| Date | 11 February 2008 |
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| Judgment | Matthew Hall Ortech Ltd -v- Tarmac Roadstone Ltd. ORB 16th December 1997 |
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| The Issue | Whether a final certificate under Clause 38.5 of the IChemE Red Book provides conclusive evidence that the works are completed. |
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| Implication |
Once the Final Certificate is issued under this form of contract the purchaser is prevented from bringing claims for defects in the works arising from a breach of contract and/or tort irrespective of whether those defects may be said to be latent or patent. |
printThe Institution of Chemical Engineers' model forms of Conditions of Contract for Process Plant are being used increasingly outside the field of the process industry. Known as the "Green Book" for reimbursable contracts and the "Red Book" for lump sum contracts, these standard forms are in many respects models against which other forms may be judged. The IChemE forms recognise that on large process plant projects or similar the concepts of completion and taking over have distinctly separate implications from both contractual and safety points of view. These are reflected in the procedures provided in the forms where the completion process is broken down into a series of procedures which reflects practice on site. Under Clause 33.1 (Red Book) the contractor will notify the engineer by means of a Construction Completion Report when it is of the opinion that the plant is substantially complete. When the plant has satisfactorily completed tests set out in the specification and the contractor has adequately demonstrated completion in accordance with the specification, the engineer and contractor sign the Construction Completion Report. Once all the Construction Completion Reports have been signed by the engineer, and where the contract includes a schedule of completion dates, the engineer issues a certificate of Completion of Construction under Clause 33.4. The purchaser normally takes over responsibility for the plant just before any raw materials are to be fed into the plant to undergo their designed process change. The contractor may therefore take no responsibility for the process start up unless specific guarantees are being provided, and thus the contract provides for a separate Taking Over Certificate signed by the engineer and purchaser under Clause 34.9. The contract may prescribe performance tests embodied by specific guarantees of the contractor. The IChemE forms provide for Acceptance Certificates in respect of the satisfactory operation of the plant in accordance with these tests. Finally, the IChemE forms lay down procedures for the certification of the correction of defects at the end of the defects liability period where the engineer must issue to the purchaser and contractor a Final Certificate. This last step was recently examined in the case of Matthew Hall Ortech -v- Tarmac Roadstone. Matthew Hall contracted with Tarmac for the design, erection and commissioning of a mineral processing plant under the IChemE Red Book 1981 edition. Clause 38.5, which is broadly unchanged in the most recent edition of the Red Book and equally reflects the provisions of the Green Book, provides that "the issue of the Final Certificate for the Plant …shall constitute conclusive evidence for all purposes and in any proceedings whatsoever between the Purchaser and the Contractor that the Contractor has completed the Works and made good all defects therein in all respects in accordance with his obligations under the contract". Tarmac commenced arbitration proceedings to recover the cost of rectification of defects and other related costs, which it alleged it had incurred as a result of Matthew Hall's breaches of contract. Matthew Hall argued that Tarmac had failed to issue a Final Certificate when it was properly due under the contract, and as a consequence they were deprived of the immunity from Tarmac's claim that the Final Certificate would have given. The arbitrator therefore had to examine whether the claim for such defects would have been barred by the Final Certificate had it been issued. The arbitrator concluded that Tarmac was not prevented from bringing its claim for latent defects since the Final Certificate was only conclusive evidence that the contractor had physically made good the defects drawn to its attention. On appeal to the Court this decision was set aside. The judge carefully explained his reasons. He firstly explained that in interpreting Clause 38.5, no distinction was to be made between latent and patent defects. In any event, he explained that the defects complained of in this case were patent. A latent defect is one which has not manifested itself but which will, over time, become apparent and give rise to damage to the works. In this case the defect was a patent shortcoming in the design or workmanship which, as a consequence, had given rise to structural damage. The judge concluded that Tarmac's claim was based upon a failure to complete the works in accordance with the contract. The conclusive evidence provision in Clause 38.5 extended to a presumption that all work and services provided were completed in accordance with the Contractor's obligations under the contract. This arose not as a consequence of the words "in all respects in accordance with his obligations under the contract" found in Clause 38.5, but as a consequence of the definition of the 'Works' found elsewhere in the contract. Nevertheless, the effect was the same. Tarmac would be prevented from bringing its present claims in contract, or alternatively tort, because of its failure to issue a Final Certificate. Clause 38.5 of the contract operated to provide an evidential bar to Tarmac's claims in contract and/or tort.
CJ-9805
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