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What can we learn from Paice v Harding? (other than the points on bias…)

By now many of you will have read the most recent instalment in the battle between Gary Paice and Kim Springall (property developers), and MJ Harding (building contractor). In Paice and another v MJ Harding, Coulson J concluded that a fair-minded observer would consider that there was a real possibility that the adjudicator, Mr Sliwinski, was biased as a result of his failure to disclose conversations with one of the parties, his misleading answers to emails when asked about those conversations and the tone and content of his explanations and witness statements in the associated enforcement proceedings.

Much has already been written about Coulson J’s conclusions and Richard Sage’s blog is thought provoking. However, rather than give you my views on the apparent bias point, I want to look at two other issues:

  • Coulson J’s conclusion that there was a substantial overlap between the adjudication Mr Sliwinski decided and a previous adjudication decided by Mr Linnett, such that Mr Sliwinski did not have jurisdiction.
  • Coulson J’s statement that, “Everyone in the construction industry knows that contractor’s claims are usually overstated”.

Same dispute

Mr Linnett dealt with the third adjudication between the parties, deciding that Harding was entitled to be paid the entirety of its termination account under clause 8.12 of the JCT Intermediate Building Contract, 2011 Edition (IC11) because of the absence of a valid pay less notice. Paice and Springall then started the fourth adjudication and asked Mr Sliwinski to decide the sum that was “properly due” to Harding in respect of its termination account.

Harding had applied for an injunction to restrain Paice and Springall proceeding with the fourth adjudication, but Edwards-Stuart J declined to grant the injunction on the basis that what was due under clause 8.12 was the “amount properly due in respect of the account” and Mr Linnett had not determined what was “properly due”.

In the proceedings in front of Coulson J, Harding maintained that Mr Sliwinski had decided the same dispute as Mr Linnett such that Mr Sliwinski did not have jurisdiction. Coulson J concluded that there was a reasonable prospect of Harding successfully arguing this point and, as such, Mr Sliwinski did not have jurisdiction to reach his decision on the correct sum due to Harding. It is clear that Coulson J felt obliged to reach this conclusion because the Court of Appeal had already granted leave to appeal Edwards-Stuart J’s decision, meaning that:

“they consider that there is a reasonable prospect of successfully showing that the judge was wrong not to accept [Harding’s] argument and therefore wrong not to rule that the relevant issue in adjudication 4 had already been decided in adjudication 3.”

Coulson J said that he was:

“bound by, or at least would not wish to depart from, that decision of the Court of Appeal.”

So what are we to take from this conclusion? Does it mean that the value of final accounts can be deemed to be agreed when the payer fails to serve the requisite notices in a similar manner to interim valuations, as was decided in ISG v Seevic and Galliford Try v Estura? Not necessarily because we must remember that Harding’s account was submitted under the termination provisions in clause 8 of the contract, not under clause 4, which includes the final account provisions.

It will be interesting to see what the Court of Appeal decides and whether they go on to clarify the position with regard to final accounts, rather than simply termination accounts. I sincerely hope that they do in order that the industry knows where it stands regarding final accounts. As we all know, the Construction Act 1996’s notice provisions do not expressly distinguish between interim and final payments, so it’s arguable that the provisions should apply in the same manner.

However, all might not be lost for payers because they might still be able to pursue claims for liquidated damages under their construction contracts or unliquidated damages for breaches of contract, for example for the cost of rectifying defects.

Until the Court of Appeal decides the appeal I think that the implication of Coulson J’s finding is simply that adjudicators asked to value a JCT termination account where a sum has already been awarded because no notice was served are likely to lack jurisdiction.

Contractor’s claims are usually overstated

“Everyone in the construction industry knows that contractor’s claims are usually overstated.”

This was the second such statement made by a TCC judge in recent weeks. In Galliford Try v Estura, Edwards-Stuart J said:

“experience shows that loss and expense claims are frequently significantly overvalued, and that quite often the true value is about a third of the figure claimed.”

Some might not entirely agree with these statements because, while we may see some significantly overstated claims, we also see some fair and balanced claims where the claiming party has clearly decided to limit its claim to sums which it genuinely believes it is rightly entitled to.

However, whether these statements are right or wrong is not the point; the point is that two well-respected TCC judges have both formed these views, and this should be a wake-up call for the construction industry and those involved in the preparation, pursuit and defence of claims.

So what is to be done?

Well, it might be best to start by considering why inflated claims are submitted. Sometimes they arise from the unfair slashing of accounts and steadfast refusal to make payments even though sums are due. Payees therefore inflate claims in the hope that, after the slash and burn is complete, they might actually get what they are properly due. This practice must stop, and both payees and those assessing accounts must take a more balanced view and stop the process of horse-trading.

Those responsible for making over-inflated claims might be advised to read the Society of Construction Law’s paper, Unethical behaviour and criminal acts. In this insightful paper, the authors point out that where a claimant submits claims that it knows to be false, or does not believe to be true, or of which it is reckless as to their accuracy, it could be guilty of the following criminal offences:

  • False accounting.
  • Attempting to obtain property by deception.
  • Attempting to obtain a money transfer by deception.
  • Attempting to evade liability by deception.

Equally, those responsible for the slash and burn should also note their potential criminal liability. For example, the authors of the paper state that set-off of false rectification costs could amount to the client or contract administrator being guilty of the following criminal offences:

  • False accounting.
  • Evasion of liability by deception.
  • Conspiracy to defraud.

The authors also note that clients might be guilty of blackmail, and the same offence would apply if the client tries to force the contractor to accept a lower payment than is actually due.

Professional advocates should also remind themselves of their relevant rules of conduct. For example, surveyors may wish to remind themselves of certain aspects of the RICS’ practice statement, Surveyors acting as advocates, which includes the following:

“5.1 You must not prepare a statement of case, submissions or other similar documents, unless properly arguable.

6.1 You must not mis-state facts to advance a client’s case or for any other reason…

7.1 You have a duty to assist the tribunal, and not to make statements to it that you know to be untrue.”

This is not just guidance. It is mandatory for chartered surveyors to comply with RICS practice statements and a failure to do so can lead to disciplinary consequences.

In summary

So, other than the points on apparent bias, I think that Coulson J’s judgment in Paice v Harding has taught us that:

  • Adjudicators asked to value a JCT termination account where a sum has already been awarded as a result of the lack of the requisite notices are likely to lack jurisdiction.
  • The construction industry must work to dispel the view formed by judges that contractor’s claims are usually over-stated. While not necessarily the only solution, some parties need to be made aware of the potential for committing criminal offences, and some advocates need to be reminded of their professional obligations. The law is likely to win eventually.

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