Technology and Construction Court

PAICE v HARDING

Technology and Construction Court

Coulson J

10th March 2015

THE FULL TEXT OF THE JUDGMENT OF COULSON J

1. INTRODUCTION

1. This is an adjudication enforcement application involving the fourth adjudication decision arising out of the contract between the parties. This decision was in the claimant's favour in the sum of £325,484, together with £15,487.50 for the adjudicator's fees. If the procedural history of this matter is regrettable (four adjudications, one enforcement hearing, one injunction hearing and one ongoing appeal to the Court of Appeal), the current disputes are nothing short of extraordinary, involving as they do allegations of apparent bias and defamation; two lengthy statements from the adjudicator expressed in trenchant terms; two statements from the adjudicator's practice manager and wife; and allegations of telephone records fraudulently obtained. On that basis, this case might be thought to be many miles away from the "clear system of dispute resolution" promoted by supporters of adjudication during the debates in the House of Lords about the Housing Grants (Construction and Regeneration) Act 1996.

2. There are two grounds of challenge to the summary enforcement of the decision in the fourth adjudication: apparent bias on the part of the adjudicator, and a lack of jurisdiction, because it is said that he purported to decide something which had already been decided (in completely contrary terms) in the third adjudication. Accordingly I propose to set out a brief history of this matter and then deal with each ground in turn. I am very grateful to both counsel for their measured submissions, particularly in view of the colourful allegations and cross-allegations advocated in the witness statements on both sides.

2. BRIEF HISTORY

3. By a contract dated 25 March 2013 incorporating the JCT Intermediate Form 2011 edition, the claimants engaged the defendant to construct and fit out two residential houses in Purley in Surrey. The work commenced in April 2013 but did not go well. By the end of September 2013 the works had come to a halt and there were arguments about which party had validly terminated the contract.

4. The first adjudication was in respect of the defendant's interim application 7. In a decision dated 4 November 2013, MrSliwinski, the adjudicator, ordered the claimants to pay the defendant £8,252.72 in respect of that application.

5. The second adjudication was in respect of the defendant's interim application 8. In a decision dated 28 November 2013, MrSliwinski ordered the claimants to pay the defendant £249,769.59 plus VAT and interest. Neither of the sums in adjudication 1 and 2 was paid in accordance with those decisions and enforcement proceedings were required. Ramsey J gave judgment for the defendant in these proceedings in respect of the sums ordered to be paid to him by MrSliwinski.

6. On 8 August 2014, the defendant sent his final account to the claimants accompanied by three lever arch files of supporting material. It was in the sum of £397,912.48. The following week, on 12 and 13 August 2014, there were a number of conversations between the claimants and someone at MrSliwinski's office. The first of those conversations on 12 August 2014 lasted for over an hour. The second led to the claimants appointment of a particular claims consultant, Peter English, to act on their behalf. It was Mr English who rejected to the defendant's final account claim "in its entirety" on 18 August 2014. The fact of the conversations only emerged in January of this year and I deal with the evidence concerning those conversations in greater detail below.

7. Following the rejection of his final account claim, the defendant started adjudication 3. Notice of that adjudication was dated 1 September 2014. The sum claimed was £397,912.48 in accordance with the claim that had been made on 8 August 2014. MrLinnett was appointed as the adjudicator in adjudication 3.

8. On 6 October 2014, MrLinnett decided that, under clause 8.12 of the contract, which dealt with the parties' rights to payment following termination, the employer (the claimants) was required to serve a valid payless notice in accordance with the notification regime in the Scheme for Construction Contracts. Although the claimants had issued a payless notice on 2 September 2014, the adjudicator found that this was too late and that, in order to be valid, the payless notice should have been served no later than 30 August 2014. Accordingly, MrLinnett concluded:

"184. Therefore in the absence of a valid payless notice Harding was entitled to receive payment of £397,912.48 on 6 September 2014.

185. For the avoidance of doubt I stress I have not decided on the merits of Harding's valuation and have not decided that £397,912.48 represents a correct valuation of the works, the parties made submissions in this adjudication about the proper valuation but these did not fall to be considered by me because of the rule relating to the notified sum becoming automatically due in the absence of a valid payless notice."

9. On 14 October 2014, the claimant's served a notice of adjudication (adjudication 4), seeking a decision as to the true value of the contract works and seeking a repayment from the defendant. Although the referral notice said that "the dispute now sought to be referred is as to the terms of Harding's valuation", it also sought the sum of £110,787.42 said to be due by way of repayment from the defendant. The referral did not explain the contractual mechanism by which this sum was said to be due and payable by the defendant. By this time the claimant's current solicitors were acting in place of Peter English.

10. On 20 October 2014, MrSliwinski was appointed by the RICS as the adjudicator in adjudication 4. His first communication with the parties was dated the same day. He made no mention of the conversations of 12 and 13 August 2014. On 23 October 2014, Nigel Davies, the consultant acting for the defendant in all of these adjudications, as well as these proceedings, sent MrSliwinski an email in the following terms:

"In the context of the question of your jurisdiction please can you confirm what contact, if any, (whether oral or in writing) you have had with MrPaice and or MsSpringall (or anyone on their behalf) during the period between 29 November 2013 and 16 October 2014?

If you orally communicated with MrPaice or MsSpringall (or anyone on their behalf) during that period:

(1) When was that please?

(2) If so when and on each occasion, for how long please?

(3) If so, on each occasion, what was it about please?

(4) If so when did you disclose the existence of such to the RISC?"

11. MrSliwinski replied on the same day, 23 October 2014, in these terms:

"I can confirm that I have had no contact with MrPaice or MsSpringall at all, save in relation to the previous adjudications when I had contact with their representative for the purposes of those adjudications."

MrSliwinski again made no mention, either then or subsequently, of the telephone conversations on 12 and 13 August 2014.

12. Later the same day, Mr Davies sought from the claimants their landline telephone records for the five days from 8 August 2014. This request was copied to MrSliwinski, as was a later email the same day, which said that "the voluntary provision of the landline records is anticipated to resolve the enquiry". The following day, 24 October 2014, Mr Davies wrote to the claimant's solicitors, asking them for the same information as to oral communications that he had already sought from MrSliwinski. None of these various requests were answered and no telephone records were provided by the claimants.

13. The defendant sought an injunction to restrain adjudication 4 on the grounds that the sums found due by MrLinnett in adjudication 3 had not been paid by the claimants, and that the dispute referred to MrSliwinski in adjudication 4, was the same or substantially the same as that which had already been decided by MrLinnett. The claimants subsequently agreed to pay the sum due in adjudication 3, so that ground for the injunction fell away. The second ground, however, was maintained.

14. In a judgment dated 21 November 2014, Matthew Harding (t/a M J Harding Contractors) v Gary George Leslie Paice and Kim Springall [2014] EWHC 3824 (TCC), Edwards-Stuart J declined to grant an injunction to prevent adjudication 4 from going ahead. The core of his reasoning can be found in the following paragraphs:

"30. In my judgment the adjudicator decided that:

i) if the employer wished to pay less than the sum stated in the contractor's account, it had to issue in time a compliant Pay Less notice; and

ii) the employer did not issue such a notice; and, therefore

iii) the employer had to pay the amount stated in the contractor's account.

31. In these circumstances Mr. Scott Holland submitted that the adjudicator had determined "… the amount properly due in respect of the account" so that the employer cannot re-open this issue in separate adjudication proceedings.

32. In fact, Mr. Scott Holland's submission logically goes further. If it is correct that if the employer wishes to pay less than the sum stated in the contractor's clause 8.12 account, it must issue a Pay Less notice (a proposition about which I express no opinion), it follows that the employer can only set aside the adjudicator's decision in subsequent litigation by showing that its Pay Less notice was validly served. If it fails to do that, submits Mr. Scott Holland, then its challenge to the adjudicator's decision must fail.

33. If Mr. Scott Holland is right, this has far reaching consequences. A failure to serve a valid Pay Less notice in time would deprive the employer forever of the right to challenge the contractor's account. So if the contractor had seriously overvalued his account, but the employer or his advisers failed to serve a valid Pay Less notice in time, the contractor would obtain a windfall that the employer could never recover.

34. This, if correct, is a more draconian regime than that which applies to the Final Certificate. In the case of the latter, if the employer commences adjudication or litigation within 28 days of the issue of the Final Certificate, it ceases to be conclusive in respect of the matters raised in the litigation or adjudication (see clause 1.9).

35. I consider that Mr. Scott Holland's argument, elegantly though it was put, cannot be right. What is due under clause 8.12.5 is the "… amount properly due in respect of the account". The adjudicator has not determined what is "properly due". He has determined that, in the absence of a valid Pay Less notice, the employer must pay the amount stated in the contractor's account within 28 days. The effect of this, according to the submissions of Mr. Scott Holland, is that the absence of a compliant Pay Less notice converts a sum that may not be properly due into one that is properly due, and does so for all time.

36. I do not accept this argument. In the circumstances, therefore, it seems to me that it is open to the employer to have determined, either by adjudication or litigation, the question of what sum is properly due in respect of the contractor's account. However, that right does not detract from its obligation to comply with the adjudicator's decision in the meantime by paying the sum ordered.

37. I should add that I have some reservations about the application of the provisions of the Scheme for Construction Contracts (as amended) to clause 8.12.5 and, in that context, the meaning of expressions such as "due date for payment" and "notified sum", but since I heard no argument on this point I do not propose to say any more about it."

Subsequently on 22 December 2014, Jackson LJ granted the defendant permission to appeal against that decision, expressly recording that the grounds of appeal were "properly arguable". The appeal will not be heard until later this year.

15. Following Edwards-Stuart J's refusal of the injunction, adjudication 4 proceeded in front of MrSliwinski. On 15 December 2014, MrSliwinski issued a decision in which he concluded that the defendant was liable to pay the claimants £325,484 pursuant to clause 8.12, together with his fees of £15,487.50. In addressing the issue as to whether this decision was contrary to that of MrLinnett, the adjudicator said:

"14. Taking the above two judgments into account I have concluded that the use of the notification regime as provided within the contract for interim and final payments, does not apply to the termination provisions for payment as set out in clause 18.12. It is also in my view the case that the scheme is not required to insert additional payment provisions into clause 8.12 thus the notification procedure including the need for a payless notice is not a requirement of the contract in relation to the payment under clause 8.12…Where does this leave us?

15. Although somewhat of a grey area, I have concluded that any payment that is due to either party, after I have decided what is 'the amount properly due', will be within my jurisdiction to decide. I do accept that clause 8.12 allows for a single payment after the assessment of what is properly due has been made. This does not of itself prevent the sum being corrected or the payment of a sum being corrected when the disputed account has been decided. I also take note that the sum stated as being the clause 8.12 account, can be disputed within 28 days. Whilst the effect of the 28 day period has not been put before me, I do see that this allows the account to be assessed in a proper forum and the eventual sum to be found properly due would then be the subject of a balancing payment. If I am wrong in this respect then it will be open to the parties to ask the court for a judgment as to what jurisdiction I actually had, and whether I was empowered to decide whether a payment should be made. I am deliberately keeping the decision to payment separate from that of valuing the sum properly due, so that if necessary the court can remove the offending, if it so finds, part of this decision."

16. I note that the sum that the adjudicator awarded to the claimants was far higher than the sum which had been sought in the referral notice. This may be explained by the claimants' subsequent payment of the sum found due in adjunction 3. But this only serves to highlight the uncertain nature of precisely what it was that the claimants were seeking in adjudication 4. It also highlights one of the dangers of serial adjudication.

3. APPARENT BIAS

1. The Law

17. The test for apparent bias was set out by Lord Phillips at paragraph 85 of his judgment in In re Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 700:

"…The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased."

He went on to say that "the material circumstances will include any explanation given by the judge under review as to his knowledge or appreciation of those circumstances. Where that explanation is accepted by the applicant for review it can be treated as accurate. Where it is not accepted, it becomes one further matter to be considered from the viewpoint of the fair-minded observer. The court does not have to rule whether the explanation should be accepted or rejected. Rather it has to decide whether or not the fair-minded observer would consider that there was a real danger of bias notwithstanding the explanation advanced." This approach was subsequently approved by the House of Lords in Porter v McGill [2002] AC 357 save that Lord Hope deleted the words "or a real danger" and focused simply on whether or not there was a real possibility that the tribunal was bias.

18. In Lanes Group PLC v Galliford Try Infrastructure Ltd [2011] EWCA Civ 1617; [2012] B.L.R 141, Jackson LJ noted that the fair-minded observer must be assumed to know all relevant publicly-available facts; must be assumed to be neither complacent nor unduly sensitive or suspicious; must be assumed to be perspicacious and must be able to distinguish between what is relevant and what is not relevant. Moreover, he must be able to decide what weight should be given to the facts that are relevant. Jackson LJ noted that there were conceptual difficulties in creating a fictional character, investing that character with this ever-growing list of qualities and then speculating about how such a person would answer the questions before the court. He said the obvious danger was that the judge would simply project onto that fictional character his or her personal opinion. However, he accepted that the approach involving the fair-minded observer was established by high authority and was therefore the exercise that had to be undertaken in cases where apparent bias was alleged.

19. There are a number of cases in which unilateral communications between the adjudicator and one of the parties have given rise to sustained allegations of apparent bias. Thus in Glencot Developments & Design Co Ltd v Ben Barrett and Son (Contractors) Ltd [2011] B.L.R 207, the adjudicator had spoken to the parties individually in an attempt to mediate the dispute. When that failed he returned to acting as an adjudicator, but not before he had asked the parties whether either of them considered that his capacity to act as an impartial decision-maker had been compromised by his individual discussions with the parties. One party did object on this ground, but the adjudicator continued anyway. His Honour Judge Humphrey Lloyd QC refused to enforce the decision on grounds of apparent bias. He said: