HARDING AND PAICE: A LESSON

IN THE MATTER OF NUMEROUS ADJUDICATIONS

AND IN THE MATTER OF THE HIGH COURT

TECHNOLOGY AND CONSTRUCTION COURT

AND IN THE MATTER OF THE COURT OF APPEAL

CIVIL APPEALS DIVISION

AND IN THE MATTER OF

PAICE AND SPRINGALL

V

MATTHEW HARDING CONTRACTORS.

A LESSON

Introduction.

The recent decision in Harding v Paice is another (hopefully the final one) chapter in the long running disputes between MJ Harding Contractors and Gary Paice and Kim Springall. Taking into account the latest High Court Judgment [see 2016 EWHC B22 (TCC)] from Ms. Finola O’Farrell sitting as a deputy High Court Judge in the Court of Technology and Construction there have now been 5 Adjudications, two applications to the High Court for enforcement, one application to the High Court for an injunction to prevent an Adjudication going ahead and one Appeal to the Court of Appeal in respect of that injunction application. Phew!

We have decided to restrict this Autumn’s news letter to this case only as it serves as a reminder of how to conduct an Adjudication in a sensible and proper fashion and how Adjudicators should themselves behave. Rather like a 5 set tennis match with numerous appeals on the way the case is a lesson for all involved in Adjudications that seek to serve the Construction Industry.

Factual Background.

The factual background to these cases is found in the Judgment of The Hon. Justice Coulson that followed the fourth Adjudication in which the Judge refused to enforce the decision of the Adjudicator Mr. Robert Sliwinski because of apparent bias. For reasons that will become apparent the Employer under the Contract (Paice and Springall) will be referred to as the Claimant Employer and the Contractor Matthew Harding as the Defendant Contractor. This is because they have swopped position so many times during their various legal manoeuvres.

The Contract.

The Contract between the Parties was dated 25 March 2013 and incorporated the JCT Intermediate Form 2011 Edition. The Claimants were the Employer and engaged the Defendant as the Building Contractor 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. The Claimant asserted that it was the Defendant Contractor who was in default, and in turn the Contractor complained that the Claimant Employer was in default.

The First Adjudication: Interim Application 7.

The first Adjudication was in respect of the Defendant's Interim Application 7. In a decision dated 4 November 2013, Mr. Sliwinski, the Adjudicator, ordered the Claimants to pay the Defendant ￡8,252.72 in respect of that application. The Claimant did not comply with that Award.

The Second Adjudication: Interim Application 8.

The Second Adjudication was in respect of the Defendant's Interim Application 8. In a decision dated 28 November 2013, Mr. Sliwinski ordered the Claimants to pay the Defendant the sum of ￡249,769.59 plus VAT and interest. Neither of the sums in Adjudication 1 and Adjudication 2 were 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 the Defendant by Mr. Sliwinski.

The Third Adjudication and the Default Valuation.

On 8 August 2014, the Defendant sent his Final Account to the Claimants accompanied by three lever arch files of supporting material. The Final Account was in the sum of ￡397,912.48. The following week, on 12th  and 13th  August 2014, there were a number of conversations between the Claimants and someone at Mr Sliwinski's office. The first of those conversations on 12 August 2014 lasted for over an hour. The second led to the Claimant’s appointment of a particular claims consultant, Peter English, to act on their behalf. It was Mr. English who, on behalf of the Claimant Employer, rejected the Defendant's Final Account claim "in its entirety" on 18 August 2014. The fact of the conversations particularly regarding Mr. English only emerged in January of 2015.

Following the rejection of his Final Account claim, the Defendant Contractor 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. Mr. Chris Linnett was appointed as the Adjudicator in Adjudication 3.

On 6 October 2014, Mr. Linnett decided that, under Clause 8.12 of the Contract, which dealt with the Parties' rights to payment following termination, the Employer (the Claimants) were 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, Mr. Linnett 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, Mr Linnett 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."

Adjudication 4: The true value of the Account and the Injunction to stop Adjudication 4 from proceeding.

On 14 October 2014, the Claimant's served a further Notice of Adjudication in respect of Adjudication 4, seeking a decision as to the true value of the Contract Works, rather than a Default Valuation, and seeking a repayment from the Defendant of the monies that had been overpaid because of the Default Valuation in Adjudication Number 3. At this point in time the Claimant was seeking repayment of the sum of ￡110,787.42 said to be the over value of the amount that had been paid in respect of the Default Valuation. Mr. Robert Sliwinski was the Adjudicator in the fourth Adjudication.

After the commencement of Adjudication Number 4 the Contractor tried to persuade the Court that this issue had already been determined by the previous Adjudication (Number 3) and that the dispute was substantially the same as that had been decided in Adjudication Number 3. That was rejected by the Court as the effect of the argument would have been that once a Payless Notice was missed it would deprive the Employer of the right to challenge in Adjudication proceedings the true value of the Final Account. The decision of the Hon Justice Edwards Stuart was as follows:-

“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.”

The Appeal from the Injunction Proceedings.

The Contractor Defendant then decided to appeal that decision and that went to the Court of Appeal on the 18th November 2015 and who in a judgment dated the 1st December 2015 decided that the Contractor was not entitled to the injunction sought. The Judgment of Lord Justice Jackson, the former head of the TCC, was quite simply put in his executive summary as follows:-

“Part 7. Executive summary and conclusion

1. The claimant building contractor seeks an injunction to restrain the employer from proceeding with an adjudication to determine the sum properly due to the contractor following termination of the contract. The contractor also seeks declarations to the same effect.
2. The basis of this claim is that a previous adjudicator ordered the employer to pay the full amount shown as due on the contractor's final account pursuant to section 111 of the Housing Grants, Construction and Regeneration Act 1996. This was because of the employer's failure to serve a valid Pay Less notice.
3. Mr Justice Edwards-Stuart dismissed the claim. The contractor now appeals to this court.

In my view the employer's failure to serve a Pay Less notice (as held by the previous adjudicator) had limited consequences. It meant that the employer had to pay the full amount shown on the contractor's account and argue about the figures later. The employer duly paid that sum, as ordered by the previous adjudicator. The employer is now entitled to proceed to adjudication in order to determine the correct value of the contractor's claims and the employer's counter-claims. Therefore the judge's decision was correct.”

The Award in the Fourth Adjudication.

In the meantime, whilst matters were proceeding to the Court of Appeal and after the failure of the jurisdictional challenge before His Honour Justice Edwards-Stuart and before the decision of the Court of Appeal mentioned above, the Adjudicator then pressed on with his Award. On the 15th December 2015 Mr. Robert Sliwinski ordered that the Defendant Contractor pay the Claimant Employer the sum of ￡325,484.00 together with his fees of ￡15,487.59.

The Allegation of Bias.

The Defendant did not pay the Award of Mr. Sliwinski and on the 10th March 2015 His Honour Justice Coulson declined to enforce that Award because of apparent bias on the part of the Adjudicator, Mr. Sliwinski. The bias decision was based upon the fact that the Claimant Employer had telephoned the office of the Adjudicator in August 2014 and had lengthy telephone conversations about the Adjudication process generally and the previous Adjudications. These conversations took place between Mr. Sliwinski’s office manager (who also happened to be Mr. Sliwinski’s wife) and the Claimant Employer. Those conversations led to a claims consultant called Peter English being appointed and he was the person who rejected the entirety of the Defendant Contractors Account. His Honour Judge Coulson concluded that there was a real possibility that the Adjudicator was biased against the Contractor and he declined the enforce the Award of Mr. Sliwinski.

The Fifth Adjudication.

The Fifth Adjudication was concerned with the same issue before Mr. Sliwinski in the Fourth Adjudication, and that was the issue as to the proper value of the Works that had been carried out by the Defendant Contractor. In a decision dated the 27th April 2016 the Adjudicator, Mr. Christopher Linnett, ordered the Defendant Contractor to pay the sum of ￡296,00644 by way of overpayment against the Default Valuation awarded some time back in October 2014 some 2 years earlier.

Just prior to the issue of the Award in the fifth (and final?) Adjudication the Defendant raised via its solicitors some questions about the relationship between the Adjudicator and the Claimant’s solicitors and his views on Mr. Sliwinski. The Defendant solicitors (Davies and Davies) relied upon a conversation that had taken place at the Copthorne Hotel in Cardiff in October 2015 when Mr. Linnett informed Mr. Davies that he had been asked to write a letter of support to Mr. Sliwinski in connection with the RICS investigation that took place after the bias allegations that the Defendant had instigated as set out above.

In this fifth Adjudication the Deputy High Court Judge found that there was no bias or impartiality. Mr. Linnett was considering afresh the issues that had been decided by Mr. Sliwinski and not reviewing the earlier abortive award of Mr. Sliwinski.

The Judge ordered that judgment be entered for the Claimant Employer in the sum of ￡301,678.44. It is not clear if the Defendant Contractor has at this moment in time agreed to make payment as ordered by the Court. Of course the matter can be decided afresh by the Courts or in Arbitration.

Summary.

This case is a lesson for all in the industry. Adjudicators must be beyond reproach if there are seen to be neutral or unbiased. They should never speak to the Parties or their representatives and if such calls take place they should record them and inform both Parties of the fact of and content of them.

Parties representatives should also themselves declare any potential conflicts. In this case should Mr. Davies have reminded Mr. Linnett of the presumably social conversation that he had with him in Cardiff. Raising issues of bias, jurisdiction, double jeopardy and the other challenges to the Adjudication process should not be taken too easily as is the current way.

Finally is it now time for the various Nominating Bodies to refresh its panels of Adjudicators and try to draw the line between Adjudicators acting as gamekeepers and poachers all the time.

Wellesley.

Wellesley is a specialist construction claims consultancy that is headed by Michael Tiplady and John Harwood. Michael is an experienced construction lawyer with over 30 years of experience in the construction industry. He has recently qualified as an RICS Adjudicator having completed the RICS/RSPH Level 5 Diploma in Adjudication in the Construction Industry. John has 31 years experience acting for Main Contractors and Sub-Contractors and is familiar with all forms of contract and disputes that arise under them.

We undertake legal audits of Contract and any claims arising under them for no initial consultation fee and are willing to take on Adjudications on hourly rates or on percentage fees. Our rates are extremely competitive and we take enormous pride in all that we do for our Clients. If you would like advice on construction disputes, adjudication and Arbitration then please contact either John Harwood or Mike Tiplady at www.wellesley.uk.com. Our contact details are on our website.