Construction contract — Interim certificate — Whether claim for contractual right to payment arising when work done or upon issue of certificate — Whether appellant having continuing right to certification — Whether claim for payment and interest statute-barred — Appeal allowed in part
The appellant was employed by the respondent as a contractor on the construction of a power station. The contract incorporated the ICE standard form (6th ed). The work started in April 1994 and it was substantially completed in May 1996 with a defects correction certificate issued in August 2000. The appellant submitted its final account in stages up to 2001. The total sum claimed in the final account was £102.08m. The engineer issued the final certificate in October 2002 for £44.43m.
In March 2003, the respondent served a notice of dispute under the conditions of contract, challenging the valuation in the final certificate and contending that the claim was barred by the Limitation Act 1980. The appellant served notices of dispute relating to the respondent’s refusal to pay the sum certified as owing under the final certificate. In May 2003, the engineer gave his determination in relation to the notices and decided that at least £2.9m was overdue for payment in December 2002. He made no decision on the limitation issue.
A judge arbitrator, reviewing the engineer’s decision not to deal with the limitation issue, decided that most of the claims were statute-barred since the relevant causes of action had arisen when the work was done or when relevant events occurred, namely more than six years prior to the commencement of the arbitration proceedings.
The issues for the Court of Appeal were, inter alia: (i) whether the appellant’s contractual right to receive payments had arisen when the work was done or only once a certificate had been issued; (ii) if it arose only upon the issue of a certificate, whether the appellant had a continuing right to have the sum certified in subsequent certificates; and (iii) to what extent were the appellant’s claims for interest statute-barred.
Held: The appeal was allowed in part.
(1) The right to payment arose when a certificate was issued or ought to have been issued and not when the work was performed (although the performance of the work was a condition precedent to the right to a certificate). On the true construction of the contract, certificates were a condition precedent to the appellant’s entitlement to payment and not just evidence of the engineer’s opinion: Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] AC 266 considered.
(2) In a contract of this kind, with a single contract price and different sets of elaborate provisions for dealing with instalment payments and for ascertaining the final price payable, a failure by the engineer to perform his obligations at the interim stage could not start time running in a cause of action based upon his failure at the final stage. The failure to include a sum in an interim certificate gave rise to a different cause of action from the failure to include a sum in a final certificate (even if it was the same sum).
(3) It followed from the contract that certificates were the contractual mechanism for certification and payment of interest. Thus, the right to claim interest on a sum that should have been certified became statute-barred six years after that right accrued. If the arbitrator did not identify a date upon which a specified sum should have been certified, then that sum would be treated as overdue for payment from the date of the certificate of substantial completion of the works.
Stephen Furst QC and Timothy Lord (instructed by Davies Arnold Cooper) appeared for the appellant; Roger Ter Haar QC and Alastair Walton (instructed by Lovells) appeared for the respondent.
Eileen O’Grady, barrister