Conclusive evidence clauses

If you work in the construction industry you will probably be familiar with conclusive evidence clauses and their effects. They are clauses that provide a mechanism to determine whether a final notice, certificate or statement given under a construction contract is final and binding, therefore providing certainty as to parties’ obligations at the completion of a project

In Battersea Project Phase 2 Development Company Ltd (BPS) vs QFS Scaffolding Ltd (QFS) [2024], the court looked at the interplay between a conclusive evidence clause and adjudication proceedings that prevented conclusivity.

Background

Under a JCT design and build subcontract, BPS appointed QFS as a subcontractor. On 19 December 2022, after disputing a statement of the final subcontract sum issued by BPS, QFS issued a notice of adjudication asking an adjudicator to assess the true value of its works under the subcontract (this was known as adjudication 11).

On 22 December 2022, BPS issued a final payment notice identifying a revised final subcontract sum. Clauses 1.8.1 and 1.8.2 of the subcontract dealt with conclusivity and provided that where a final payment notice was issued, it would be considered “conclusive evidence” of the value of QFS’s work unless adjudication proceedings were commenced in time. In which case, once those proceedings concluded, the final payment notice would be subject to the terms of the adjudicator’s decision, which might be different from the final payment notice.

This judgment appears to endorse a quasi-abuse of process whereby a party may prevent a conclusive evidence clause taking effect simply by issuing a notice of adjudication within the correct timeframe, despite having no intention to serve a referral

BPS and QFS agreed that QFS did not need to serve its referral to adjudication within the normal seven-day deadline of serving its notice of adjudication (in other words, by 26 December 2022), instead agreeing an alternative date in January 2023. However, after consistent delays by QFS in serving its referral, BPS gave QFS a final deadline of 3 February 2023 to serve its referral.

When QFS came to pursue adjudication 11 in May 2023, on the suggestion of the adjudicator it served a fresh notice of adjudication in identical terms to its 19 December 2022 notice.

At adjudication, the adjudicator did not consider that clauses 1.8.1 and 1.8.2 applied and, after valuing QFS’s work, awarded QFS £3,177,462.85 for the final subcontract sum.

BPS challenged the adjudicator’s decision on the basis that its final payment notice was “conclusive evidence” and represented the amount due to QFS.

Judgment

In his judgment, Alexander Nissen KC found that the arrangement between BPS and QFS for the service of the referral was an effective variation of the subcontract and rejected QFS’s argument that the notice period was too short.

Furthermore, as a result of QFS’s failure to serve its referral by 3 February 2023, Nissen found that adjudication 11 became a nullity which QFS was not entitled to pursue under its 19 December 2022 notice of adjudication.

However, because QFS had issued a second notice of adjudication in identical terms to the first, Nissen went on to consider, for the purpose of clause 1.8.2, firstly whether such proceedings were validly commenced, and secondly whether such proceedings had reached a conclusion.

>>Also read: There’s a lot to learn: construction law resources on and offline

>>Also read: Collateral warranties get clarity at last

On the first part, Nissen found that proceedings were validly commenced when QFS issued its notice of adjudication on 19 December 2022, therefore preventing conclusivity.

On the second part, he found that “conclusion” within clause 1.8.2 envisages a decision, award, judgment or settlement and “does not include the ending of an adjudication which has become a nullity” and so, rather than being concluded on 3 February 2023 when the proceedings became a nullity, they concluded by the adjudicator’s decision which took place on 29 September 2023.

Supporting these two findings, Nissen rejected BPS’s argument that the adjudication 11 proceedings based on the first notice of adjudication were distinct from those under the second notice. He instead concluded that “such proceedings” under clause 1.8.2 was broad enough to mean adjudication proceedings relating to the same subject matter as the first notice.

Concluding his judgment, Nissen found that the proceedings concluded on 29 September 2023 with the adjudicator’s decision and that the final payment notice was therefore subject to the terms of the adjudicator’s decision. He therefore dismissed BPS’s claim and upheld the adjudicator’s decision.

Commentary

This judgment appears to endorse a quasi-abuse of process whereby a party may prevent a conclusive evidence clause taking effect simply by issuing a notice of adjudication within the correct timeframe, despite having no intention to serve a referral – thereby buying itself more time to gather evidence to support and develop its case.

Then, before the proceedings are considered to have been abandoned, and therefore concluded, it may issue a second notice of adjudication on identical terms and still validly pursue those proceedings.

For all the tactical applications coming out of this case, it illustrates the importance of having expert solicitors in your corner to either draft a suitable conclusivity clause for your needs or to circumvent such a clause taking effect.

Moving forward, we expect to see standard conclusive evidence clauses being amended to clarify the meaning of “concluded” and “such proceedings” in order to avoid similar situations to the above arising.

Louis Twitchett is a solicitor in the construction and engineering team at RWK Goodman