Daylight Robbery

Speymill was appointed as contractor to convert the Raby House hotel back into a residence for the respondent, Mr. Baskind. The JS Design Partnership (“JSD”) were the architects for the building project. No formal contract was entered into, and the contract was formed by correspondence between the Parties. The contract incorporated the provisions of JCT 98 Private without Quantities edition. Article 5 entitled either Party to refer a “dispute or difference” to adjudication.

During the works, JSD issued fifteen interim certificates for a total of £753,490.44. Mr. Baskind paid £652,786.20, but failed to pay certificate numbers 13, 14 and 15, and only paid part of certificate no. 12. JSD granted Speymill an extension of time and issued a certificate of practical completion on 27 June 2006. The Parties were unable to come to an agreement about what further money was due to Speymill, and the Contractor served a notice of adjudication.

One of the issues was whether Mr. Baskind had served the required withholding notices in respect of the payment certificates. Whilst insisting that he had, Mr. Baskind was unable to produce copies, explaining that two of Speymill’s employees had stolen files from his house containing the hard copies, and that a lightning strike and power surge had destroyed his computer with the electronic copies on them. The Parties disagreed as to how the Adjudicator should deal with this fraud or theft issue. Mr. Baskind submitted that since the Adjudicator would find it difficult to resolve this controversial matter, he should make no award at all. Speymill argued that Party should not be able to totally unfounded allegations of fraud which could bring the adjudication to an end. Even using his best endeavours, where either there is to be no oral evidence or evidence is not to given under oath, an Adjudicator would not be able to make a proper assessment of the fraud. In addition, the Adjudicator did not have the jurisdiction to rule on it because he would not be able to make a binding decision. Speymill submitted that it would be inappropriate for the matter to be “rehearsed” before the Adjudicator before the live witness evidence was tested. Speymill invited the adjudicator to disregard the fraud allegations, and leave that aspect of the dispute to the Court or an arbitration.

The Adjudicator considered both submissions, and concluded that, whilst he did not have the jurisdiction to decide on this criminal matter, the extent to which Mr. Baskind was able to prove his allegations of fraud, he would consider them as a defence against Speymill’s claims. The Adjudicator ordered Mr. Baskind to pay Speymill £100,704 in respect of the interim certificates, plus an additional £264,039 in respect of a further interim valuation of the works. In his decision, the adjudicator stated that, given his lack of jurisdiction over the criminal side of the case, he had restricted his deliberations to whether or not Mr. Baskind had issued the withholding notices. He noted that Mr. Baskind had refused to co-operate with his directions that the Parties and their experts meet. The burden of proving that he had issued the withholding notices lay with Mr. Baskind, and he had failed to discharge this.

Speymill issued a claim form in the Technology and Construction Court claiming payment of the sum awarded by the Adjudicator. Mr. Baskind defended the claim by again making the same allegations about the stolen the files, and claimed that Speymill had received the withholding notices because its former Managing Director, Andrew Latham and Ron Parsons had discussed them with him and had copies of the notices at the meeting. Speymill’s application for summary judgement was dismissed, as the judge found that Mr. Baskind’s defence disclosed an arguable defence, although he did express reservations about its strength. The judge granted leave to defend, conditional upon Mr. Baskind paying the whole sum into court. Speymill appealed.

On appeal, Speymill argued that the defence lodged by Mr. Baskind in the enforcement action, had been brought before the Adjudicator, and he had taken those arguments into consideration when making his decision. The Adjudicator’s decision, whether right or wrong, should now be enforced. There would no injustice because the correct position would be determined at the forthcoming arbitration between the Parties.

The Court of Appeal concluded that the Parties had not agreed that the Adjudicator should not consider the theft issue. Mr. Baskind was arguing that the allegations of theft could not be properly resolved by the Adjudicator, whilst Speymill was arguing that the theft allegation was a tactic which should not be permitted to derail the adjudication. Even if such an agreement had been made, it would have been irregular. It was not the court’s function in adjudication enforcement proceedings to investigate the Parties’ underlying dispute.

The Adjudicator had decided on the balance of probabilities that Mr. Baskind had not served the withholding notices, and had taken into account the allegations of theft. This was unsurprising considering that the alleged theft had taken place before the date of the fourth withholding notice; therefore, they could not have been stolen and should have been produced if they had actually existed. Even if Mr. Baskind’s personal copies had been stolen, it should have been possible to produce the copies held by the professional team. The court rejected the allegations that the Adjudicator had disregarded a material consideration- i.e. the theft- or had not properly addressed the issue.

The adjudication decision had not been tainted by Speymill’s fraud. The Adjudicator had considered the theft and taken it into account. The allegations of theft were not a basis for not enforcing the award. The decision was enforced but subject to a stay of execution because of its financial position.

Author: Ann Glacki

Date: March 2010

Commentary by Scott Milner

Where parties enter into a contract with provisions for an impartial certification of the value of the works and / the amount due (such as that in JCT forms, save for JCT Design and Build), the law is clear that the Employer must issue an effective withholding notice if it disputes the amount certified (Rupert Morgan Building Services LLC Limited v Jervis [2004]. The above case further supports the courts approach.

This case also provides clear guidance to the TCC that questions as to whether or not an effective withholding notice was issued is an issue that the adjudicator should consider. In the current case, regardless of the defence of fraud or theft, the adjudicator had consideed the issues and therefore there was no arguable defence at enforcement in the TCC.

The case also serves as a reminder to all parties that keeping important records in a safe and secure place is paramount. Without records the claim and defence is most likely to be doomed.

For more information, please contact Scott Milner by telephone 0114 2180668 or by email scott.milner@alway-associates.co.uk

Scott Milner

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