Paice & Anor v MJ Harding (t/a MJ Harding Contractors) [2015] EWHC 661 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

Where an adjudicator had failed to disclose prior conversations with one of the parties about the dispute at hand, a fair-minded observer would conclude that that adjudicator had been biased. It must be shown that the adjudicator had actual knowledge of the content of the conversation in order to prove bias. The other party to the dispute did not waive their right to argue apparent bias simply because they knew a conversation had taken place.

BACKGROUND

Gary Paice and Kim Springall (the “Claimants”) entered into a contract dated 25 March 2013, incorporating the JCT Intermediate Form 2011 edition, with MJ Harding (the “Defendant”) for the construction of two residential houses in Purley, Surrey. By the end of September 2013 the works had stopped, a dispute arose and the contract was terminated. Consequently there were disputes about which party had validly terminated the contract.

A first adjudication concerned the Defendant’s interim application and on 4 November 2013 the Adjudicator (the “First Adjudicator”) ordered the Claimants to pay the Defendant £8,252.72 in respect of that application. In a second adjudication, on 28 November 2013, the First Adjudicator ordered the Claimants to pay the Defendant £249,769.59 plus VAT and interest. Neither of the sums in the first or second adjudication were paid in accordance with those decisions and enforcement proceedings were required. Sometime later on 1 September 2014 a third adjudication was commenced by the Defendant and a separate Adjudicator (the “Second Adjudicator”) decided that the Claimants were required to pay the full amount of the Defendant's final account (the sum of £397,912.48) because they had not served a Pay Less Notice in time. The Claimants had sent the Pay Less Notice on 2 September 2014 and the Adjudicator found they should have served it no later than 30 August 2014.

Shortly prior to the third adjudication on 12 and 13 August 2014, the Claimants had telephoned the office of the adjudicator who had dealt with the first two adjudications. They spoke to his office manager for about an hour and explained how disappointed they were with their previous advisors and asked some questions about procedure. The office manager informed the adjudicator about the call.

On 14 October 2014 the Claimants served a notice of adjudication (the fourth) seeking a decision as to the true value of the contract works and seeking repayment from the Defendant of the amounts required to be paid as a result of the Second Adjudicator’s decision in the third adjudication. The First Adjudicator who had dealt with the first and second adjudications was appointed. He made no mention of the conversations the Claimants had had with his office manager on 12 and 13 August 2014.

On 23 October 2014 the Defendant requested the adjudicator confirm what contact, if any, he had previously had with the Claimants between 29 November 2013 and 16 October 2014. The adjudicator replied on 23 October 2014 stating he had had no contact with the Claimants at all, “save in relation to the previous adjudications when [he] had contact with their representative for the purposes of those adjudications”. He made no mention then, or later, of the telephone conversations on 12 and 13 August 2014.

The Defendant sought an injunction to restrain the adjudication on the grounds, among others, that the dispute referred to the First Adjudicator in the fourth adjudication was the same or substantially the same as what had been decided in the third adjudication. The court refused to grant an injunction and the Defendant subsequently obtained permission to appeal that ruling. In the meantime, the First Adjudicator proceeded with the fourth adjudication and on a valuation of the final account required the Defendant to repay to the Claimant £325,484 of the amount paid in respect of the third adjudication. The Claimants sought to enforce that award.

In defending enforcement, the Defendant provided a witness statement which said that on 6 January 2015 it had received an anonymous letter enclosing two pages of what appeared to be the Claimants’ phone bill, revealing the two telephone conversations as mentioned above on 12 and 13 August 2014. The adjudicator made a witness statement in support of the Claimants saying that the phone call had only been about procedure, criticising the Defendant's case and stating that the court should enforce the award in favour of the Claimants.

ISSUES

The Court was asked to decide:

Whether the adjudicator's failure to disclose the phone call would cause a fair-minded observer to conclude that there had been apparent bias;
Whether the defendant had waived his right to argue apparent bias because he had known about the phone call at the start of the fourth adjudication and had said nothing; and
Whether the adjudicator had lacked jurisdiction because he had purported to decide something that had been decided in the third adjudication.

DECISION

The court refused the Claimants’ application to enforce an adjudication award against the Defendant:

The phone calls on 12 and 13 August were improper and should not have been permitted because the First Adjudicator had already acted in the first two adjudications. The court found that while some of the conversation had been about procedure, the majority of the conversation had been about the Claimants’ unhappiness about the first two adjudications.
The conversations should have been disclosed when the First Adjudicator had been informed about his appointment in the fourth adjudication. This was not a case of inadvertence; the First Adjudicator had chosen not to disclose the conversations.
A fair minded observer would conclude that the First Adjudicator had been biased.
Regardless of the fact that the Defendant knew about the phone call when the fourth adjudication commenced, he was not aware of the content of the call. The Defendant had not therefore waived its right to argue apparent bias.
Given that the Court of Appeal had given permission for the Defendant to appeal the court’s earlier decision to refuse an injunction in respect of the fourth adjudication, the court was obliged to conclude that the Defendant had reasonable prospects of arguing that there was a substantial overlap between the third and fourth adjudications and therefore that the adjudicator lacked jurisdiction.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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