What happens where an obvious error is made in the completion of a Payment Certificate?
Should the certificate itself be retrospectively corrected or should the error simply be rectified within the next certificate after it is identified?
This was precisely the issue that had to be determined within an adjudication referral issued by ORJ’s Michael Smyth. Shakespeare Martineau’s Keith Blizzard acted for the Responding Party.
You may think that it would not matter which certificate contains the correction, provided that the error is reversed; however, where subsequent certificates contain contra charges or disputed items, the timing of the correction can be critical to the notified sum and the receiving party’s cash flow.
In this particular dispute, the error was that the previously certified figure was incorrectly transposed from the previous certificate. This error was not identified until after interim payment certificate 18 had been issued. The Architect/Contract Administrator declined to retrospectively correct his error and instead corrected the error from the earlier certificate 14 within his latest valuation and payment certificate (no. 19); within which significant contra charges had also been applied. The overall result for the receiving party was an interim certificate with a negative value, which effectively forfeited the shortfall on the earlier certificate and had a significantly detrimental impact upon its cash flow.
After the Architect/Contract Administrator refused to alter any of the payment certificates and the paying party refused to pay the shortfall, the receiving party referred the matter to adjudication. The grounds set out within the Notice of Adjudication were that the error should have been retrospectively corrected, in order to give full effect to the valuation carried out by the Architect/Contract Administrator in respect of certificates 14 – 18 and to ensure that the receiving party actually received the full value set out within those valuations.
In response to the adjudication, the Responding Party argued that the Architect/Contract Administrator was right to wait until interim certificate 19 (which was the next certificate to be issued) to correct the error. The Responding Party (relying on the case of Grove Developments Limited v S & T (UK) Limited) argued that the only thing that mattered was the sum stated to be due on the face of the payment notice; regardless of whether there had been an obvious calculation error in reaching that sum.
The adjudication submissions were interesting because the reported case law dealt with situations in which the receiving and certifying/paying parties disagreed about the ‘true value’ of the completed works, leading to differences within the valuations and sums included in relevant interim certificates. In these cases, disputes arose between the sides based upon the valuations that had been carried out. The case law makes it clear (as the Responding Party correctly asserted) that, in such circumstances, the receiving party has only two choices, firstly, to wait for the next interim certificate for a further valuation to be carried out or, secondly, to refer to adjudication and seek a full and proper valuation of the true value of the works.
The Referring Party argued that the dispute in question was fundamentally different to the situations dealt with by Grove Developments Limited v S & T (UK) Limited and ISG Construction Limited v Seevic College. The reason for this was that the receiving party did not disagree with the valuation that had been carried out and was, in fact, simply arguing that the valuation should be correctly recorded within the payment certificates issued; rather than being artificially skewed by a simple and obvious arithmetical error on the part of the Architect/Contract Administrator. Essentially, there was no relevant disagreement about valuations; there was just an error in copying one figure from certificate 13 to 14 and then to subsequent certificates. The Referring Party asserted that this situation was fundamentally different to those set out within the cases relied upon by the Responding Party and that the Adjudicator was certainly empowered by the Scheme for Construction Contracts to open up, revise and review any certificate if it was appropriate to do so.
The Responding Party asserted that the Adjudicator was bound to the same options it had put forward for the receiving party, namely, to leave the interim certificates unchanged or to carry out a full and proper valuation of the true value of the works. The Referring Party disagreed that the adjudicator was so bound and maintained that there was no prohibition, whether in the relevant legislation or case law, upon just correcting the obvious error that the Architect/Contract Administrator had made.
Within his decision, the Adjudicator accepted the Referring Party’s argument and decided to correct the Architect/Contract Administrator’s error and to award the amount of the relevant shortfall to it.
Although the Referring Party was successful in the adjudication, it could have avoided all of the costs and inconvenience of the adjudication process by carefully checking the arithmetic of the interim certificates. If it had done so, it is almost certain that the error would have been corrected within certificate 15 and its cash flow would have been maintained. Any receiving party in a Construction Contract would be very well advised to ensure that all interim certificates are carefully reviewed and checked for mistakes.
If you believe you have been the victim of a payment certificate error and have been unable to resolve the matter by agreement, adjudication may be able to quickly resolve your dispute. For more information about adjudication or any other Construction Law matter, contact ORJ’s Head of Construction, Michael Smyth.