R and C Electrical Engineers Ltd v Shaylor Construction Ltd

A contractual certification mechanism does not necessarily break down because one party fails or refuses to issue a certificate when due. The court must distinguish between machinery that cannot operate and machinery that a party refuses to operate. In the latter case, the failure may be cured, and the contractual consequences may be given effect retrospectively. A party cannot generally rely on its own wrongful failure to issue a certificate. An adjudicator’s decision postponing payment until a contractual Final Certificate may also preserve contractual rights of deduction or set-off, provided the decision is construed as doing so. A claim for delay damages rejected because it was advanced on the wrong contractual basis may remain available on a different basis.

R&C, a sub-sub-contractor, sought declaratory and other relief concerning an adjudicator’s decision on its financial entitlements under a construction sub-contract with Shaylor. The adjudicator found that time was at large, determined the final account at £196,963 plus VAT, and directed that payment was not yet due because it depended on the issue of a Final Certificate under the Main Contract.

R&C argued that the Main Contract’s certification machinery had broken down because the completion certificate had not been issued when completion occurred. It sought immediate payment and disputed Shaylor’s ability to withhold or set off sums. The central issues were whether the machinery had broken down, whether payment was immediately due, and what effect the adjudicator’s wording had on contractual rights of deduction and set-off.

The application failed. The adjudicator’s finding that the Final Payment was £196,963 plus VAT remained binding, but R&C was not entitled to immediate payment.

1. Certification machinery. The definition of Actual Completion Date, as the date of issue of the certificate, conflicted with the apparent contractual intention that completion should be recorded by the certificate. The court regarded that definition as an error, but did not need to formulate an implied term.
2. A distinction had to be drawn between machinery which could not be operated and a party’s refusal to operate machinery which remained capable of operation. Even assuming that Ashley House had wrongfully withheld the completion certificate, that would not necessarily cause the Main Contract machinery to break down. The position could be cured by issuing the certificate later, as occurred by the letter dated 23 February 2012.
3. A party could not benefit from its own wrongful failure to issue a certificate. Applying the principle illustrated by Panamena Europea Navigacion v Frederick Leyland [1947] AC 428, Ashley House could not rely on the absence of a certificate which it had wrongfully withheld. The Defects Liability Period could consequently be treated as running from the date on which completion should have been certified.
4. The alleged failure to disclose the position to the adjudicator did not justify relief. The information given about the Final Certificate was correct, and disclosure of the earlier completion certificate issue would not have altered the adjudicator’s conclusion that payment was not immediately due.
5. The phrase “in accordance with clause 21.8 (b)” preserved the whole operation of that provision, including Shaylor’s right to give notice of sums to be withheld or deducted. The Final Payment could differ from the Final Sub-Contract Sum because it could take account of valid contra charges, including delay damages or the cost of remedying defects.
6. The adjudicator had rejected only the delay claim advanced under the contractual completion-date mechanism after finding that time was at large. He had not decided that Shaylor could never claim damages for failure to complete within a reasonable time. Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] BLR 381 supported the analysis.
7. The TeCSA rule prohibiting set-off in enforcement proceedings did not prevent Shaylor from exercising a contractual right expressly preserved by the adjudicator’s decision. R&C’s alternative claim for a declaration concerning payment on a specified future date was also refused.