appears to have been an error for “excluding VAT”.

The covering letter, which was not apparently copied to the respondent and certainly was not also addressed to the respondent and it was not recorded on the letter that a copy had sent to the respondent, read as follows:

“Dear Mr Cantrell

New EMI Unit - Phase 1

I now write to enclose the final certificate as per the contract sum, variations and omissions I believe this now discharges our obligations under the contract.

I would respectfully remind you that you would be advised to check that the sub-contractors have been paid their due amounts before you make any final settlement.

Yours sincerely

C R Tanner”

Promptly on receipt of this letter and the enclosed certificate, the claimants consulted their then solicitors, who ceased to act for the claimants in August 1999. These solicitors wrote a long letter to the Architect dated 7 April 1999. A copy of the letter was sent to the respondent’s quantity surveyor and the letter was, in reality, a response to the Architect’s letters of 12 and 17 March 1999 and the respondent’s quantity surveyor’s letter of 26 March 1999. The letter set out a series of matters of complaint and a financial summary prepared by the claimants. The complaints included suggested erroneous adjustments of the Contract Sum which included a substantial number of priced instructions which were allegedly unauthorised or instructed outside the contract period and for which, in consequence, the claimants had no obligation to pay. The summary also provided for an alleged need to continue to retain the retention fund against unremedied defects, it would seem being those identified by the Architect at the end of the Defects Liability Period, and for an alleged entitlement to liquidated damages for the whole period of the overrun of the Contract Period. The alleged result was that, instead of monies being due and payable to the respondent, the adjusted Contract Sum should have been £429,142.98 so that a sum of £22,737.75 was now due to the claimants from the respondent and no sum was due to the respondent from the claimants.

The letter concluded:

“By copy of this letter to Warrington Martin [the respondent’s quantity surveyor] we set out above [the claimants’] position and look forward to receiving reimbursement from the Contractor in the form of a cheque for £22,737.75 payable to ‘Foxearth Lodge Nursing Home’ within the next 14 days of the date of this letter failing which we shall take such further action as is deemed necessary.”

The Architect did not reply to this letter.

At the same time, the parties’ solicitors exchanged letters. On 6 April 1999, the respondent’s solicitors wrote to the claimants and requested payment of both certificates that had been issued. The letter did not allege that the second certificate was the Final Certificate but, instead, stated that neither certificate was capable of being challenged because they had “been issued by your own Architect”. On any view, that statement was inaccurate since the requisite period for challenging the second Certificate, if it was a final certificate, was 28 days expiring on 26 April 1999 and, if it was a final interim certificate, it could have been challenged at any time. The previous certificate was also capable of being challenged at any time.

The claimants’ solicitors replied on 7 April 1999 and informed the respondent’s solicitors that the claimants did not accept liability for either certified sum and restated their own claim for payment by the respondent of £22,737.75.

On 19 May 1999, the respondent’s solicitors replied to the claimants’ solicitors enclosing a schedule seeking to show which items of additional work had been ordered by the Architect and which by the claimants, stating that the Final Certificate had been issued on 29 March 1999 and drawing attention to the contractual provision that made the Final Certificate conclusive evidence unless proceedings had been issued within 28 days of its issue which had not occurred. The letter was a prelude to a meeting between the parties and their legal representatives held on 21 May 1999 which was followed by a letter from the claimants’ solicitors to the respondent’s solicitors dated 26 May 1999 which stated that the respondent had broken the terms of the contract and that there was no Final Certificate.

Thereafter until 19 August 1999, desultory correspondence took place in which the assertions and denials as to the issue of the Final Certificate were repeated, the respondent’s solicitors threatened to issue proceedings and the claimants’ solicitors responded by stating that, in challenging the respondent’s threatened reliance on the Final Certificate, they would rely on the fact that the respondent’s solicitors had initially, within the initial 28-day period following the issue of the purported Final Certificate, represented that the certificate could not be challenged at all but subsequently, after that period had passed, stated that it could have been challenged but only within the initial 28-day period following its issue. Between August 1999 and 22 January 2001, no further exchanges occurred and then, out of the blue, the respondent’s solicitors wrote a letter before action to the claimants with a suggestion that the parties should follow the TCC pre–action protocol procedure. However, the claimants wished to rely on their entitlement to arbitration and this ultimately led to the arbitration notice, to the arbitration and to the award giving rise to this appeal.

THE SUBMISSIONS OF THE PARTIES, AWARD AND QUESTIONS OF LAW BEING APPEALED

Dispute

Prior to the service of the arbitration notice, the parties had been in the process of formulating their disputes for some years. As has been seen, the claimants had made known their views as to defects, variations, valuation and liquidated damages for delay to the Architect from before Practical Completion had been certified and had asked him to serve a notice of arbitration on the respondent on their behalf. The Architect had suggested that this should await the finalisation of the Adjusted Contract Sum although he had also previously indicated to the claimants that he considered it likely that the parties would have to resort to arbitration. Following the issue of the purported Final Certificate, the claimants’ solicitors wrote to the Architect and the respondent’s quantity surveyor a long letter detailing all their disputes with the respondent, a letter which the Architect did not respond to at all and which the respondent did not respond to the detail of. Subsequently, in response to the respondent’s letter before action, the claimants again set out their claims and defences in considerable detail. Finally, the claimants further elaborated their contentions in the written submissions prepared by their counsel that were served during the arbitration and submitted to the arbitrator.

The claimants’ contentions being advanced in one or more of these documents amounted to the following:

Issues in the Arbitration

The parties served no pleadings or statements of case and did not formally agree or adduce oral evidence as to any facts for use in deciding the issues. The only definition of the questions of law to be determined by the arbitrator was the agreed preliminary issues settled by counsel at the outset of the preliminary issues procedure which were therefore settled without it being possible to relate the issues to any pleaded or defined dispute within the reference. These issues were phrased in very general terms and sought a determination as to whether the certificate issued on 29 March 1999 was validly issued in accordance with clause 30.8 and was the final certificate for the purpose of clause 30.9. Although these two issues appear to be discrete issues, they are, in reality, asking the same question in two separate ways since clause 30.9 provides that the conclusive effects of the Final Certificate only arise in relation to the Final Certificate that is validly issued under clause 30.8.

It would appear from the widely phrased issues and from contents of the documents placed by agreement before the arbitrator and the court that the claimant was seeking from the Arbitrator’s decision as to whether, in the light of all the events that had occurred, the certificate issued on 29 March 1999 was the Final Certificate in form, substance and intent. As already stated, however, the respondent contended that the wide scope of the agreed wording of these two issues had been significantly narrowed by agreement during the course of the hearing.

Submissions of the Parties on Issues 1 and 2 in the Arbitration

Claimants’ Submissions in the Arbitration

The arbitrator summarised the submissions of the claimants. The claimants had mounted three alternative cases. The claimants’ first case was that the Final Certificate was invalid since it was served too late, namely after 23 October 1998 which was the date that fell 2 months after the end of the Defects Liability Period. This date determined the last date for the valid issue of the Final Certificate in this case since, by 23 October 1998, neither a Certificate of Making Good Defects nor any document capable of constituting the clause 30.6.1.2.2 statement of the adjustments to be made to the Contract Sum had been served. In consequence, clause 30.8 provided that the timing of the issue of the Final Certificate was linked to the end of the Defects Liability Period. Thus, if on the true construction of the Conditions, service of neither the Certificate of Making Good Defects nor the statement of adjustments was a condition precedent to the issue of the Final Certificate, clause 30.8 provided that the Final Certificate could only be issued within a two month period after the end of the Defects Liability Period so that its purported issue on any later date was invalid.

The claimants’ second, alternative, case was that if, contrary to their primary case, a statement of adjustments under clause 30.6.1.2.2 had in fact been served, the document in question had been served on about 4 March 1999. Thus, it had been served outside the timescale provided for by the Conditions since, by virtue of clause 30.6.1.2.2, this document should have been served on the respondent on or before 20 October 1998, being the last date of the 3-month period provided for following the service by the respondent of the last of the relevant accounting documentation on 20 July 1998. On this basis, a purported Final Certificate served on 29 March 1999 was again invalid.

The claimants’ third, further alternative, case was that no valid Final Certificate could have been issued at all since no Certificate of Making Good Defects nor clause 30.6.1.2.2 statement had been served and service of each was a condition precedent to the service of a valid Final Certificate. It followed again that the purported Final Certificate was invalid.

In both of their first two cases, the claimants relied on Judge John Davis QC’s judgment in ECC Quarries Ltd v Merriman Ltd (1988) 45 BLR 90 and contended that once the period within which the Final Certificate should be issued or the time for the service of the necessary anterior documents had passed, the Architect had lost his authority to issue the Final Certificate and hence the Final Certificate that was ultimately issued was both out of time and invalid.

Respondent’s Submissions in the Arbitration

The respondent’s submissions were also summarised by the arbitrator. It contended that service of neither of the documents relied on by the claimants were conditions precedent to the service of a valid Final Certificate. This submission included a reference to Judge Lloyd’s decision in the Penwith case. (Footnote: ¹) So far as the Certificate of Making Good Defects was concerned, no schedule of defects had been served in the Defects Liability Period so that no Certificate of Making Good Defects was, or ever could have been, served. As for the failure to comply with the two month time limit provided for by clause 30.8, that delay was not fatal since that particular time limit was not mandatory and any delay in issuing the Final Certificate did not rob it of its conclusive effects. Although not relied on by the respondent, some support for the non mandatory nature of the time limits associated with the issue of the Final Certificate can be found in the treatment of time limits in a different context in a standard form JCT sub-contract in the Scots case in the Outer House of the Court of Session in Skanska Construction UK Ltd v The ERDC Group Ltd andJohn Hunter, unreported, 28 November 2002, Lady Paton, a decision that the arbitrator referred the parties to and which they contended had no materiality to the issues raised in this arbitration.

Submissions as to the Form of the Certificate

The claimants also contended that if the certificate issued on 29 March 1999 was capable of being the Final Certificate, this particular document was not on its face a Final Certificate. In particular, the certificate merely stated on its face that it was certifying a final payment and did not state that it was “the Final Certificate”. Moreover, in their pre-hearing submissions, the claimants had also relied, in contending that the certificate was invalid in form as the Final Certificate, on the fact that the certificate stated that the sum it certified had to be paid within 14 days, the period stipulated in the contract within which Interim Certificates had to be honoured (clause 30.1.1.1). The Final Certificate, uniquely for certificates issued under the conditions, was required to be honoured within 28 days (clause 30.8.2). This statement as to the time for payment showed, so the claimants contended, that the certificate was intended to be a final Interim Certificate authorised by clause 30.1.3 and was not intended to by the Final Certificate in the sense provided for in clause 30.8 and, in consequence, it lacked the conclusiveness provided for by clause 30.9.

The respondents, relying on the decision of the Court of Appeal in London Borough of Merton v Lowe (1981) 18 BLR 130 and on that of Judge Fox-Andrews QC in Emson Contractors Ltd v Protea Estates Ltd (1987) 39 BLR 126, contended that the mistakes in the form and content of the Final Certificate were sufficiently minor as not to nullify it, particularly if, as was permissible, the certificate was read with the Architect’s covering letter which made it clear that it was “the final certificate”.

Scope of the Award

The arbitrator concluded that the first issue was the key to the sequence of preliminary issues that he had to answer and that that issue could be narrowed down to the question of whether the Architect’s failure to prepare the statement of adjustment to the Contract Sum within 3 months of 20 July 1998, as required by clause 30.6.1.2.2, prevented the valid issue of the Final Certificate thereafter.

The respondent, as I have already summarised, submitted that that narrowing of the ambit of the first issue had been agreed to by both parties during the course of the hearing. Moreover, the issue as to the form of the certificate had been withdrawn by agreement from the arbitrator once the claimant had abandoned it as an issue during the hearing. However, the suggested agreement narrowing of the first issue would have narrowed its scope in a different way to the way that the arbitrator narrowed it. The arbitrator narrowed the scope of the issue by deciding upon the correct approach to construction but then applying that approach to only one of several possible grounds of invalidity. The respondent on the other hand contended that the issue had been much more narrowly confined in scope since, as narrowed, it merely sought a yes or no answer to the question as to whether the claimants’ approach to construction was correct.

The claimants did not accept that any agreement limiting or withdrawing issues had occurred nor that the arbitrator’s formulation of the first issue correctly and completely covered its ambit since it did not consider the claimants’ fundamental submission that a valid Final Certificate could and should have been issued by 23 October 1998 and that once that date had passed, no valid Final Certificate could then have been issued.

I cannot accept the respondent’s submission. Firstly, and fundamentally, had the parties agreed to a narrowing of the issues, and if the claimants are now to be held to such an agreement, that agreement would have been, but was not, reflected in an agreed redefinition of the issues and in the wording of the answers given by the arbitrator and the parties’ agreement would have been, but was not, referred to in the award. In other words, the parties and the arbitrator would have followed the same procedure that they had followed when giving effect to the parties’ agreement reached during the hearing as to the answers to be given to issues 3 - 7.

Secondly, the arbitrator would not in his award, as he did, have dealt with the issue as to the construction of the certificate nor with the respondent’s contentions as to the correct approach to construction nor with contentions of the claimants on other questions had the parties during the course of the hearing agreed to narrowed the scope of the two issues that the arbitrator had to decide.

Thirdly, the arbitrator, in considering the two issues, first decided upon the correct approach to the construction of clause 30.8. This question needed to be answered if the arbitrator was answering general questions of law as to the validity and scope of the purported Final Certificate but would have been unnecessary if the respondent is correct that the scope of the issues had been narrowed. Had their scope been narrowed as suggested, the arbitrator would only have decided, yes or no, whether the claimants’ approach to the construction of clause 30.8 was correct yet he separately considered, and then accepted as correct, the respondent’s approach to the construction of both clause 30.8 and the purported Final Certificate.

Two rival approaches to the construction of clause 30.8 had been contended for, namely that the machinery of clause 30.8 was mandatory or that it was discretionary. The arbitrator considered both approaches and accepted the discretionary approach contended for by the respondent and rejected the claimants’ approach. The arbitrator could, and indeed should, have rejected both of the approaches contended for. Had he done so, he would have had to consider what further approach to construction was correct. One possible approach would have been that the machinery of clause 30.8 was mandatory but was capable of being relaxed if the power to relax was exercised reasonably.

If the respondent is correct that the issues had been confined by agreement, the arbitrator should have done no more than decide whether or not the claimants’ approach to construction was correct yet he clearly did not confine the issues in that way but instead correctly approached them from a general standpoint.

Award

In reaching his award, the arbitrator accepted the respondent’s submissions in their entirety. The arbitrator’s reasoning may be summarised as follows:

The arbitrator also accepted the respondent’s argument as to the form of the Final Certificate. The particular error it contained, which stated on its face that it had to be honoured within 14 rather than 28 days, he regarded as immaterial. As to the statement on its face that the payment it certified was a final payment without there being a statement that it was the Final Certificate, the arbitrator gave effect to what he regarded as the further basis of the decision in the London Borough of Merton case. He considered that he could and should consider the terms of the Architect’s covering letter sent to the claimants which enclosed the certificate. The arbitrator regarded this letter as making it clear that the certificate was indeed the clause 30.8 Final Certificate which therefore had the conclusive effect provided for by clause 30.9.

The arbitrator did not consider whether any significance should be given to the fact that the covering letter was only addressed to the claimants, that there was no evidence to suggest that a copy had also simultaneously been sent to the respondent or that the certificate did not refer to the letter so as to make it clear that the two were to be read together.

Claimants’ Grounds of Appeal

The claimants contended that the arbitrator had adopted an erroneous and unduly narrow test in determining whether the certificate dated 29 March 1999 was the validly issued Final Certificate. The arbitrator had erroneously focused on the statement of adjustments issued on 4 March 1999. Instead, he should have focused on the question of whether the Conditions allowed for the issue of the Final Certificate if the certificate was issued outside the period fixed by the Conditions for its issue or outside a further short extension of that period where there was good reason for a short extension. The fixed period had ended on 23 October 1998 and no further short extension was justified or warranted. If that approach had been adopted, the binding and mandatory nature of the language of the Conditions should have led to the conclusion that the purported Final Certificate was invalid.

The claimants did not expressly repeat in their grounds of appeal the submissions that had been previously been advanced on their behalf prior to the arbitration or to the arbitrator in relation to the form of the certificate. However, the appeal undoubtedly raised this question of law as well since the grounds of appeal stated that the claimants had in the arbitration correctly adopted the procedure for challenging the validity of the certificate, namely to seek a decision from an arbitrator appointed under clause 41 to consider whether the certificate had been issued in accordance with the Conditions. That procedure involved, or should have involved, a full consideration by the arbitrator of all potential grounds of invalidity followed by his award on issues 1 and 2. In the grounds of appeal, the claimants now seek (1) to appeal the award in its entirety, (2) an order setting aside the answers to both issues, (3) a determination by the court of both issues and (4) a further order which answers both issues “no”. It follows that the arbitrator’s findings as to the validity of the form of the certificate issued on 29 March 1999 are also being made the subject of this appeal.

The claimants, in support of their grounds of appeal, contended that the arbitrator had made the errors that they referred to because of two crucial but erroneous assumptions which were that:

Both of these assumptions were challenged by the claimants in the appeal. They contended that no contractually valid statement of adjustments had ever been issued. Although not phrased in this way, this contention amounted to an argument that the statement in question was merely the final account and not the statement of the adjustments to be made to the Contract Sum and that it had been agreed by two quantity surveyors, neither of whom had ever been authorised to act on their behalf.

The claimants also contended that the correct starting point for a consideration of the validity and conclusive effect of the disputed Final Certificate was the earliest date by which the Final Certificate should have been issued in this case. Having identified that date, it was then necessary to ask whether it was possible to issue a valid Final Certificate on any later date. This approach was in marked contrast to that adopted by the arbitrator who had taken as his starting point the document he had concluded to be the statement of adjustments issued under clause 30.6.1.2.2 and that since that had been issued 17 days before the purported Final Certificate had been issued and within the timescale provided for by clause 30.8, it was both valid and conclusive in effect.

Although the claimants did not refer to the relevant authorities, (Footnote: ²) their submissions on the hearing of this appeal were in line with these authorities which hold that a certificate is only valid if, in form, substance and intent, it complies with the requirements of the contract. The claimants’ overall contention was that the award should be varied so as to answer both issues “no” rather than “yes”.

It follows that the claimants are contending, in this appeal, that the arbitrator answered the two generally phrased issues too narrowly and erroneously by focusing on only two of the several grounds why the purported Final Certificate was potentially invalid and, by an unduly strained construction of the Conditions, reached an erroneous conclusion as to whether the certificate was properly to be given effect to as the Final Certificate Instead, the arbitrator should have considered whether the certificate was, in form, substance and intent, the Final Certificate and, having done so, he should have concluded that it was not

Respondent’s Reply

The respondent contended that the arbitrator correctly focused on the only issue that, by agreement, the parties had left to him to answer and he correctly answered that issue. Its contention was, in effect, that the only question of law that the court could consider was this narrow question which I have formulated from Mr Royce’s submissions in this way, since it had never been formulated during the arbitration:

“is this contention advanced by the claimants correct:

because the Final Certificate was not issued on or before 23 October 1998, no valid Final Certificate could have been issued on 29 March 1999?”

I have already ruled that the arbitrator had to answer two generally phrased issues concerned with the substance and form of the disputed certificate, that the scope of those issues had not been narrowed by agreement and that the award purports to answer both generally phrased issues. I therefore do not accept that the issue decided by the arbitrator and that arises for decision in this appeal is correctly stated in this way or in any similar formulation.

The respondent responded to the substance of the grounds of appeal in both its written and oral submissions by repeating its submissions that it had put before the arbitrator and by adopting and repeating the arbitrator’s reasoning contained in his award. I have already decided that that is an unduly narrow formulation of the question of law raised before the arbitrator and raised on appeal before me.

Questions of Law for Determination in the Appeal

Difficulties Confronting the Court in Hearing the Appeal

The court is in some difficulty in hearing this appeal. The difficulty, as has been seen, arises for the following inter-related reasons:

Questions of Law

There are, in reality, two questions of law raised by the appeal which are:

I must decide whether I should take it upon myself to formulate the questions of law that arise on the hearing of this appeal. As already stated, this appeal arises out f an arbitrator’s award and is one that is brought without the need for an application for leave to appeal. It is brought by a litigant acting in person and no objection was raised by the respondent that the questions of law to be raised have not been precisely formulated. Instead, at the hearing of the appeal, the respondent sought to define the questions of law itself, albeit in unduly narrow terms.

It is possible to see what the questions of law are that the claimants seek to raise on this appeal and these clearly arise out of the award. My jurisdiction, in a case where no leave to appeal is required, is to hear an appeal on any question of law arising out of the award which has been made the subject of a valid arbitration claim and which has been set out in an arbitration claim form served in conformity with CPR62-Arbitration Claims and CPPD-Arbitration.

Paragraph 62,4(1) of CPR62 states that the claim form must include a concise statement of the remedy claimed and any questions on which the claimants seek the decision of the court. No other relevant direction is contained in the CPR regime concerned with arbitration. In this case, the only procedural objection that could be taken to the claimants’ arbitration claim form is that the questions of law, although identified, are not identified as concisely and in as narrowly confined a manner as questions of law are customarily identified in an arbitration claim form, particularly in the usual case where leave to appeal is first required. Given the way in which the parties agreed to conduct the arbitration and the hearing of the preliminary issues of law that they asked the arbitrator to decide, this would not be a reasonable objection and is not one raised by the respondent.

In order to determine the questions of law that do arise, it is necessary for me first more carefully to define the questions of law that are raised on this appeal. I therefore propose to define them and then answer them by adopting the form of the questions of law that I have already set out.

Respondent’s Objections

The respondent objected to my answering any question of law save for the two that the arbitrator had answered in its favour that it contended were directly referred to in the grounds of appeal. Furthermore, it objected to my considering any other clause in the Conditions than those considered by the arbitrator.

However, the respondent had itself persuaded the arbitrator to adopt the approach he had adopted in construing the Conditions. It had contended in its first written submission, that had set the scene since it had been the first to be served, that there were only two Final Certificate issues for determination in the arbitration, being:

The claimants did not agree that these were the only two issues arising out of their challenge to the validity of the Final Certificate and, indeed, did not intend to confine their challenge to these two relatively narrow grounds given that the parties had already agreed at the outset of the reference to the formulation of the two relevant issues in wide and general terms which were then placed before the arbitrator. I accept the claimants’ submission that the arbitrator had had referred to him issues that involved a general consideration of the meaning and effect of the Final Certificate Conditions, I cannot accept that the respondent’s approach to this appeal is correct since it would unduly, and incorrectly, confine the ambit of the appeal that the claimants are entitled to bring.

In reaching this conclusion, I am reassured that even if I had adopted the approach urged by the respondent, I would still have had to consider whether the claimants’ contention is wrong This is that the relevant time limits are mandatory but can, by necessary implication, be extended by a short period where it is reasonable to do so I must, therefore, even on the respondent’s approach to this appeal, consider whether the relevant time limits can be extended where it is reasonable to do this and I must also investigate whether the scope of these time limit provisions is directory, mandatory or somewhere in between. This must involve a detailed consideration of many of the Conditions. Thus, in practice, the scope of the appeal is similar, whether or not I adopt the respondent’s approach to it.

The respondent also contended that the claimants were not advancing the argument that relevant time limits could be extended where it was reasonable or necessary to do so. I cannot accept that contention given this passage in their submissions:

“If there exist extenuating circumstances which make it practically impossible for the Architect to comply with major events such as [the issue of] the Final Certificate then no reasonable contractor or employer would refuse to extend a time limit, ... and if they did so refuse undoubtedly that refusal would be ignored and overruled by all arbitrators and judges in any ensuing proceedings.”

Conclusion - Questions of Law Arising on the Appeal

In answering the questions of law that arise on this appeal, I must apply the normal principles applicable to the construction of commercial contracts and documents, particularly since the Conditions themselves require that the Conditions should be read as a whole. I must therefore undertake my own construction of all relevant Conditions and the disputed certificate and cannot rely on any failure to refer to particular relevant Conditions by either party. I must also take into account any assistance to be derived from the factual matrix known to both parties at the date of the contract or, in the case of the certificate, at the date when it was issued.

I must undertake this exercise as part of my task of answering the same questions of law that the arbitrator was asked to answer, namely whether the certificate complied with clauses 30.8 and 30.9 of the Conditions. Given that that composite question involves a consideration of the form, substance and intent of the certificate, I must, as I see it, also consider any objection to the form of the certificate raised with, and decided by, the arbitrator. In other words, as part of the hearing of this appeal, I must consider the objection that the certificate was invalid on account of its failure to unequivocally state and show on its face that it was the Final Certificate.

Unless I adopt such an approach to this appeal, given the procedural difficulties to which I have already referred, I would not be able to answer the questions of law arising on this appeal that were answered by the arbitrator, which have arisen out of the award and which, having been placed before me on appeal, I am now asked to answer.

Had the claimants required the leave of the court to bring an appeal, a different approach might have arisen since the claimants might well have failed to satisfy the court that leave to appeal should be given. Furthermore, in the exercise of its discretion, and even if leave might otherwise have been given, the court might have refused the claimants leave to appeal because, in the light of the agreement of the parties to resolve the matter by arbitration, it would not be just and proper in all the circumstances, and in particular the procedural circumstances of this case, for the court itself to determine the questions that have now arisen (see sections 69(3) (c) and (d) of the Arbitration Act 1996).

I conclude therefore, that I must decide each of the questions of law that have arisen, which I have already set out, by recourse to the same factual background that was, by agreement, placed before the arbitrator and this court during the hearing of the appeal.

CONTRACT CONDITIONS

Introduction

The issues and this appeal are concerned with the Final Certificate and, in particular, with a consideration of whether the certificate issued on the 29 March 1999 had the conclusive effect provided for by clause 30.9 so as to control and limit the evidence that the claimants can adduce before the arbitrator in support of their claims and defences related to variations, defects, the adjusted Contract Sum and liquidated damages for delay.

Final certificates have been a feature of most building and engineering contracts for at least a century and a substantial case law has developed, primarily concerned with the nature and extent of the conclusiveness of their evidential effect and as to whether the contractual requirements provided for their issue have been sufficiently complied with to enable that conclusiveness to be relied on by one or other of the parties. Of course, each certificate arises out of particular conditions and questions of validity must be determined by reference to those particular conditions so that a decision arising out of one form of contract will not necessarily be relevant to another form. However, a careful consideration of the many cases cited in argument reveals particular principles that are applicable when the meaning and effect of contract conditions concerned with final certificates are in issue.

The modern starting point for such a consideration is the decision of the House of Lords in P & M Kaye Ltd v Hosier & Dickinson Ltd [1992] 1 All ER 121, [1972] 1 WLR 146 where the final certificate provisions of a pre-1976 version JCT 1963 Form were considered. It is clear from that decision, and from the many subsequent decisions that have followed it, that in construing and giving effect to final certificate provisions in a building contract, a court or arbitrator must give effect to the contractual intention of such clauses and uphold them when they are applicable. The intention of such clauses is to provide the means of finally putting at rest the contractor’s contractual obligations. They are also intended to bring to an end disputes arising out of the contract, particularly those concerned with valuation, with the quality of the contractor’s performance where that is in part dependent on the supervising professional’s satisfaction and with any delay in carrying out the works. However, by shutting out relevant evidence in disputes arising out of the contract, a final certificate often has a draconian effect on the rights of at least one of the parties to the contract. Thus, final certificate contractual conditions and the final certificate itself must be strictly construed so as to ensure that the final certificate document conforms in all respects to the contractual requirements relating to both its form and to the circumstances when it may be issued.

The final certificate provisions in the JCT 80 Form with which I am concerned were considered in detail in the unreported judgment of Judge Lloyd QC in PenwithDistrict Council v VP Developments Ltd [19991 EWHC Technology 231, 21 May 1999, itself three conjoined appeals from three arbitration awards of His Honour James Fox-Andrews QC raising related questions of law arising out of disputes surrounding the issue of three separate final certificates in three unrelated contracts between the same parties in the same JCT 80 Form which had been referred to and heard simultaneously by that arbitrator. Judge Lloyd said this about their general purpose:

“18.

The basic framework of this section of the 1980 JCT forms is relatively clear and reflects long-standing practice. Once the works are completed the scene is set out for the last act at the end of which the final certificate should appear. The final certificate has a dual role: it ostensibly deals only with the final accounting and as such, it is intended to arrive at the Adjusted Contract Sum; it is also deemed to express the Certifying Architect’s satisfaction with the quality of the works and with their apparent compliance with the contract. The two strands are linked in as much as the certified value of the works is intended also to reflect their contractual worth for if they have been properly executed or completed what might otherwise have been their full contractual value will presumably not be certified, either because the Certifying Architect cannot conscientiously do so or because the process of arriving at an Adjusted Contract Sum requires an adjustment or abatement ... it is clear that the contract represents a consensus within the building industry that, if the JCT forms are used, there should, with certain exceptions, be finality on all matters and on all issues relating to the contractor’s apparent compliance with the contract and finality should be achieved as soon as reasonably practical after practical completion so that the parties can go their separate ways. The contractor should be reasonably confident that it will not be called back to attend to further defects; both should be confident that the accounts have been settled so that the financial outturn is clear and no provision is required for contingent liabilities. The last is an objective which most employers are keen to attain. In addition the final certificate does more than repeat the contents of the Adjusted Contract Sum. It states the balance due and, as [one of the three contracts] demonstrates ... that may be in favour of the employer who may therefore have as much commercial interest in having a final certificate as the contractor. In accepting [counsel’s] submission that the contract should be approached on a commercial basis and not in a clinical manner I do so with these considerations in mind.”

Form, Substance and Intent of a Valid Final Certificate

The Final Certificate is required to be issued in a certain form and to certify particular matters. When the Architect certifies, he is recording for the parties his professional, personal and objectively arrived at opinion that the fact situation recorded by the certificate is accurate at the time when the certificate was issued. The Final Certificate, overall, records the Adjusted Contract Sum. This valuation is to be arrived at by a process of additions to and deductions from the Contract Sum, since the contract is a lump sum contract and not a measure and value contract. This process of adjustment of the Contract Sum is only performed once, at this final stage, and for the purposes of issuing the Final Certificate. It is a different valuation in nature and effect to the valuation recorded in each Interim Certificate issued during the work, each of which records “the total value of the work properly executed by the Contractor up to and including a date not more than 7 days before the date of the Interim Certificate” (clauses 30.1 and 30.2). An interim valuation of that kind is undertaken by building up a total from nothing, for the first valuation, or from the previous valuation, for all succeeding interim valuations, by placing a contractual value on each item or part item of work that has been performed and by totalling these sums to produce the grossed up valuation required.

The Final Certificate need not be issued on the standard template produced by the JCT for a Final Certificate, which is markedly different from the template for Interim Certificates also available for use. However, the wording on the certificate, coupled with any extrinsic wording on such related documents as may be considered along with the certificate, must make it unambiguously clear that the document is the Final Certificate. Furthermore, the certifying process must have been undertaken in the manner required by the contract, to have taken into account all matters required of the certifier by the contract, to have excluded irrelevant matters and to have been carried out at the time required by the contract. Finally, the certificate must have certified the opinion of the certifier and not the opinion of some other person, whether that opinion be used directly or following an unreasoned adoption of it by the certifier.

These requirements are no more than a restatement of the requirement that a certificate, particularly one of such significance as the Final Certificate, must be the requisite certificate in form, substance and intent (see Minter Trust Ltd v Traps Tractors Ltd [1954] 1 WLR 963, Devlin J and Token Construction v Charlton Estates (1973) 1 BLR 48, CA neither of which were cited in argument).

In the Token Construction case, the contract required the architect certifier to certify that he had allowed the contractor appropriate extensions of time and also to certify separately if he believed that the works should have been completed by the due date when these were completed after the contractual date for completion. The architect wrote to the employer in terms which the employer contended amounted to the exercise of both certifying functions. The Court of Appeal held that it was not a certificate for either of these purposes. Edmund Davies LJ stated, at pages 52 - 53:

“That clause required him to ‘certify’ in writing. While no set form of certificate is provided, unlike that under clause 21(a) and (b), it must clearly appear that the document relied upon is the physical expression of a certifying process. One should, therefore, have some regard to the factors of ‘form’, ‘substance’ and ‘intent’ of which Mr Justice Devlin spoke in admittedly different circumstances of Minter Trust Ltd v Traps Tractors Ltd. Or to borrow a passage in Hudson (10th edition, page 479), the document should be ‘the expression in a definite form of the exercise of the ... opinion ... of the ... architect in relation to some matter provided for by the terms of the contract’. And, as Mr Garland [counsel for the employer] accepted, it must be free from the ambiguity.”

Roskill LJ stated, at pages 58 - 59:

“It is important to appreciate that the architect, when acting or purporting to act under either conditions ... or indeed under any other empowering clause or condition in this contract, is exercising a power which affects the contractual rights of the parties to the contract by varying those rights in one or more ways as the parties have agreed should be the case. It is therefore of crucial importance that the exercise of power by the architect should be done clearly and unambiguously so that the parties know where they are and should not be left in doubt or indeed in dispute as to their consequent mutual rights and liabilities after the exercise or purported exercise of this power.

I respectfully agree with and adopt what was said by Mr Justice Devlin in Minster Trust Ltd v Traps Tractors Ltd. The learned judge said:

‘I think that a certificate of this sort must, to satisfy the contract, be unambiguous and readily understandable. When a document is tendered under a contract, the recipient has often to make up his mind whether he is going to pay out money upon it or accept or reject goods; he has no right to clear up doubts.’”

Thus, the certificate must be one which clearly expresses the relevant opinion of the Architect in a form that shows that the opinion is that of the Architect, is the one which the contract calls for and which addresses and only addresses the matters called for.

If the certificate is, on its face, clear and unambiguous, there will be little or no need to consider extraneous contemporary material in order to be satisfied that it fulfils the form, substance and intent test. However, where, as here, the certificate is itself ambiguous, recourse may be made to any covering letter or other contemporaneous document which was produced with or as part of the certifying process so long as that additional document is properly to be regarded as being issued as part of the certificate.

If it is contended that the certificate was not the product of the Architect and therefore not an expression of his own intent, additional evidence will be both admissible and required. a particular example of this situation would be where, as in this contract, it is alleged by the Employer that the necessary measurements and valuations have been wholly delegated to a subordinate or sub-contracted to quantity surveyor, who had no authority under the contract to undertake an independent role in valuations, to such an extent that the resulting certificate was in no sense the expression of opinion of the certifier but was that of someone to whom he had abnegated all effective responsibility. If such a delegation had occurred, the resulting Final Certificate would not be, in intent, that required by the conditions.

A question can arise, as in this contract, as to whether the certificate is in form invalid or whether it remains valid despite containing an obvious error or departure from the contractual requirements for such a certificate. What, in other words, is the dividing line between substantial errors or inaccuracies that invalidate from inconsequential errors that do not? This question was considered in two decisions, one cited to the arbitrator and one raised by me with the parties during the course of argument. These were the Kaye v Hosier and Dickinson case already referred to raised by me during the course of the argument and Empson Contractors Ltd v Protea Estates Ltd (1987) 39 ELR 126, Judge Fox-Andrews QC, cited to the arbitrator.

In the Kaye case, the Final Certificate was initially issued with the employer named as Transloyd Ltd because of an erroneous belief that that company was to be treated as the successors of the employer. That certificate was invalid and a subsequently issued certificate in the name of Kaye was treated as the final certificate. In the Empson case, the certificate referred to the contractors as Emson Construction Ltd whereas the contract was in fact with Emson Contractors Ltd. Moreover, the certificate recited that the date of the contract was 16 October 1984 whereas it had in fact been 23 October 1984. Judge Fox-Andrews found that these errors were immaterial and did not, nor would reasonably have, misled anyone. The validity of that final certificate was, in consequence, upheld.

In summary, therefore, an error or a departure from the contractual requirements in a certificate will only invalidate the certificate if its nature or effect is such that it is no longer clearly and unambiguously the required certificate in form, substance or intent or if, applying an objective standard, the error does not mislead or does not have the potential of misleading either of the parties to whom it is addressed as to its form, substance or intent.

Overall, the construction of the certificate in question and any other document to be read with it is subject to the same rules of construction as any commercial contract. Thus, that construction exercise is to be undertaken against the factual background surrounding its issue known to both parties. This is because both parties have agreed that they will be bound by, and abide the terms of, the Final Certificate issued by a third party, namely the Architect. This construction exercise is to be undertaken as part of a consideration of the meaning and effect of the certificate as a whole, of any parts of it and of any potential error or omission that it might contain.

Relevant Conditions - JCT 80 Standard Form of Building Contract

The contract conditions relating to the Final Certificate are as follows:

JCT FINAL CERTIFICATE - GENERAL CONSIDERATIONS

Introduction

The JCT 80 conditions constitute a detailed and carefully crafted set of inter-related clauses that define a series of interlocking events and periods of time which involve the close collaboration and co-operation of the parties, the Architect and the party undertaking the functions of the Quantity Surveyor which are intended to culminate in the issuing of the Final Certificate. Following Practical Completion, these events include the identification and making good of defects and any associated valuation of an abatement to take account of defects; the Defects Liability Period and the Certificate of Making Good Defects; the operation of the provisions concerned with the final determination of the Contractor’s extension of time entitlement; the finalisation of the Completion Date and the operation of the machinery concerned with the payment of liquidated damages by the Contractor; the accounting procedures, including the provision of documents, that lead to the finalisation of the Adjusted Contract Sum and which involve the Contractor and each Nominated Sub-Contractor; the procedures concerned with the final payment to each Nominated Sub-Contractor; the final ascertainment of the amount of VAT to be paid by the Employer in relation to the Adjusted Contract Sum and, finally, the preparation and issuing of the Final Certificate itself.

If either party disputes the content of the Final Certificate or the make up of the Adjusted Contract Sum, particularly with regard to any valuation, to any allowance for defects, to any decision it records as to the quality of workmanship or to extensions of time, there is a defined window of time immediately following the issue of the Final Certificate in which either party may commence arbitration or other proceedings and, if this is not done, the Final Certificate is conclusive evidence in relation to the four categories of dispute provided for in clause 30.9.1.

Role of the Architect or Certifier

Each of the events provided for by the conditions involve, in varying degrees, the Employer, Contractor, Architect, Quantity Surveyor and each Nominated Sub-Contractor and each event is linked to a preceding and succeeding event. The conditions contain a significant number of time limits and time requirements that relate to the period of time within which, or the date by which, particular events are to be performed that are expressed in different but invariably mandatory terms.

The majority of the events that I have referred to involve the Architect, as certifier, in the performance of administrative functions which usually include his having to issue a certificate or other decision recording his conclusion as to a particular state of affairs or as to a valuation he has performed. Some of these decisions involve the Quantity Surveyor but, in this contract, the functions of the Quantity Surveyor were to be performed by the Architect.

In undertaking these functions, the Architect does not act as the agent of the Employer but, since he is engaged by the Employer, he has a contractual obligation to act fairly, impartially and in accordance with the powers given to him by the conditions. The Employer may not interfere in the timing of the issue of any certificate but is not himself in breach of contract if a particular certificate is not issued or is erroneous unless he is directly responsible for that failure. However, if and when it comes to his notice that the Architect has failed to comply with his administrative obligations, by for example failing to issue a certificate required by the contract, the Employer has an implied duty to instruct the Architect to perform that function in so far as it remains within the power of the Architect to perform it and the Employer is in breach of the contract with the Contractor to the extent that he does not intervene to arrange for the correct or a correcting step to be taken by the Architect. The Architect’s powers in relation to these administrative steps are derived exclusively from the conditions of contract, he has no power to act in any other way than as defined by the conditions and once the last step, the issuing of the Final Certificate, has been taken, his authority to act and his role under the contract cease. He then becomes, in traditional language, functus officio.

This summary of the role of the Architect in the certifying process under a JCT contract is derived from this helpful description of his role provided by Judge Lloyd in the Penwith case:

“33.

The third ‘undoubted breach’ [found by the arbitrator to have been committed by the Architect during the certifying and issuing of the Final Certificate] occurred because the final certificate was dated 9 February 1993 but was not sent to [the contractor] until 16 February 1993. Condition 5.8 of the JCT form states:

‘Except where otherwise specifically so provided any certificate to be issued by the Architect under the Conditions shall be issued to the Employer, and immediately upon the issue of any such certificate the Architect shall send a duplicate copy thereof to the Contractor.’

Mr Blackburn [counsel for the Employer] argued that a certificate is not issued until it is sent …

34.

… in my judgment the final certificate was not issued until 16 February 1993 when it was sent …

35.

The events which the arbitrator decided were ‘undoubted breaches’ were not therefore defaults in complying with the terms of the contract. Even if any of them had been an instance of non-compliance with the terms of the contract Mr Blackburn submitted that they could not be breaches of contract by [the Employer]. He referred to Panamena Europea Navigacion v Leyland (1943) 76 Lloyd’s Rep 113 (CA) and [1947] AC 428 (HL) as applied by Macfarlan J in Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 350. In the former case in the Court of Appeal Scott LJ said (at page 124):

‘It seems to me that if the shipowners had known that [the certifying officer under the ship repairing contract] was departing from his proper function under the contract, it would have been their duty to stop him and tell him what the function was for which the contract provided. In those circumstances I think the court ought to imply an undertaking by the owners that in the event of its becoming known to them that their surveyor was departing from the function which both parties had agreed he was to perform, they would call him to book, and tell him what his real function was.’

Goddard LJ agreed with Scott LJ and in dismissing the appeal the House of Lords endorsed in general terms the judgment of Goddard LJ. In Perini, Macfarlan J had to consider the position of a certifier, the Director of Works, who was employed by the Commonwealth. He followed Panamena and held (at page 515) that there was ‘an obligation to require the Director to act in accordance with his mandate if the defendant is aware that he is proposing to act beyond it’.

36.

In my judgment these decisions are correct. [The Architect], although employed by [the Employer], was given authority by the parties to the contract to form and express the opinions and to issue the certificates as and when required by its terms. He was not the agent of [the Employer] in so acting so that [the Employer] was liable to> [the Contractor] for what he did or did not do in his capacity as certifier. On the other hand [the Employer] was the party who could control him if he failed to do what the contract required. Since the contract is not commercially workable unless the certifier does what is required of him, [the Architect] as part of the ordinary implied obligation of co-operation, was under a duty to call [the Architect) to book (to use Scott LJ’s phrase) if it knew that he was not acting in accordance with the contract. Both Scott LJ and Macfarlan J make it clear that the duty does not arise until the Employer is aware of the need to remind the certifier of his obligations. I am also of that opinion for the same reasons. a mere failure by the certifier to act in accordance with the contractual time table is not a failure on the part of the employer to discharge an implied obligation positively to co-operate and cannot be a breach of contract by the party whose employee is the certifier. On the facts set out in the award [the Employer] could not therefore have been in breach of contract. In arriving at this conclusion I bear in mind the argument that the existence of an arbitration clause which confers on the arbitrator wide powers to open up etc means that a failure to issue a final certificate can be put right and thus there is no need for an implied obligation of the kind found in Panamena and Perini since he necessity there arose as there was no such arbitration clause. It is not however necessary to express any view about such an argument.”

Time Limits

These considerations suggest that, ordinarily, the time limits imposed on the parties for each of the successive events in the working through of the JCT contract conditions are neither rigid nor immutable. The events are intended to enable the contract to be worked through to a conclusion but the contract would become unworkable unless each event takes place and in sequence. As a result, the parties and the Architect must work together and mutually co-operate if the contract is to be brought to a successful conclusion.

If the effect of the conditions is that none of these events can occur if the date or period, of time involved in the issuing of a certificate or in undertaking any other event linked to the issue of the Final Certificate has passed without the relevant step being taken, the contract would often break down. Moreover, if a particular certificate cannot be validly issued if the date for its issue has passed, there would be no point in the Employer instructing the Architect to issue it yet there is an implied obligation, derived from the duty to co-operate, imposed on the Employer that he should give such an instruction albeit out of time. Equally, the arbitration clause gives the arbitrator the power to remedy the consequences of a certificate being issued late or withheld, a power which shows that a certificate may still be issued even if the time required for its issue has passed.

Although certificates may, therefore, be issued late, the converse does not apply. There is no necessity for implying a term that a certificate may be issued at a time prior to that provided for in the conditions, indeed such an implied power would enable the Architect to irreparably fracture the contractual timetable and necessity suggests that there is a negative implication that no certificate may be issued early If a certificate is issued early, it would be invalid since it would not be authorised by the express and implied terms of the contract.

It follows that, in principle, the various certificates required of the Architect may be issued late despite the mandatory language used by the conditions when defining what should be issued and the date by which they must be issued. There is no reason for imposing a different result for the late issuing of the Final Certificate than for the late issue of any other certificate, particularly as the same mandatory language is used throughout the certifying process and the issuing of the Final Certificate is one step, albeit the last step, in a carefully constructed chain of events.

Thus, the contract, by necessary implication, provides that any certificate may still be issued even if the time for issuing it has passed. This implication arises because the contract would become unworkable unless the various certificates and other eventsthat the Architect is required to issue or initiate can still be issued or initiated out of time The implication is founded on the need for the parties and the certifier to cooperate with each other and in the working through of the contractual machinery so as to ensure that the contract is performed and completed and so as to preserve the contractual rights of the both parties to the contract.

The claimants contended that the language of the conditions is clear. If the contract states that a certificate shall be issued, there is no warrant for that provision to read as if the wording was that the certificate may be issued. There would, in other words, be no sanction if the certificate was to be issued late. They were, however, prepared to accept that the mandatory language could be reasonably relaxed, by necessary implication, when it was reasonable to do so. The respondent contended that the mandatory language in clause 30.8 relating to the issue of the Final Certificate should be read as if it was directory with no limits or requirements of reasonableness imposed on the certifier. All decisions as to whether to issue and when to issue were within the unfettered discretion of the certifier.

The claimants’ immediate riposte to the respondent’s submission was that, if the part of clause 30.8 concerned with the issue of the Final Certificate is directory, there would be no warrant for treating the subsequent requirement in clause 30.8 relating to the time for payment of the certified sum as being mandatory. Both parties accepted that that requirement is mandatory even though it is expressed in the same apparently directory language as that concerned with the issue of the certificate. The same word in the same clause should, the claimants argued, be treated in the same way.

This riposte is a good one in relation to the respondent’s limited argument that only the “shall” in the first part of clause 30.8 is directory. There is no warrant to treat the mandatory language of each relevant provision in any other than the same way, either all such provisions are directory or they are all mandatory. However, there is no warrant for giving the language the meaning suggested by either party, namely that the Architect has no discretion, or alternatively an unfettered discretion, as to whether or not to issue the Final Certificate or to fulfil any other related certifying or administrative steps and as to when these steps will be taken if they are undertaken at all.

The claimants’ construction would be unduly rigid and the respondent’s construction would equate the requirement that the Architect “shall” issue at all and within the defined timescale with a permissive “may” issue and would not provide any guidance as to which requirements were mandatory and which directory.

It would be much more consistent with the mandatory language of the Conditions and would give effect to that language if all the “shalls” are read in this way: the Architect must issue the various’ certificates and the Final Certificate and in the sequence and with the prescribed time intervals between the successive steps. If the time limits prescribed by the conditions are not kept or maintained, the Architect must still issue the certificates in question as soon as it is reasonably possible to issue them subject to the terms of any agreement as to their issue that has been reached or acknowledged by the parties. Since the parties might not be aware of the imminent issue of a certificate that is to be issued late, and as a corollary to the obligation to issue certificates late when the time to issue them has passed, the Architect must exercise his duty to issue a certificate even if its date for issue has passed, in a reasonable manner.

The respondent contended that there was no necessity to imply such a term or impose such a condition since a party who is dissatisfied with the issue or contents of the Final Certificate may challenge it in an arbitration so long as a notice to arbitrate is served in time. However, that contention overlooks the language of clause 30.8. The language is mandatory but it is subject to a limited and not an unfettered power of relaxation. The implication in question is, therefore, in the nature of a conditional or limited inroad that is to be read into, and to qualify, what would otherwise be a mandatory requirement. This implication is the minimum qualification of, or relaxation to, that mandatory requirement that is needed by the need to give it practical and commercial effect. The respondent’s approach, which is to start from the standpoint of a discretionary power and then to determine whether it is necessary to limit such a power is, therefore, starting from the wrong starting point since the power is not discretionary. The correct starting point is that the power is mandatory. It is then necessary to consider what the minimum relaxation would be that is necessary to give that mandatory requirement business efficacy. In that context, it can be seen that it is necessary to allow for a relaxation of the prescribed timescales subject to the imposition of a requirement of reasonableness.

It follows that the requirement provided for by the conditions to issue the Final Certificate and other certificates is subject to the implication that the relevant timescale may be relaxed so long as the steps which are linked to the issue of the Final or other Certificate are still be taken before it is issued late and the power to postpone the issue of the Final Certificate must be exercised reasonably and in accordance with any express or implied agreement of, or waiver by, the parties to relax the timetable for its issue.

Two cases referred to by the arbitrator are helpful in pointing the way to the conclusion that the Conditions allow for a relaxation of the timetable on a conditional and not an unfettered basis.

The first case was the ECC Quarries case decided by Judge Davies QC sitting as an official referee. The case involved disputes arising under the fifth edition of the ICE Conditions which contained the well-known procedure requiring all disputes first to be referred to the Engineer for decision before being referred to arbitration. The conditions required the Engineer to take and issue his decision within 3 months of the dispute being ref erred to him and the dissatisfied party then had a further 3 months to refer the dispute or the Engineer’s decision to arbitration. The Engineer had a dispute referred to him and took longer than 3 months to decide it. The Contractor then wrote to him and allowed him a further reasonable time to give his decision and also invited the Employer to attend a three-way without prejudice meeting with the Engineer. This meeting was finally convened over two months after the end of the initial 3 month period and, on the following day, the Engineer issued his decision which the contractor subsequently contended was invalid as having been issued out of time.

Judge. Davies rejected that contention. He held that the conditions did not impose a mandatory time limit on the time within which the decision had to be issued. However, if and when the contractor exercised his contractual right to refer a non-decision to arbitration after a 3-month wait following a reference to the Engineer, the Engineer became, by necessary implication, functus officio. If, however, no such non-decision was referred to arbitration, the Engineer remained able to issue his own decision, particularly when his time for issuing it had been extended by the parties. This decision shows that, ordinarily, contractual time limits for the issuing of a certificate or decision of a certifier which could have conclusive effect are not mandatory in scope. Their exercise is however coupled with an implied power given to the certifier to extend the time scale This power to extend time will be limited by any express or implied limitation agreed to by the parties or imposed on the certifier by necessary implication.

The second case referred to by the arbitrator, the Skanska case, involved a JCT contractual provision similar to that set out in clause 30 6 2 1 concerned with the provision of documentation by the contractor to the Architect prior to the Architect’s ascertainment of loss and expense. Lady Paton stated:

“29.

I cannot accept that the contract terms, properly construed, prohibit the provision and receipt of further information, documentation or details about direct loss and expense after the six month period following practical completion Such a stringent time-bar would in my view require to be expressed in clear and unambiguous language which I have been unable to find in the contract terms. On the contrary, the wording of [the clause in question] suggests that [the sub- contractor) are correct in their contention that the statutory [sic - the learned judge clearly meant contractual] provisions simply provide a time table to which the parties are expected to adhere.”

This case highlights the ordinary approach to provisions as to time scales and time bars found in certification clauses. They provide a timetable which is not mandatory, unless the contract conditions expressly provide for, and compel, that conclusion. Clearly, however, any alteration of the timetable must be undertaken reasonably by the certifier and pursuant to any express or implied terms for its alteration agreed to by the parties.

Agreement or Acquiescence in Delaying Issue of Certificate

Often the parties will expressly or by necessary implication authorise the late exercise of a certifying power or waive any entitlement to object or to contend that the certificate wasinvalid. If so, the certificate in question must be issued at a time and in a manner which accords with the express or implied agreement of the party against whose interests the certificate is subsequently being used. In such a case, the implied power to issue a certificate late does not arise. The certifier must, instead, comply with the wishes of the parties and issue the relevant certificate at the later time agreed to by their acts or acquiescence.

An example of this commonplace relaxation of the certifying timescale is provided by the London Borough of Merton case. There, a Final Certificate was issued years after it should have been and the contractor was able to rely on it to defeat a subsequent claim from the employer arising from its bad workmanship. The employer then brought proceedings against the architect based on its negligent supervision of the original work and its subsequent investigations. One defence was that the loss could have been recovered from the contractor since the Final Certificate was not conclusive given that it had been issued several years out of time.

This contention received short shift from Eveleigh LJ as follows (at page 144):

“And it is said that this certificate was issued very much out of time. It should have been issued, according to the terms of the contract, I think I am right in saying, within six months of the end of the defects liability period. It matters not. It should have been issued some years before it actually was.

According to the terms of the contract - I forbear from reading them; they appear in the papers and in the judgment of the learned judge - the certificate should have been issued earlier, and it was the duty of the architect to issue it. But on the facts of the case what happened was this: the contractors called for the certificate, the [employer] asked the architect not to issue it, there was still some electrical work to be done, and it was not until May 1973 that the [employer] agreed on the advice of the architect, that the certificate could be issued. In the correspondence between the [employer] and the architect relating to this matter they speak of the issue of the final certificate; and into the covering letter enclosing the certificate with which we are concerned the [architect] say to the contractors ‘We are enclosing the final certificate’.

I take the view that the [employer], in an action brought by them against a main contractor, could not have been heard to say that this document was not a final certificate. It goes against all commonsense. In my view it goes against the rules of law, too. They would have been estopped from so contending, in my view. The fact that the words ‘Final certificate’ did not appear upon it seems to me to be wholly irrelevant in the present circumstances. They appeared so strongly in the covering letter that the two must be read together.”

Thus, the employer had originally asked for the timescale to be relaxed and had subsequently acquiesced in. both the timing of, issue of, and the form of, the final certificate. The employer could hardly later have complained about the conclusive effect of the final certificate or of its use by the contractor to def eat any subsequent claim against it by the employer.

Had the delay in issuing the certificate been the entire responsibility of the architect, however, the architect would have first had to have given both parties notice of his intention to issue the final certificate years out of time and then to have considered and given effect to any reasonable objection as to its proposed contents.

The terms of the acquiescence or agreement must be considered by the certifier who must comply with them. His authority or ability to issue a certificate out of time conferred by agreement will be limited by the express or implied contents of that agreement. Thus, as Judge Lloyd stated in a further passage in the Penwith case:

“17.

Clearly a certifier or other decision-maker must have the necessary contractual authority to act for otherwise the certificate or decision will be invalid. If the person has gone outside the limits of the decision-making authority conferred by the contract, ie the person does not have the power or jurisdiction to make the decision or to issue the certificate, the certificate or decision will be unenforceable and will be liable to be set aside. The parties may of course agree to accept the act and in effect to ratify it and, by waiver or otherwise, accept the certificate or decision as valid so that it is not always useful to describe it as a ‘nullity’.”

However, if further time elapses once the agreed extended period has passed, the certificate will usually still be capable of being issued, depending on the terms of the contract, but the power to certify must be exercised reasonably as opposed to being exercised in strict accordance with the express or implied, agreement, ratification or waiver of the parties.

Implication Associated With Late Issue of Certificates

Although the certifier has an implied power to issue certificates out of time, this power is limited since it would be unworkable and contrary to the presumed intentions of the parties for the power to issue certificates not to be subject to the obvious constraint that the parties should be notified of its intended exercise and should not be prejudiced by its exercise. In other words, the power must be exercised reasonably.

The requirement of reasonableness imposed on a certifier who proposes to use his implied power to issue a certificate late or out of time must involve two factors: the parties should be given advance notice of the intention to issue late and of the proposed contents of the certificate. These factors will particularly exist where the certificate has the potential to affect a party’s entitlement to receive, or its obligation to make, payment, particularly if the certificate might irreversibly affect a party’s contractual rights.

The length of notice and the extent of the notification will, of course, depend on the circumstances. These will include such matters as the length of the delay in issuing the certificate that has already elapsed, the extent to which the parties are already appraised of the proposed contents of the certificate and whether the parties may need to consider having to start arbitration or other proceedings as a means of removing the conclusive effects of the certificate once issued. Other relevant factors might include the potential effect on other steps provided for by the contract that are dependent upon or capable of being influenced by the issue of the certificate, the nature and extent of any reasonable steps that either party might be expected to want to take both before and after receiving the certificate and the extent to which, if at all, the party being given notice has participated or collaborated in the delay.

Thus, the Final Certificate, which will finally and conclusively determine the Adjusted Contract Sum, extensions of time and potential disputes about the quality of some of the workmanship is one, which if issued late, should be preceded by reasonable notice being given to both parties coupled with reasonable notification of the proposed contents of that certificate. This aspect of the power to issue a certificate out of time is highlighted by the Crestar case (Footnote: ³)where the Court of Appeal concluded that the extent to which a party had prior knowledge of the likely contents of the certificate was material to the question as to the circumstances and the time when an architect issuing the certificate was authorised to issue it.

A further aspect of the implied power given to the certifier to relax or extend the time within which the Final Certificate might be issued relates to any preceding step directly linked to that issue. In principle, if the time for issuing the Final Certificate is relaxed, the other contractual conditions governing its issue should still survive intact albeit subject to a related relaxation as to timing. Thus, if prior to the relaxation of the timescale there were steps which had to be taken, such steps must still be taken in the same sequence and with the same or similar time intervals between them once the timetable has been relaxed.

It follows that the power to issue a certificate out of time must be limited by the overriding consideration that the certifier must exercise this additional power reasonably. In doing so, the certifier must give both parties reasonable notice of his intention to issue the certificate out of time and also reasonable notification of the proposed contents of that certificate. Any relaxation must be coupled with a related relaxation of any linked step and these steps should ordinarily still be undertaken in the same sequence as provided for in the contract.

Conditions Precedent to Issue of Certificates

Finally, the question will sometimes arise as to whether certain steps must be taken before the Final Certificate is issued and whether, if they have not been taken, the Final Certificate can be issued at all. In other words, are the steps in question, which must apparently be taken before the Final Certificate can be issued, ones that remain conditions precedent to the issue of the Final Certificate before it finally comes to be issued later than provided for by the conditions?

This question will depend on the wording of the conditions in question, the function or purpose of the steps in question and whether the Final Certificate is materially dependent, in its form, substance or intent, upon the earlier steps. Usually, the question of whether or not a prior step is or is not a condition precedent to a subsequent step being taken cannot be decided in the abstract. The facts of the contract must be considered and what, in one fact situation, may be a condition precedent may, in a different situation, be no more than an inconsequential omission.

The operation of the requirement that a certifier must act in accordance with any requirement as to conditions precedent to that act,in relation to the issuing of a Final Certificate, is seen in the decision of the Court of Appeal in Crestar Ltd v Carr (1987) 37 BLR 113, a decision on the pre-1980 JCT Minor Works Form which provided for a Final Certificate whose contents could not be opened up or contested in a subsequent arbitration. The court had to decide whether the requirement to provide certain information before the issue of the Final Certificate was a condition precedent to its being issued and in deciding that this issue was a condition precedent, the Court of Appeal considered what the purpose was in the contractual requirement for the provision of the information. In that case, the certificate could not be reviewed once issued so that the information was critical to the consideration by the parties, prior to its issue, of the contents of a potentially conclusive certificate.

MEANING AND EFFECT OF CLAUSE 30.8

Introduction

I can now summarise the meaning and effect of clause 30.8 and, in particular, the requirement that:

“The Architect shall issue the Final Certificate (and inform each Nominated Sub-Contractor of the date of its issue) not later than 2 months after whichever of the following occurs last:

the end of the Defects Liability Period;

the date of the issue of the Certificate of Completion of Making Good Defects under clause 17.4;

the date on which the Architect sent a copy to the Contractor of any ascertainment to which clause 30.6.2.1 refers and of the statement prepared in compliance with clause 30.6.1.2.2.”

Clause 30.8 in its Contractual Context

Clause 30.8 provides in mandatory language that the Final Certificate is to be issued on the occurrence of the last of three events.

However, this contract also requires that certain steps should be taken before the Final Certificate is issued. Thus, the Architect must issue an interim certificate under clause 30.7 at least one month before the Final Certificate is issued which includes within it the finally adjusted contract sums of each nominated sub-contract. The Architect must also have obtained reasonable proof of payment by the Contractor to each Nominated Sub-Contractor of those finally adjusted contract sums so that,if necessary, the Architect can issue in advance of the Final Certificate a certificate under clause 35.13.5.1 informing the Employer of the extent of non-payment and can take account of that non-payment in the Final Certificate. The Architect must also have finalised all extensions of time and have certified the Completion Date.

Overriding all these considerations, the Architect must have decided on and reached conclusions about the size and content of the adjustments to be made to the finally Adjusted Contract Sum and have finalised that Adjusted Contract Sum since this Sum is the lynch pin of the Final Certificate. This finalisation can only be achieved once the nature and extent of any abatement for defective work which is to remain unremedied has been ascertained and any decisions to be taken under clauses 4.3.2.2 and 13.2.4 have finally been taken.

This feature of the Contract Sum adjustment process, as it related to defective work abatement, was explained by Judge Lloyd in this further passage in the Penwith case:

“18.

... The final certificate has a dual role: it ostensibly deal only with the final accounting and, as such, it is intended to arrive at the Adjusted Contract Sums it is also deemed to express the Architect’s satisfaction with the quality of the works and with their apparent compliance with the contract. The two strands are linked in as much as the certified value of the works is intended also to reflect their contractual worth for if they have been properly executed or completed what might otherwise have been their full contractual value will presumably not be certified, either because the Architect cannot conscientiously do so or because the process of arriving at an AFS requires an adjustment or abatement …”.

It is therefore necessary to consider whether any of the steps that I have summarised are conditions precedent to its valid operation of clause 30.8.

What Conditions Precedent are Imposed by Clause 30.8?

Introduction

There are various certificates or decisions whose issue or finalisation might be a condition precedent to the issue of a valid Final Certificate. These are: the issue of the Certificate of Making Good Defects (clause 17.4); the ascertainment of loss and expense and the issue of the statement of adjustments to be made to the Contract Sum (clause 30.6.1.2); the completion of the adjustment process in order to obtain the Adjusted Contract Sum (clause 30.6.2); the issue of the Interim Certificate containing the gross valuations of nominated sub-contractors’ adjusted contract sums (clause 30.7); the issue of the certificate recording the Contractor’s failure to complete the Works by the Completion Date (clause 24.1) and the decision involving the fixing of a new Completion Date following the last grant of an extension of time (clause 25.3).

Certificate of Making Good Defects

The contract provides that any defect, shrinkage or other fault appearing in the Defects Liability Period due to materials or workmanship not in accordance with the contract or frost shall be specified in a schedule of defects to be delivered to the Contractor not later than 14 days after the expiration of the Defects Liability Period. These defects are to be made good at no cost to the Employer unless the Architect specifies that the remedy is not to be their making good but is instead to be an appropriate allowance, or abatement, to be made from the Contract Sum. When all the defects which have been specified and which are to be made good have been made good, the Architect shall issue a Certificate of Making Good Defects.

Clearly, there may be cases where no defects appear or, even if they do appear, where they are not specified within the defined timescale. If no timeous notice specifying such defects is served, no Certificate of Making Good Defects need be served at all. However, such defects as have appeared in the Defects Liability Period but have not been specified in a notice served “within” the requisite timescale can still be made the subject of a late notice. This notice would have relevance in the valuation exercise because any defects, even if not notified in a timeously issued notice, must be made the subject of an abatement and, indeed, the Architect must take account of these defects in his final adjustment exercises since the Adjusted Contract Sum must reflect the value of work properly executed and an appropriate deduction for defective work that is not to be remedied must be made (see clause 30.6.2.4 that provides for the deduction of sums deducted or deductible under clauses 8.4 and 17.2) . Moreover, the parties might have agreed to relax the timescale for undertaking the making good exercise.

If, however, the parties have not relaxed the contractual timescale, the Architect cannot require the making good of any defects that have been notified late since the obligation to make good, being part of the Contractor’s overall obligation to carry out and complete the Works provided for in clause 2.1, is defined by reference to a notification served within the defined timescale.

It follows that the issue of a Certificate of Making Good Defects is not a condition precedent to the issuing of the Final Certificate since it might never need to be issued at all. However, where appropriate defects that are to be remedied have been notified timeously, such a certificate is required and, until it has been issued, or the time for the notification of defects has passed, no Final Certificate can be issued.

Clause 30.6.1.2 Documentation

The claimants argued that the service on the Contractor by the Architect of the ascertainment of loss and expense and the statement of all adjustments provided for in clause 30.6.1.2.2 are both conditions precedent to the issue of a Final Certificate and that no such certificate could be issued if these have not been not served.

It is to be noted that neither the ascertainment nor the statement nor a copy of either of them have to be served on the Employer, clause 30.6 only requires them to be served on the Contractor. Moreover, these documents are not a necessary part of the adjustment process involved in the ascertainment of the Adjusted Contract Sum so that their absence need not hold up the process of ascertainment and adjustment that must be completed before the Final Certificate is issued.

Judge Lloyd, in the Penwith case, considered the contention that the issue and service of these documents is a condition precedent to the issue of the Final Certificate in some detail and, with what to my mind is unanswerable logic, demonstrated that the finalisation and service of these documents are not conditions precedent to the issue and service of a valid Final Certificate. His conclusion, following that analysis, is as follows:

“24.

In my judgment the provision of a copy of the ascertainment, and of a statement, of the AFS is not a condition precedent to the issue of the final certificate so that a failure to provide them before the final certificate does not affect the Architect’s authority to issue a final certificate.”

In summary, Judge Lloyd reached this conclusion because the Architect retains authority to finally adjust the Contract Sum and to issue a Final Certificate even if no service of these documents has occurred. The requirement for service is purely to inform the Contractor what ascertainment has been undertaken, but it is not an essential step in the adjustment process since the contract allows the Final Certificate to be issued within moments of the service of the documents given that no minimum period of time must elapse between their service and the subsequent issue of the Final Certificate.

Adjustment of the Contract Sum

The Architect cannot issue the Final Certificate until he has completed the exercise of adjusting the Contract Sum provided for in clause 30.6.2. Thus, that exercise, even if it takes longer than provided for by the timescales in clause 30.8 that define the timing of its issue, must be completed before the Final Certificate can be issued and the completion of the exercise is a condition precedent to the issue of the Final Certificate.

The time when this exercise will be concluded can be influenced and delayed by many factors including delay by the Contractor or by one or more Nominated Sub-Contractors in providing the necessary documentation, delay in valuing the necessary abatement needed where defects are not to be remedied or are to be remedied by others at the Contractor’s cost or by delays by the Architect in undertaking the other necessary investigations and administrative procedures. Judge Lloyd adverted to these possible delays in the context of the valuation of abatements for defective or omitted work in this passage in the Penwith case:

“21.

The timing of the final certificate may be affected by the operation of clause 17. This contains two provisions whereby, as an alternative to the remedy granted by clause 4.1.2 for non-compliance with an instruction, if the contractor does not make good a defect or if an instruction is issued dispensing with the need to do so, a deduction may be made from the contract sum, for which provision is made in the calculation of the Adjusted Contract Sum by clause 30.6.2.4. The amount otherwise payable to the contractor is thus to be abated. The amount of the deduction or abatement may be the cost or estimated cost to the employer of having the defect put right by others (where an assessment by way of diminution in value is not appropriate). However the cost will probably not be known until after the remedial work has been done ... Whatever the state of the completion of the Adjusted Contract Sum it is therefore probable that its final calculation may be deferred. Even if a statement of the AFS were sent to the contractor before the end of the DLP or the issue of the certificate of making good defects it would still be the duty of the Architect and the Quantity Surveyor to make a deduction and make a further adjustment to the AFS should the need arise under clause 17.”

Clause 30.7 - Nominated Sub-Contractors’ Adjusted Contract Sums

Clause 30.7 requires the Architect to issue an Interim Certificate which includes a gross valuation containing the adjusted contract sums of each of the Nominated Sub-Contractors not less than 28 days before the issue of the Final Certificate. Two questions arise: is such a certificate necessary and, if it is issued, must 28 days then elapse before the Final Certificate is issued?

Yet again, Judge Lloyd tackled these questions, or at least the first of them, in the Penwith case. The answer he gave was given in the context of a contract where there were no nominated sub-contractors so that, not surprisingly, he held that clause 30.7 was irrelevant to his consideration of the Final Certificates in those three cases. However, he went on to say this:

“23.

Furthermore, clause 30.7 may be satisfied much earlier Mr Blackburn [counsel for the Employer] adopted in argument the illustration of a piling sub-contractor whose work and its measurement and valuation will almost invariably be finished and completed well before practical completion so in such an instance effect would be given to clause 30.7 by an interim certificate issued much earlier than 28 days prior to the issue of the Final Certificate. In any event the purposes of clause 30.7 are those given by Mr Blackburn (and accepted by Mr Stimpson [counsel for the Contractor]), namely to enable the Contractor and Nominated Sub-Contractors to have advance notice of what was going to be certified so that, if necessary, steps can be taken to avoid the effect of the Final Certificate and to establish multi-party arbitration and to enable the employer to pay a sub-contractor direct and to recover the amount from the balance of the Final Certificate (where there was a sufficient sum available). It is not a condition precedent to the issue of the Final Certificate.”

Usually, many, if not all, of the Nominated Sub-Contractors’ adjusted contract sums will have been included in Interim Certificates issued some months before the issue of the Final Certificate. This is because clause 35.17 requires that each Nominated Sub-Contractor is entitled to the issue of such a certificate to itself on the expiry of 12 months from the practical completion of that Nominated Sub-Contractor’s work. Thus, the scenario referred to by Judge Lloyd of a piling sub-contractor is expressly provided for. Moreover, once the adjusted contract sum has been included in an Interim Certificate, it will continue to be included in all subsequent Interim Certificates so that the requirement of clause 30.7 will have been complied with even if a special Interim Certificate is not issued under clause 30.7 immediately prior to a period commencing 28 days before the issue of the Final Certificate.

However, if, as in this case but which was not the Penwith case, there are Nominated Sub-Contractors whose finally adjusted contract sums have not yet been included in any interim certificate at a stage prior to the time when the Final Certificate is about to be issued, clause 30.7 is mandatory and appears to require that the issue of the Final Certificate must await the issue of an Interim Certificate which includes that adjusted sum and must then await a further 28 days. Judge Lloyd’s explanation of the purpose of those requirements points to their being mandatory and not directory requirements. The requirements define the earliest moment that the Final Certificate may be issued in the same way that clause 30.8 does. If, for example, the Final Certificate was issued before the Defects Liability Period had ended, it would, given the terms of clause 30.8, be invalid. Equally so, the Final Certificate would be invalid if it was issued before the 28-day period of repose required when the issue of a special Interim Certificate under clause 30.7 is required, namely when the adjusted contract sum of a Nominated Sub-Contractor has yet to be included in an Interim Certificate at the time when the Final Certificate is ready for issue.

Thus, to that extent only, and with considerable diffidence, I part company with Judge Lloyd’s admittedly obiter dicta in the Penwith case. If the Final Certificate is issued which includes, for the first time, the adjusted contract sum of one or more Nominated Sub-Contractors or is issued within 28 days of that having first having occurred, the Final Certificate would be invalid. A 28-day period must be allowed to lapse following the issue of an Interim Certificate under clause 30.7 which first includes that Adjusted Contract Sum.

Clauses 24 1 and 25 3 - Delayed Completion and Extensions of Time

Where the Works have not been completed by the contractually specified Completion Date, the contract requires the Architect to issue a certificate to that effect (clause 24.1). The Completion Date is, however subject to extensions of time granted to the Contractor during and following Practical Completion and in the light of relevant events notified to the Architect by the Contractor. Liquidated damages may only be claimed or deducted by the Employer following the service of a requirement in writing for their payment on the Contractor not later than the date of the Final Certificate (clause 24.2). The process of considering and granting extensions of time is to be completed not later than 12 weeks after the date of Practical Completion and the Architect must, within that timescale, either finally fix the Completion Date or notify the Contractor that no further extensions of time are to be granted (clause 25:3). Finally, the Final Certificate is conclusive evidence that all and only such extensions of time, if any, as are due under clause 25 have been given (clause 30.9.1.3).

This procedure is clearly intended to give rise to a situation in which the Architect has an obligation to consider what extensions of time should be allowed to the Contractor and what, in consequence, the Date for Completion should be and to have considered and concluded that process and to have notified the parties of his final views as to those matters by the time that the Final Certificate is issued. This conclusion arises from a consideration of the series of sequential and interdependent steps concerned with delay and liquidated damages provided for in the Conditions that culminate with the issue of the Final Certificate. Thus, no liquidated damages may be claimed by the Employer unless these are claimed prior to the issue of the Final Certificate, the claiming of those damages is inexorably linked to the process of granting or declining to grant extensions of time, that process must be concluded well before the date by which the Final Certificate is to be issued and the Architect must confirm the Completion Date at the end of that process. Finally, the Final Certificate, when issued, is to be conclusive evidence that all due extensions have been given and the recoverable liquidated damages may be deducted from any balance due to the Contractor that is certified in the Final Certificate.

There is, therefore, the clearest possible indication provided by these contractual provisions that no Final Certificate should be issued, where Practical Completion occurs after the Completion Date, unless a clause 24.1 certificate has been issued and the Architect has also concluded the process of fixing or confirming the Completion Date under clause 25.3.3. The issuing of these two certificates, issued under clauses 24.1 and 25.3.3, are in consequence conditions precedent to the issue of a valid Final Certificate.

Condition Precedent and Implied Term

It follows that many steps leading up to the issue of the Final Certificate are clearly intended to be on a critical path of contractual activities involving the Architect as certifier that culminate in the issue of the Final Certificate and that these steps are conditions precedent to the issue of the Final Certificate. Those steps which are not critical, such as the issuing of the clause 30.6.1.2.2 documents, are ones whose performance do not affect the timing or content of the Final Certificate. It follows that the implied power given to the Architect to issue the Final Certificate at a later date than provided for by Clause 30.8 is, by necessary implication, combined with an express or implied requirement that it may not be issued until all steps linked to its content and effect that are required by the Conditions must previously have been fulfilled. This implication is needed so as to ensure that the careful contractual balance imposed on the Architect by these administrative contractual steps is maintained.

Time for Issue of Final Certificate

In the light of these considerations, it is now possible to identify when the Final Certificate may first be issued since any issuing of it prior to that date would render it invalid. Any delay in issuing it after that date will be subject to any agreed or impliedly agreed postponement of the date by the parties, by any waiver granted by one party and by the implication that the issue of the Final Certificate is subject to the Architect first giving reasonable notice of its proposed contents and intended issue to both parties.

The starting point in considering the validity of the Final Certificate must be the events expressly provided for in clause 30.8. To determine retrospectively when the Final Certificate could first have been issued, it is necessary to work forward from a date 14 days after the end of the Defects Liability Period, being the first occasion on which the Final Certificate could have been issued. If, on that date, it was still possible for a Certificate of Making Good Defects or for the clause 30.6.1.2 documents to be issued within the timescales provided for in the contract, the first date on which the Final Certificate could have been issued will be postponed until the date on which it was first possible, to state that the requirements of clause 30.8 had been complied with. Thus, if no clause 30.6.1.2 documentation had been issued within 9 months after Practical Completion, the period within which the Final Certificate could have been be issued would then have started unless a Certificate of Making Good Defects was then still outstanding.

Once the first date on which the Final Certificate could have been issued by reference to the provisions of clause 30.8 has first been established, it must then be determined whether all conditions precedent to the issue of a valid Final Certificate had by then been complied with and whether any express or implied extensions of the contractual timescales for issuing the Final Certificate had occurred. The Final Certificate can only first be issued, assuming the requirements of clause 30.8 have been met, when all conditions precedent have been complied with and any agreed extended period before its issue and, if applicable, any reasonable period of notice have both elapsed. No Final Certificate can be issued in advance of the date determined in this way.

Challenging the Validity of the Final Certificate

In the light of these considerations, there are logically three successive questions that must be answered when the validity and conclusiveness of the Final Certificate is being considered. These are to consider whether in form, substance and intent the certificate is the Final Certificate issued under clause 30.8 and to which clause 30.9 relates.

The two issues that the arbitrator had to decide in this case involved his having to answer each of these three questions. Since each issue was in effect requiring in different words these same three questions to be answered, the same questions had to be asked and answered twice.

QUESTIONS OF LAW TO BE DECIDED ON THIS APPEAL

Introduction

The arbitrator concluded that the two issues involved his considering, whether the late issue of the clause 30.6.1.2.2 statement in relation to the date when the respondent sent the Architect the documents required by clause 30.6.2.1 precluded the issue of the Final Certificate and whether, when construing the certificate by reference to the covering letter sent with it to the claimants, it was in form the Final Certificate. The first question was in two parts since the arbitrator considered it in the dual context of no statement having been issued and of the statement having been issued late.

Erroneous Approach of the Parties

Introduction

The parties did not, as they should have done, approach the task of ascertaining whether the certificate was the Final Certificate by addressing the three-fold question as to whether, on the facts of this case, the certificate issued on 29 March 1999 was in form, substance and intent the Final Certificate. Instead, they adopted a piecemeal approach to its construction and validity. In doing so, they omitted to address a number of key questions arising out of a consideration of the validity of this suggested Final Certificate. The questions that were not addressed arose as part of a consideration of each of the three relevant larger questions.

Moreover, both parties addressed first the question of whether the certificate was in substance the Final Certificate as opposed to asking first, and more logically, whether the certificate was in form the Final Certificate since, if it was not, no question as to its substance and intent would arise.

Form

The parties did not consider whether the letter sent to the claimants at the same time as the disputed certificate was admissible as an aid to the construction of the certificate. The letter was both addressed to and sent to the claimants but it was neither sent nor addressed to the respondent. The certificate did not refer to, nor appear to rely on, the covering letter so that it was not incorporated into the certificate. Moreover, the parties did not identify what factual background taken from the documents that had been placed before the arbitrator should be taken into account when ascertaining the true meaning of the disputed phrases in the certificate. Since the certificate was issued under the contract and had the effect of varying the parties’ contractual rights, it had to be construed in the same way, and by adopting the same principles of construction, as that commercial contract. The arbitrator should only have used the contents of the letter as an aid to the construction of the certificate if, taking all these considerations into account, it remained admissible for that purpose.

The arbitrator should first have considered the form of the certificate by construing it, and if applicable the covering letter, as a whole. In construing any doubtful or ambiguous parts of these documents, he should have taken account of their factual context at the date of its issue on 29 March 1999.

Substance

Each party addressed the question of whether, and if so, what certificates were conditions precedent to the late issue of this Final Certificate by unduly narrowly focusing on the Certificate of Making Good Defects and the document that was assumed to be the statement of the adjusted contract sum. The parties overlooked other potentially important certificates whose issue were, or might be, conditions precedent to the issue of the Final Certificate. These were the certificates concerned with delay (issued under clause 24.1), extensions of time (issued under clause 25.3) and Nominated Sub-Contractors (issued under clause 30.7).

Contentious unresolved questions remained as to what defects remained in the Works at Practical Completion and as to the appropriate adjustment to be made to the Contract Sum for those defects under clauses 8.4 and 17.2 and by abatement. Further questions arose as to whether, and if so in what way, the Architect should issue instructions under clauses 4.3.2.2 and 13.2.4 so as to regularise and make due and payable the valuations for the variations that had been formally instructed after Practical Completion. These questions remained following the finalisation of the Final Account yet the parties did not address the arbitrator as to whether a certificate which failed to address these questions could still in substance be the Final Certificate or could be regarded as conclusively certifying the Adjusted Contract Sum.

The parties did not address the question that arises if the time limits associated with the issue of the Final Certificate are not directory but are nonetheless capable of being extended by agreement or by the Architect. Thus, the parties failed to address the question of what limitations arose as to the issue of the Final Certificate out of time as a result of any agreement of the parties for its late issue or as to what requirement of reasonableness covering the circumstances arose when the Architect unilaterally sought to issue the Final Certificate out of time.

Intent

The claimants disputed the role and involvement of the quantity surveyor appointed by the Architect to advise him, Mr Mays, since the Architect still retained the role of the Quantity Surveyor under the contract. Notwithstanding that, the preparation of the Final Account appeared to been delegated to Mr Mays. However, the parties had not addressed the arbitrator on the question of whether the certificate was, as a result, one that expressed the opinion of the Architect or whether, instead, it expressed the opinion of Mr Mays because, on analysis, the Architect had delegated the decision as to the content of the Final Certificate to an unauthorised quantity surveyor. This, question was particularly pertinent since only four of the many variations apparently arising under the contract had been instructed in writing and valued in an Interim Certificate issued prior to Practical Completion.

The claimants’ principal contention had been and remained that the remaining 169 variations had not been authorised or validly instructed under the conditions of contract and should not feature in the Adjusted Contract Sum. This contention required the consideration and decision of the Architect and not that of Mr Mays before the value of these variations was added to the Contract Sum and before any certification of the value of these variations was included in the Adjusted Contract Sum certified in the Final Certificate In other words, the Architect had to take a final decision as to whether, given their provenance, these variations could be charged to the Employer at all. It is clear from the materials placed before the arbitrator that such a decision had not been taken by the time that the Architect had issued the disputed certificate on 29 March 1999.

Question 1 - Were the Arbitrator’s Answers to Issues 1 and 2 Correct in Law?

Arbitrator’s Reasoning - Substance

The arbitrator first had to consider by what date the Final Certificate should have been issued in conformity with clause 30.8. He did consider this question and concluded that it had not been issued by reference to any of the options provided for by clause 30.8. This conclusion is clearly correct since no Certificate of Making Good Defects was to be issued and, by 23 October 1998, the date by which the statement of adjustment should have been issued, no such statement had been issued. It followed that the Final Certificate should have been issued at that point since the 2-month period from the date on which the Defects Liability Period had come to an end had already passed.

The arbitrator also needed to consider whether the document issued on 4 March 1999 was the statement of adjustment issued under clause 30.6.1.2.2. He clearly did consider this question. The Final Account document issued on 4 March 1999 by the quantity surveyors was not the relevant statement since it had not been issued by the person named as the Quantity Surveyor under the contract, namely the Architect, and it could not have become such a statement unless and until its contents had been separately considered in detail and then authorised by the Architect.

The arbitrator clearly had this difficulty in mind since his award contains this passage:

“2.06

... the [claimants] submits that the Certificate for Making Good Defects and/or the Architect’s statement under clause 306.1.2.2 are conditions precedent to the issue of a Final Certificate, which have not yet been met. (In fact more correctly, it is the Quantity Surveyor who is referred to, in the Contract, .not the Architect, although Hollins is referred to, in the Contract, as Architect and Surveyors and under Article 4B are to undertake the function of Quantity Surveyors, the error is probably irrelevant).”

Since there was no relevant timescale running from the issue of the clause 30.6.1.2.2 statement, the arbitrator next needed to consider whether the time limits in clause 30.8 were mandatory, conditionally mandatory or directory. He did so, and correctly concluded that they were not mandatory but incorrectly concluded that they were wholly directory. In doing so, he correctly concluded that the claimants’ contentions as to the mandatory nature of clause 30.8 were erroneous. I have already set out my reasoning supporting this conclusion. (Footnote: ⁴) However, the arbitrator then erred by concluding that the time limits were directory, as contended for by the respondent. The time limits are mandatory but were subject to an implied mandatory requirement that, if they were not complied with, the Final Certificate still had to be issued as soon as reasonably practicable so long as all preconditions for, and the parties wishes as to, its issue had been fulfilled and the timing and circumstances of its issue complied with the requirement of reasonableness.

It followed that neither of the parties’ contentions as to the true construction of clause 30.8 were correct. The true meaning and effect of this clause lay somewhere between the two rival contentions urged on the arbitrator and on the court at the hearing of this appeal.

The arbitrator next considered whether the issue of the statement of adjustments was a condition precedent to the issue of the Final Certificate and he correctly concluded, in conformity with the decision of Judge Lloyd in the Penwith case, that it was not. (Footnote: ⁵)

Arbitrator’s Errors - Substance

It was at this point that the arbitrator particularly fell into error since he concluded that since the requirements of clause 30.8 were directory, his task of construing the Conditions and applying them to the question of the substantive validity of the Final Certificate had now been concluded. He therefore decided, in effect, that the certificate was in substance a valid Final Certificate. This approach was understandable given that the parties had not fully or clearly addressed him as to the route he should take from this point in his voyage of construction.

However, the arbitrator was required to construe the contract against the applicable factual background that he had had referred to him and, as part of that exercise, to consider what limitations had been placed on the Architect in relation to the late issue of the Final Certificate and then to have decided whether to apply that approach even though it was not one contended for by either party.

The arbitrator had, however, catered for such an eventuality in his procedural directions. He had directed in his Order for Directions no 2 concerned with for the hearing of the preliminary issues, that he would apply section 34(2) (g) of the Arbitration Act 1996 to the hearing. This section enabled him to decide the extent to which he should take the initiative in ascertaining the facts and the law. He had also directed the parties to prepare the agreed bundle for the hearing which he would be required to read and the contents of which the parties had agreed he should use to determined these issues.

In the light of that background, it was incumbent on the arbitrator to correctly apply the Conditions to the factual background ascertained from those documents since he should have taken the initiative in ascertaining the applicable factual background and then have applied it to the Conditions in order to determine whether the disputed certificate was the Final Certificate with conclusive effect. Since that was the approach that the arbitrator should have adopted, I must also adopt the same approach on this appeal.

It was clear from the documents that, as early as June 1998, the claimants had made known to the Architect their objection to the respondent’s claims for additions to the Contract Sum for all but five of the claimed variations. This was that the variations were not variations for which they had a contractual obligation to pay. They had also made known their belief that they had an entitlement to liquidated damages and that defects existed in the Works which should be accounted for in the Contract Sum adjustment process At that time, the Architect advised that it was unlikely that the situation could be finalised without an arbitration. In October 1998, the Architect advised the claimants against arbitration at that time, despite the fact that the claimants had asked him to initiate an arbitration. He suggested that the question of whether or not the claimants should start an arbitration should be postponed until the respondent’s entitlement to recover for these variations had been addressed in the Final Account. The Architect then appointed Mr Mays as his personal quantity surveyor and Mr Mays conducted all subsequent discussions with the respondent’s appointed quantity surveyor and these surveyors agreed on the contents of the document entitled “Final Account” that was produced by them on 4 March 1999.

Whilst this document was being produced, the claimants’ solicitors had written to the Architect asking for copies of all Architects’ Instructions and for an explanation of the basis upon which these had been issued. On 4 January 1999, the Architect replied and stated that all the disputed instructions had been issued under clauses 4.3.2.2 and 13.2.4 which:

“empowers us to do this but does not mean that we have agreed any costs or liability for payment, merely that the variations and alterations have occurred factually.”

Clause 4.3.2.2 provides that oral instructions (which would ordinarily not entitle the respondent to extra payment) might be confirmed and then take effect as written instructions requiring a variation if these were confirmed in writing at any time prior to the issue of the Final Certificate. Clause 13.2.4 provides that the Architect might sanction in writing any variation made by the respondent otherwise than pursuant to an instruction of the Architect.

It followed that the Architect was indicating that he was still to determine whether the 169 variation instructions were to be confirmed or sanctioned and hence it remained for decision whether these variations would involve the claimants in additional payment. The Architect’s decisions under these two clauses would await the production of the Final Account by the two quantity surveyors and these decisions would be taken in the light of the contents of that Final Account.

Thus, when the Final Account document was produced, there remained seven outstanding matters for consideration and decision by the Architect prior to his issuing the Final Certificate. These were: (1) whether the Architect would adopt the valuations contained in the Final Account that had been agreed by the quantity surveyor he had appointed to advise him; (2) whether he would confirm or sanction the disputed variations as being the contractual liability of the claimants under clauses 4.3.2.2 and 13.2.4; (3) what sum to certify for variations in favour of each of the two Nominated Sub-Contractors since the disputed variations included over £13,000 worth of Nominated Sub-Contractor variations; (4) whether there should be any adjustment or abatement of the Contract Sum to allow for defects; (5) whether there should be any extensions of time awarded under clause 25 3 and what date should be certified as the Completion Date under clause 24.1; (6) what, in the light of all these considerations, the Adjusted Contract Sum should be; and (7) whether to advise the claimants to initiate the arbitration that they had already wanted to start in October 1998, a decision which he had advised should be deferred until after the finalisation of the Final Account.

Corrected Reasoning - Substance

The certificate was not, in substance, capable of being the Final Certificate for four reasons:

For all these reasons, the arbitrator was in error in concluding that the certificate issued on 29 March 1999 was, in substance, the Final Certificate.

Arbitrator’s Reasoning - Form

In addressing the form of the certificate, the arbitrator was first confronted with the argument that he should consider and construe the covering letter as an aid to the construction of the certificate. This letter was, the award stated, “produced by Mr Royce [counsel for the respondent]”. However, that was not a finding that the letter had been copied to the respondent prior to the commencement of the dispute but merely a statement that the respondent’s counsel had introduced the letter into the hearing and as a suggested aid to the construction of the certificate. The arbitrator was persuaded that he could use this letter and the covering letter accompanying the immediately preceding certificate issued on 10 March 1999 as an aid to the construction of the phrase “final payment” found on the face of the certificate. He was able, in doing so, to determine that the words “final payment” meant “Final Certificate”.

The arbitrator also dismissed the argument that because the certificate provided for the sum it certified within 14 days whereas clause 30.8 provided for a 28-day period for payment, the certificate was intended to be an interim and not the Final Certificate. This contention was dismissed because the words of the letter were taken to be conclusive In reaching these decisions, the arbitrator relied heavily but incorrectly on the decision in the London Borough of Merton case.

Arbitrator’s Errors - Form

The first error made by the arbitrator was to find that he was required by the London Borough of Merton case to consider the disputed and ambiguous wording of the certificate by reference to the two covering letters addressed and sent solely to the claimants. It is, however, generally not permissible to construe a commercial document having contractual effect by reference to extrinsic materials. This rule is thelast vestige of the parole evidence rule which requires a document to stand on its own and not to be glossed by extrinsic materials. If the covering letters had been incorporated into the certificate, had been referred to in the certificate or could be read as obviously forming, in effect, further pages of the certificate, the result would have been different but these letters formed no part of the certificate, were not referred to in the certificate, were not copied to the respondent when it was sent the certificate and did not address the respondent as a second intended recipient of the letter.

In the London Borough of Merton case, the covering letter enclosing the final certificate was sent to the contractors after the employers had already called for a delay to its being issued and had then agreed to its being issued. Although not expressly stated in the judgment, it is clear that the covering letter had been copied to the employer. (Footnote: ¹⁰) These circumstances led to Eveleigh LJ, giving the leading judgment, to conclude that the two documents were intended to be issued and read as one document and that the letter evidenced an estoppel that would have arisen had the employer contended that the certificate was not final since it evidenced the fact that both parties accepted that the certificate, when first issued, was the final certificate. (Footnote: ¹¹)

On close analysis, therefore, the London Borough of Merton case is not applicable to this case. That case is authority for no more than that a covering letter may be relied on as an aid to the construction of the Final Certificate when it clearly forms part of the certificate that was issued, was issued to both parties and when it evidence an estoppel that precluded one of the parties contending that the certificate was not final. Where, however, as here, the Conditions required that any certificate that was issued should also be issued to the contractor (clause 5.8), where the covering letter was neither copied to the contractor nor referred to the contractor and where the certificate made no reference to the covering letter, it is not permissible to use its contents to gloss, or clear up ambiguities in, the wording of the certificate. This is because no question of estoppel arose and because the two documents were not capable of being read together or treated as one issued document.

In any case, the certificate was not clearly and unambiguously the Final Certificate and did not pass the tests imposed by the Token Construction and Empson Contractors cases whether or not it the letter was used as an aid to its construction to gloss its apparent meaning. This conclusion arises for a number of reasons:

Corrected Reasoning - Form

It follows that the certificate, whether read on its own as it should have been or with the covering letter and the earlier letter, was not clearly and unequivocally the Final Certificate and the claimants could have been misled, as they appear to have been, as to its form and purpose as the Final Certificate. The arbitrator should have concluded that the certificate dated 29 March 1999 was not the Final Certificate.

Arbitrator’s Errors - Intent

The arbitrator did not consider whether the certificate could be regarded as a sufficient expression of the opinion of the Architect to constitute the Final Certificate. However, as I have already shown, it was at least highly arguably not his opinion since it appeared to have been entirely based on his quantity surveyor’s opinion which he did not appear to have considered independently and for which he did not provide any input under clauses 4.3.2.2, 8.4, 13.2.4 and 17.2 of the Conditions. Moreover, the Architect never responded to the claimants’ letter dated 7 April 1999 when they suggested that the certificate could and should be revised. Had he intended the certificate to have been the Final Certificate, it is to be expected that the Architect would have responded to the claimants by return that the certificate, being the Final Certificate, could not be amended by himself.

For these reasons, the arbitrator should also have concluded that the certificate was not, or at least was not on a balance of probabilities, intended to be the Final Certificate.

Question 1 - Conclusion

I conclude that the arbitrator wrongly concluded that the certificate dated 29 March 1999 was issued under clause 30.8 as the Final Certificate and was conclusive as provided for in clause 30.9. He should have answered both issue 1 and 2 by concluding that the certificate was neither the Final Certificate issued under clause 30.8 nor did it have conclusive effect as provided for by clause 30.9.

Question 2 - What is the Correct Answer to Issues 1 and 2?

In the light of my conclusions, no useful purpose would be served by remitting either of the issues to the arbitrator. In the light of my opinion expressed in this judgment, the arbitrator would inevitably, without needing to make any findings of fact, have to answer both issues in the contrary way to the way he answered them previously.

Accordingly, I will allow the appeal and will vary the award by inserting the word “not” between “was” and “validly” in the answer to issue 1 and between “is” and “a” in the answer to issue 2.

The respondent contended that I should remit the award to the arbitrator with a direction that he should redetermine the two issues in the light of my award. Any other course, it was contended, would involve me in making findings of fact, namely what the factual background was that should be used in the exercise of. contractual construction. required by answering the questions of law posed by the two issues.

However, the parties had agreed prior to the arbitration hearing, as the respondent accepted during the hearing of the appeal, that the facts contained in the documents that had been placed before the arbitrator in the agreed bundle could be referred to as evidence by the arbitrator. The arbitrator used the documents for that purpose and, indeed, recorded in his order for directions for the hearing that there would be an agreed bundle for the hearing which the parties required him to read. The parties also agreed that the same agreed bundle of documents should be placed before me for the purposes of the appeal. Hence, the court on the hearing of this appeal is entitled to refer to these documents for the same purposes as the arbitrator referred to them, namely to ascertain the relevant factual background out of which the questions of law were to be answered. Their contents are the equivalent of an agreed statement of facts as to that factual background.

In the light of the factual background set out in these documents, it is clear that if the two issues were remitted to the arbitrator, he would have no option but to answer the two questions of law posed by these two issues in the way that they have now been answered following the variation of the award that I have directed.