Although a final certificate is intended to mark a point of finality under a construction contract, a final certificate may not be as ‘final’ as you might think.
The purpose of a final certificate is to bring an end to all outstanding matters between the principal and the contractor, once the works are complete and all known defects have been rectified.
A final certificate is issued by the superintendent after the defects liability period has expired, and:
What is the effect of a final certificate?
The effect of a final certificate will depend on the terms of the contract.
It will also depend on what is contained in the certificate, and whether the certificate is validly issued.
Just because a document purports to be a final certificate does not necessarily mean that it will have the effect of a final certificate. (You can read a Victorian case about this here.)
Clause 37.4 of AS 4000 (unamended) states that the final certificate ‘shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract’.
In other words, a validly issued final certificate will amount to ‘conclusive evidence’ that each party has performed all of their obligations under the contract.
There are however four express exceptions under AS 4000:
Under most contracts (including AS 4000), the answer is ‘yes’. (Read our introduction to AS 4000 here.)
It will be difficult for a principal to pursue a contractor for a claim for a defect that was known to the principal at the time of the final certificate. In practice however, this situation rarely arises because superintendents and principals will usually require the rectification of all known defects prior to the final certificate being issued and the balance of the contractor’s security being released.
The more common scenario is where the principal only becomes aware of the defect after the final certificate was issued. In this scenario, the principal will typically be able to find a remedy.
Under AS 4000 (and many other contracts), the final certificate cannot be relied upon as a defence to claims in relation to defects which were not apparent, and which would not have been disclosed upon a reasonable inspection, at the time of the final certificate. A final certificate will not affect a principal’s right to bring a claim for a latent defect.
Similarly, there may be statutory remedies available to a principal in respect of any defects discovered after final completion. These may include warranties implied under home building legislation (such as the Home Building Act 1989 in NSW) or breaches of the consumer guarantees or misleading and deceptive conduct provisions contained in the Australian Consumer Law.
The answer to this question is probably ‘no’, at least where the contractor issues a notice of dispute within the time required by the contract. However, the position may turn on the individual facts of the case.
This question arises where the contractor obtains an adjudication determination in its favour under the security of payment legislation and, around the same time, the superintendent issues a final certificate certifying an amount in favour of the principal. That is, there are two competing certificates: one in favour of the contractor (under the security of payment legislation), and one in favour of the principal (under the contract). Read more about security of payment here.
As a matter of first principle, it would be easy to assume that a final certificate would prevail over an adjudication determination. This is because final certificates are intended to relate to the final position under the contract, whereas adjudication determinations are of an interim nature only. See, for example, the legislative provisions in NSW, Victoria and Queensland.
However, the Queensland Court of Appeal has determined that an adjudication determination will prevail, at least where the final certificate is disputed by the contractor within the time required by the contract.
Although the principal in Martinek sought to appeal this decision to the High Court, its application for special leave was refused. Consequently, it seems likely that the position reached by the Queensland Court of Appeal is likely to apply throughout the country.
If the contractor does not issue a notice of dispute within the time required by the contract, and absent fraud or any other consideration that would render the certificate invalid, the answer to this question is ‘yes’.
However, if the contractor has issued a notice of dispute, the answer is probably ‘no’, although the position will depend on the wording of the contract.
The scenario that typically arises is this: the final certificate identifies an amount payable by the contractor to the principal (for example, for liquidated damages), which is then disputed through a notice of dispute by the contractor. However, the principal then attempts to claim the amount from the contractor. If the principal holds security, the principal may also seek to call on that security in reliance on the final certificate.
This question has been considered by various courts.
In several instances, and based on wording that was identical or substantially similar to the wording of clause 37.4 of AS 4000, the courts have found that a valid notice of dispute issued by the contractor within the required timeframe will be sufficient to prevent a principal from recovering the amount of the final certificate, at least until the final dispute is determined. (You can find cases on this point here, here, here and here.)
Critically, in those cases, the terms of the contract provided that a notice of dispute issued within the required time frame would mean that the final certificate could not be taken as ‘conclusive evidence’ of the amounts payable between the parties.
However the cases also show that even minor differences in contract wording can result in a different outcome.
For example, in Skilled Group v CSR Viridian, the Victorian Supreme Court found that a final certificate could be enforced even though the contractor had issued a notice of dispute. In CMC, the Queensland Supreme Court reached the opposite conclusion. In doing so, the court noted that the wording of the contracts in Skilled and CMC were different, and it was that difference in wording that resulted in the difference in outcomes.
For principals, the key takeaways are:
For contractors, the key takeaways are: