REUTERS | Hannah Beier

What happens when the contract administrator resigns?

Beyond the Scottish courts’ adjudication enforcement procedure, I’m not particularly familiar with the processes they follow. Therefore, I was interested to see the judgment in Graeme W Cheyne (Builders) Ltd v Michael Duthie Wilson, which involved the Sheriff Appeal Court (SAC) reviewing a sheriff’s decision to enforce an adjudicator’s decision. I’m not sure I’d heard of the SAC but I suppose it is a bit like the English High Court reviewing a judgment handed down in a County Court. It just isn’t something we see very often.

Graeme W Cheyne (Builders) Ltd v Michael Duthie Wilson

In March 2016, Graeme W Cheyne (Builders) Ltd (the contractor) entered into a SBCC Minor Works Contract, with contractor’s design, 2016 Edition (the contract) with Mr Wilson (the employer) to build him a house in Cults, Aberdeen. The contract provided for monthly interim applications for payment, which were to be submitted to the architect/contract administrator, who was named as WCP Architects.

The dispute the contractor referred to adjudication concerned interim application for payment 14 (IA14), which was issued in February 2020 and claimed some £263,000. No payment or pay less notice was issued, and no payment was forthcoming.

In the adjudication, the employer’s main defence was that IA14 was invalid because it was improperly served: it was sent to WCP (like the previous 13 applications) but some months after WCP had ceased acting on the project (WCP had terminated its appointment in July 2019). The employer also argued that it failed in terms of content and substance, since it did not set out the basis upon which the sum was calculated.

The adjudicator disagreed and found in the contractor’s favour, awarding the full sum claimed with interest. The employer still refused to pay and enforcement proceedings followed.

In the enforcement proceedings the employer sought a declaration that IA14 was invalid and of no legal effect. He also argued that:

  • The adjudicator had failed to deal with the employer’s defence that IA14 was invalid, so had failed to exhaust her jurisdiction.
  • The adjudicator failed to provide adequate reasons for her decision.
  • IA14 was tainted by fraud as it included sums for landscaping works the employer alleged had involved the dumping of illegal and hazardous waste on site.

The sheriff disagreed and also found in the contractor’s favour. Hence the appeal to the SAC, where the employer raised similar arguments and also questioned the sheriff’s decision, alleging he was wrong in law.

Was IA14 valid?

In short, yes. In reaching this conclusion, the SAC noted that the architect/contract administrator “performs a pivotal role” under the contract, issuing instructions and directions to the contractor,  issuing certificates, granting extensions of time and certifying practical completion. It is a quasi-independent role. However, the SAC was “somewhat surprised” that, under the terms of the contract, the contractor did not have to be told if the architect/contract administrator ceased to act.

It was a question of interpreting the particular contractual provisions to see if a notice was validly served: was the notice served on the party specified in the contract’s notice provision (the correct party)?, rather than whether that party had authority to act at a given time. The contractor claimed it was unaware that WCP had resigned and there was no evidence to disprove this. Any prejudice the employer might be exposed to by not replacing WCP was evident, but it was the employer that had exposed himself to this risk by not appointing another party sooner. Not appointing a replacement within 14 days was also a breach of contract.

The employer had argued that the contractor ought to have insisted that a replacement be appointed, or started court proceedings for damages arising from the employer’s breach of contract. The SAC described this submission as “ill-founded”:

“It is simply illogical to suggest that a party should act to address a state of affairs of which it is unaware. Moreover, for what purpose ought the appellant to have insisted upon a replacement to WCP? The contractual payment mechanism had operated and the interim application had become due for payment. Insisting upon a replacement would have been an entirely pointless exercise by that stage; either the interim application was served upon the correct party in terms of the contract or it was not.”

It went on to say:

“… it is sufficient to observe that the decision not to replace WCP timeously was clearly a conscious and deliberate one. As a matter of general principle, a party is not entitled to take advantage of its own wrong in enforcing contractual obligations. The ‘wrong’ in this case was the [employer’s] conscious and deliberate decision to take no steps to ensure that the contractual payment mechanism provided for by clause 5.4.1 was operable.”

Adjudicator’s jurisdiction

The SAC took a similarly robust approach to the employer’s arguments about the adjudicator’s conduct of the adjudication and we were reminded of Lord Woolman’s succinct summary of the applicable principles in the Inner House in Hochtief Solutions AG and others v Maspero Elevatori S.p.A.

The SAC described the allegation that the adjudicator failed to exhaust her jurisdiction as “without merit” and “unsound and untenable”. Borrowing from Chadwick LJ in Carillion v Devonport, it is “only in the plainest of cases that the court will decline to enforce an otherwise valid adjudicator’s decision because of the inadequacy of the reasons given”.  This was not one of them.

Must “guard against allegations of fraud”

As for the fraud allegations, the court looked to Pepperall J’s judgment in PBS Energo AS v Bester Generacion UK Ltd (which was upheld by Coulson LJ in the Court of Appeal). It noted that, in the adjudication, the employer did not advance the argument that IA14 was fraudulent because it sought payment for “the illegal dumping of waste material” in his garden. However, although there was a factual dispute as to when contamination occurred and who was responsible, it was clear there was an issue and that:

“… the general subject matter which had given rise to an allegation of fraud may have been known to the [employer] for a considerable period prior to the adjudication … The [employer] had ‘generalised concerns’ only at that stage. However, it is accepted by the [employer] that those generalised concerns are what led to the instruction of an expert in July 2020. During the hearing before us, we received no adequate explanation as to why such an instruction could not have been issued prior to, or even during, the adjudication nor why the allegation of fraud could not properly have been placed before the adjudicator for determination.”

Consequently, the SAC found the sheriff had not erred in exercising his discretion to grant summary judgment to enforce the adjudicator’s decision, and the appeal failed. (Interestingly, it also noted that a subsequent adjudicator had considered this issue and had not been persuaded that the contractor was responsible for the presence of contaminants on site.)

My take-aways

The contract administrator role is a role everyone involved in the construction industry is familiar with and so these findings were perhaps unsurprising, although it is a reminder that one should always check what the contract says about these things. Also, it is a reminder for parties (like the employer in this instance) to consider what the consequences of not have a contract administrator in place may be. On the facts before the court, it wasn’t clear that the contractor even knew the contract administrator had resigned and so, in effect, got away with a smash and grab adjudication. However, on another project, on another day, the outcome might have been different. In my experience, the world of construction is a small one (even in London) and there are often rumours doing the rounds and parties get wind of things happening.

We also have to remember this is a Scottish judgment, and so an English court may be referred to different authorities and the outcome (at least on the validity of IA14 point) could be different.

However, one thing we should all take away from this case is the court’s continued support for adjudication and for adjudicators:

“The various defences asserted by the [employer] in his defence to the principal action and in the submissions before us represent, in our judgment, the very type of contrived or technical defences which the Court of Appeal in Carillion Construction Ltd has cautioned the courts to examine with a degree of scepticism.”

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