| Date | 10 September 1997 |
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| Judgment | Borough of South Tyneside -v- John Mowlem and Company, ORB 15 May 1997 |
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| The Issue | Whether a statement of final account and final certificate can relieve the contractor of common law liabilities for breach of contract. |
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| Implication |
Such a document will generally only settle parties entitlement under the contract and will have no bearing on liabilities in relation to breach of contract. |
printIn 1994 the Court of Appeal made a rather surprising decision in the case of Crown Estate Commissioners -v- John Mowlem & Co. Ltd. They held that once a final certificate had been issued under a JCT 80 contract, a contractor would be free from any liability in respect of defects in materials and workmanship. This was because the final certificate was to be treated as conclusive evidence that the works in their entirety complied with the contract requirements as to quality of materials and standards of workmanship. This was a fairly surprising decision since prior to the issue of the certificate the parties had been in extensive discussions concerning known defects. Somehow at the stroke of a pen Mowlem were to be no longer liable for these defects. This seemed to fly in the face of what was intended or previously understood with regard to the operation of the JCT form. The final certificate had been understood by everyone to be final insofar as it related to the accounts of the project. The JCT had also intended that it should be final in relation to those materials and workmanship required by the contract to be of a standard and quality which satisfied the architect. It was this latter fudge which the Courts were unwilling to uphold. In their view the certificate had to be conclusive as to everything or to nothing. The simplest way to resolve the matter was therefore to say that the certificate was conclusive on everything, despite the fact that an architect issuing such a certificate could not be expected to verify every last constructional element of the works. Indeed, it seemed highly unlikely that parties to a contract would intend to relieve the contractor of the fundamental duty to be responsible for materials and workmanship used in executing the works. The result was that architects refused to issue final certificates almost overnight. They did not want the contractor's responsibility so effectively transferred to them. Amendments to the JCT form were hastily prepared clarifying that this was not the intent of the final certificate and matters thereafter seemed to have settled down. Buoyed by their earlier success however, Mowlem have tried another attempt in the more recent case of the Borough of South Tyneside -v- John Mowlem. The project concerned the construction of fourteen factory units under a JCT 81 Design and Build contract. One and a half years after practical completion the parties exchanged a letter, described as a final certificate, which said "We hereby declare that we agree to accept the amount of (£700) being the balance due from the Council of the Borough of South Tyneside on the final account amounting to (£286,000), in respect of the above named contract in full and final settlement of all claims under the said contract". As might be expected the factory units were riddled with defects. It was alleged that the contractor had failed to take into account that the site was reclaimed colliery land with substantial fill material and old foundations. It was alleged that they had failed to design and construct a structure capable of standing without cracking for a reasonable time. Whatever were the faults in the building works Mowlem thought that they might use the final certificate as a means of evading liability. They argued that the document in question simply meant clearly and unambiguously what it said. The specified sum was paid and received in settlement of all claims, that is all claims present and future by either party against the other under the contract or for breach of contract. The Borough was not willing to accept this contention. They argued that claims are to be distinguished from liabilities and that a claim made under a contract differs from a claim made for breach of its terms. Consequently the settlement effected by the acceptance of the sum was of claims actually made under the contract and no more. The Court agreed. What was being finally settled was the question of Mowlem's entitlement under the contract and no other matter. Examining the case further it was commented that no reference had been made in any relevant document to the appearance of cracks in the work either by reservation of the contractor's position or by provision that they were being taken into account in the settlement. Rejecting the matter, the Official Referee said "In such circumstances, I find that the suggestion that the Plaintiff is to be taken to have agreed to settle potential claims by it against the Defendant by making a wholly unqualified payment to the Defendant so quixotic as to be wholly unrealistic".
CJ-9733
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