The IChemE Red Book - Final Certificate   © Daniel Atkinson 1999

The Institution of Chemical Engineers Model Forms are used extensively not only in the process industry but also in construction projects in the Water Industry as well as tunnelling projects in a modified target cost form. There are very few decided cases on the forms so that the judgment in Matthew Hall Ortech Limited v Tarmac Roadstone Limited (Dec 1997) is essential reading. The decision is also of general interest showing the approach taken by the courts in the interpretation of construction contracts.

The main issue was whether the Final Certificate prevented claims for defects which were latent at the time of the issue of the Certificate. The contract incorporated that IChemE Red Book 1981 revision. The relevant contractual provision is Clause 38.5 which has the following key words:

"...The issue of the Final Certificate....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..."

The arbitrator had concluded that the Final Certificate was only conclusive of the fact that the Contractor had actually completed the making good of those defects that he was required to make good. It was not relevant so far as latent defects were concerned. The Contractor, Mathew Hall appealed.

The Contractor argued that the words "in accordance with his obligation under the contract" in Clause 38.5 governed both the phrase "the Works" as well as the phrase "made good all defects therein." His Honour Judge Anthony Thornton QC adopted the principles of interpretation of commercial contracts set out in the speech of Lord Hoffmann in Investors Compensation Scheme Limited-v-West Bromwich Building Society and Others (1997).

He held that the phrase "completed the Works" is not qualified by the later phrase "in accordance with his obligations under the Contract". This interpretation was based not only on the textual analysis but also by giving consideration to the contractual context. The definition of "Works" already included the Plant and all other services which were to be supplied in accordance with the requirements of the Contract. There was therefore no need to couple the two phrases. The Final Certificate therefore meant that the contractor had a complete defence to a claim for breach of contract.

It was also held that there was commercial justification for the Contract to provide a defined cut-off point for liability. This was based on analysis of the contract terms and the Guide Notes. It was held surprisingly that the Guide Notes were part of the contract. This does not however appear to be necessary for the decision, since it was held that the contract was to be interpreted against the background knowledge available to the parties one of the principles set out by Lord Hoffmann. Part of this background was the Guide Notes.

Apart from the individual contract terms, consideration of the overall scheme for apportionment of liability led to the same interpretation. It was held that it would be difficult to give effect to the scheme of performance and testing requirements if Plant found to pass the performance tests could nonetheless be subject to complaints about individual components not conforming to the contract.

Although the case was decided on the 1981 Edition of the IChemE Red Book, it is suggested that the decision applies equally to the Third Edition of the Red Book. The wording of the 2^nd Edition IChemE Green Book cost reimbursable form differs in terms of both the provisions for the Final Certificate and the definition of Works. It is suggested nonetheless that the status of the Final Certificate will be the same. It is suggested that this is also the case with the IChemE Yellow book subcontract form although the agreement expressly states that the Guide Notes are not contract documents.