Final certificates

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 their evidential effect.
The intention of such certificates is to provide a means of finally putting to 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 and with any delay in carrying out the works. In consequence, a final certificate often has a draconian effect on the rights of at least one of the parties to the contract.
The requirements of a final certificate were discussed in the recent case of Cantrell -v- Wright & Fuller. Cantrell owned and operated a nursing home and had entered into a JCT 80 form of contract with Wright for the construction of an extension to provide an elderly mental institution unit. The works did not progress smoothly and there were ongoing disputes concerning delay and valuation.
By March 1999, more than one year after practical completion, those disputes had still not been resolved. At that point however, the architect issued a final valuation accompanied with a covering letter that described the valuation as a final certificate. Usually it would be the contractor that would object to such a step. In this case however, it was the employer, Cantrell, that took immediate exception to this valuation, arguing that it allowed payment that it had no liability to pay.
Cantrell also objected that the works contained defects and that it was entitled to liquidated damages for delay to completion. Equally, Wright made known its views to the architect that there were no such defects and that it was entitled to a full extension of time.
Despite this, it was not until three years later that Cantrell started arbitration proceedings. The significance of that was not lost on the solicitor firm advising Wright. It drew attention to the contractual provision that made the final certificate conclusive evidence unless proceedings had been issued within 28 days of its issue.
In other words, the contract clearly stated that the final certificate would provide conclusive evidence that all effect had been given to the terms of the contract for adjustment of the contract sum, extensions of time and reimbursement of loss and expense.
The parties eventually found themselves in front of an arbitrator seeking a decision as to whether the architect had validly issued a final certificate. The arbitrator held that the document was a valid final certificate and, unhappy with that ruling, Cantrell appealed that decision to the court.
His Honour Judge Thornton considered the various complaints made by Cantrell concerning the circumstances that led to the architect's issue of the disputed final certificate. He noted that the final certificate need not be issued on the standard template provided by the JCT, but it must make it unambiguously clear that it is the final certificate.
In addition, he considered the timing of the final certificate. In his view, it may be necessary to allow a relaxation of the prescribed timescales subject to the requirement of reasonableness.
This meant that the form and content of the certificate issued by the architect was not fatal to its validity as a final certificate, and neither was its timing.
Judge Thornton turned his attention to the conditions precedent that might apply to the issue of a final certificate. He noted that there were a number of certificates or decisions required by the architect that might be a condition precedent to the issue of a valid final certificate.
First, Judge Thornton considered the certificate of making good defects. In his opinion, the issue of a certificate of making good defects was 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 had been notified, such a certificate would be required and, until it had been issued, no final certificate could be issued.
Second, Judge Thornton considered the documentation that the contractor was obliged to provide to the architect within six months of practical completion for the purpose of the adjustment of the contract sum and the corresponding obligation of the architect or quantity surveyor to prepare a statement of adjustments within three months thereafter. Judge Thornton concluded that the architect retained authority to issue a final certificate even if these documents had not been provided.
A further impediment to the final certificate would, however, be where there was to be an adjustment to the contract sum of one or more nominated subcontractors. Where such an adjustment had taken place, the contract required a period of 28 days before a final certificate could be issued. Thus, if a final certificate was issued that included for the first time an adjusted amount in respect of a nominated subcontractor, the final certificate would be invalid.
Finally, Judge Thornton considered the questions of delay and extension of time. It was clear in his mind that no final certificate could be issued where practical completion had occurred after the contractual completion date, unless a non-completion certificate had been issued and the architect had concluded the process of fixing or confirming the revised completion date. The issue of these two certificates were condition precedent to the issue of a valid final certificate.
Returning to the present case, neither the non-completion certificate nor the final review of extension of time had been issued by the architect. For those reasons in particular, Judge Thornton concluded that the certificate issued in March 1999 was not a valid final certificate. Cantrell was therefore entitled to bring evidence of all other matters it contended should be considered within the final account.