Gary Paice and Kim Springall v MJ Harding (trading as MJ Harding Contractors) [2015] EWHC 661 (TCC) (9 March 2015)

Facts:

• Gary Paice and Kim Springhall (hereinafter referred to as “the Claimants”) engaged MJ Harding Contractors (hereinafter referred to as “the Defendant”) to construct and fit out two homes in Surrey.

• The work only extended over a period of four months until work completely came to a halt in September 2013, raising arguments from both sides as to which party had rightfully terminated the contract.

• The parties then took part in four adjudications, the result of which will be expanded upon below.

• In the first adjudication, Mr Sliwinski (hereinafter referred to as “the First Adjudicator”) ordered the claimants to pay the Defendant £8, 252.72.

• The second adjudication, still presided over by the First Adjudicator, rendered the result that the Claimants must pay the Defendant £249,769.59, as well as VAT and interest on that amount.

• Neither the outcome of the first, nor the second adjudication was acted upon by the Claimants and the decisions of the adjudications had to be enforced.

• On 12 and 13 August 2014, the Claimants had telephoned the First Adjudicator’s office on two occasions. On the first occasion, the call lasted for over an hour, and the second led to the appointment of a particular claims consultant, Peter English, to act on the Claimants’ behalf.

• Just prior to the telephone conversations, the Defendant has sent a final account of £397, 912.48 with supporting material to the Claimants, for them to settle. It was Peter English (appointed ny virtue pf the First Adjudicator’s office manager’s suggestion), who rejected this account entirely and which lead to the third adjudication.

• The third adjudication was presided over by Mr Linnet (hereinafter referred to as “the Second Adjudicator”). The Second Adjudicator found that the Claimants had not served their Pay Less Notice timeously, and thus the Claimants had to pay £397, 912.48.

• A fourth and final adjudication, commenced by the Claimants was instituted to determine the true value of the works, presided over by the First Adjudicator once more.

• The First Adjudicator in his first communication to the parties upon his appointment, made no mention of the telephonic conversations between his office and the Claimants on 12 and 13 August 2014.

• The Defendant’s representative, Mr Nigel Davis, sent the First Adjudicator an email asking him to confirm what contact if any (whether oral or in writing) the First Adjudicator had had with the Claimants (or anyone acting on the Claimant’s behalf) during the period of 29 November 2013 and 16 October 2014, and to provide details of any contact had.

• The First Adjudicator replied that he had had no contact with the Claimants at all, save in relation to the previous adjudications when he made contact with their representative for the purposes of those adjudications. No mention was made of the telephonic discussions of 12 and 13 August 2014.

• The Defendant’s representative wrote to the Claimants requesting their phone records over the period of 8 August 2014 to 13 August 2014. The Claimant’s did not answer Mr Davis’s request.

• The Defendant sought an injunction to restrain the fourth adjudication on the basis that, among others, the dispute referred to the fourth adjudication was substantially similar to what had been decided in the third adjudication. The court did not grant the injunction, and the Defendant subsequently obtained permission to overturn that ruling.

• The fourth adjudication produced a result that, on the valuation of the final account, the Defendant had to pay back to the Claimant’s £325 484.00, as well as adjudicator’s fees of £15 487.50.

Issue:

• The issues in this case were as follows:

1. Whether, at the time of appointment, a fair-minded observer would have concluded that the First Adjudicator should have disclosed the existence of the telephone conversations, and whether his failure to do was indicative of apparent bias.
2. Whether the Defendant waived his right to argue apparent bias because he known about the telephonic conversations from the outset of the fourth adjudication and had deliberately chosen not to mentioned it.
3. Whether the First Adjudicator lacked jurisdiction because he had purported to decided something that had already been decided in the third adjudication. 

Law:

• The test for apparent bias was set out by Lord Philips in In re Medicaments and Related classes of Goods (No 2) [2001] 1 WLR 700 at paragraph 85:

“… 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.”

• In addition to the court’s test for apparent bias, the RICS Guidance Publication was also relied upon by the judge. It dealt with, amongst other things, unilateral contact between the parties and the adjudicator.
• In analysing the First Adjudicator’s submissions, namely that the discussions were only procedurally based, and that he had no duty to disclose same due to the conversations taking place with his office manager and not himself, the court dismissed both as being incorrect. The court found that the discussion were in fact more about the complaints from the Claimants as to the outcome of the adjudications (not as procedurally focused as the First Adjudicator had submitted)  and that the Adjudicator had been informed of the (and thus he had knowledge that could influence his decision).
• The Court concluded that the First Adjudicator’s deliberate decision not to disclose the unilateral conversations with the Claimants did gave rise to the possibility that the adjudicator was biased.
• Secondly, the Claimant argued that the Defendant had waived his right to contend for apparent bias by virtue of knowing about the telephonic conversations from the outset of the fourth adjudication and having said nothing. The judge dismissed this submission since it could not be realistically argued that the defendant knew about the content of the calls until the witness statements in these enforcement proceedings, the Defendant could not be said to have waived his right to apparent bias.
• Waiver in adjudication proceedings was dealt with by Ramsey J in Farrelly (M&E) Building Services ltd v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186 (TCC) at paragraphs 27 to 29: 

“In principle a party may waive a failure by an Adjudicator to comply with the rules of natural justice, although the nature of a natural justice challenge differs in important respects from a challenge to the jurisdiction of an adjudicator. For there to be a waiver it is evident that a party must be aware of or be taken to be aware of the right of challenge to the adjudicator’s decision. The second step requires a clear and unequivocal act which, with the required knowledge, amounts to a waiver of the right.

In the case of jurisdiction, a party must know or be taken to know that the ground for challenging the jurisdiction has arisen. If, with that knowledge a party then continues with the adjudication process without raising the challenge then it may waive its rights to challenge jurisdiction at a later date. In the case of jurisdictional challenges, it is therefore by continuing with the adjudication in the knowledge that there are grounds for jurisdictional challenge that gives rise to a waiver.

In the case of a natural justice challenge the party has to know or be taken to know that the grounds for natural justice challenge have arisen. However, there has then to be some clear and unequivocal act by that party to show that it does not intend to rely on that natural justice challenge before there can be waiver”

• In applying those principals to this case, the court held that the Defendant did not know, and cannot be taken to have known, about the content of the conversations, so he did not know that the grounds for a natural justice challenge had arisen. In addition, there was no clear and unequivocal act on the part of the defendant which could amount in fact or law, to waiver.
• Thirdly and finally, the court looked into whether the adjudicator had the jurisdiction because he had purported to decided something which was already decided in the third adjudication.
• In relation to jurisdiction the leading case of Benfield Construction Ltd v Trudson (Hatton) Ltd [2008] EWHC (TCC) at paragraph 34 held as follows:

 “In my view the relevant principles that apply in cases of this sort are those set out in paragraph 38 of the judgment of Ramsey J where he expressly considered the effect of clause 39A.7.1. I summarize those principles as follows:

• The parties are bound by the decision of the adjudicator on a dispute or difference until it is finally determined by court of arbitration proceedings or by an agreement made subsequently by the parties.
• The parties cannot seek a further decision by an adjudicator on a dispute or difference if that dispute or difference has already been the subject of a decision by an adjudicator.
• The extent to which a decision or a dispute is binding will depend on an analysis of the terms, scope and extent of the decision made by the adjudicator. In order to do this the approach has to be to ask whether the dispute or difference is the same or substantially the same as the relevant dispute or difference and whether the adjudicator has decided a dispute or difference which is the same as the relevant dispute or difference.
• The approach must involve not only the same but also substantially the same dispute or difference. This is because disputes or difference encompass a wide range of factual and legal issues. If there had to be complete identity of factual and legal issues, then the ability to re-adjudicate would deprive clause 39A.7.1 of its intended purpose.
• Whether one dispute is substantially the same as another dispute is a question of fact and degree.”

• The court held that the First Adjudicator did not have jurisdiction, because the court of appeal had given permission for the Defendant to challenge the court’s prior 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 the adjudicator had lacked jurisdiction.

Conclusion:

• The First Adjudicator’s decision in adjudication four was not enforced, and the application for summary judgment on this basis was refused.
• The Court had considerable sympathy for the Claimants as they had not been served well by the adjudication process, and the court held that serial adjudications often bring with them considerable jurisdictional risks. The Claimants had been exposed to these risks, and these risks were amplified by a series of misjudgements by the First Adjudicator.
• The chances were high that currently, the Claimant’s had overpaid the Defendant. The Defendant was paid the entirety of its final account claim because of the absence of a timeous pay less notice. Contractor’s claims are usually overstated as is well known in the Construction Industry.
• The court suggested mediation would solve a relatively straight forward quantity surveying disputes rather than waiting for an appeal from the Court of Appeal, in determining what the Claimants should have paid.
• This judgement on these facts was a case that is a long way away from the sort of dispute for which adjudication was intended.