Man who failed to appoint replacement contract administrator loses appeal on housebuilding dispute

The Sheriff Appeal Court has upheld the decision of a commercial sheriff in a contractual dispute between a housebuilder and a client in Aberdeen who held that the client was required to make an interim payment following the resignation of the firm to which payment applications required to be submitted.

Michael Wilson challenged the decision that Graeme W Cheyne Builders Ltd was entitled to payment of £263,337.53, with interest, maintaining that the payment notice was improperly served. The terms of the contract were the standard Scottish Building Contracts Committee terms for minor works building contracts with a contractor’s design.

The appeal was heard by Sheriff Principal Aisha Anwar, sitting with Appeal Sheriffs William Holligan and Lorna Drummond QC. The appellant was represented by Young, advocate, and the respondent by Logan, advocate.

Resigned from office

In March 2016, the respondent contracted to build a house for the appellant in Cults, Aberdeen. Under the terms of this contract, it was entitled to make interim applications for payment, to be submitted to the architect, WCP Architects Ltd, for certification. However, WCP resigned from this office in July 2019, a fact which the appellant did not communicate to the respondent at the time.

Following WCP’s resignation, the respondent submitted an interim payment application in February 2020. The appellant refused to make the payment, claiming that the notice had not been validly served. The dispute was referred to adjudication by the respondent, which argued that the appellant was personally barred from asserting that the application had been improperly served having failed to appoint a replacement for WCP.

The adjudicator found in favour of the respondent; however, the appellant still refused to make payment. A commercial action was therefore raised seeking enforcement of the award, at which the appellant averred that the adjudicator had failed to deal with his principal defence that the application was invalid and had not provided adequate reasoning for her decision.

In October 2020, the sheriff decided the case in favour of the respondent, rejecting a counterclaim by the appellant that the notice was invalid. On appeal, the appellant submitted that the sheriff was plainly wrong to conclude that the respondent’s defences to his counterclaim, the personal bar and validity arguments, were not ones which had a real prospect of success. There had been no obligation on him to inform the respondent that WCP had resigned, and the respondent could simply have demanded that a new contract administrator be appointed.

Counsel for the respondent submitted that the sheriff had been correct to reach the conclusions that he did, and that the appellant sought to plead his own breach of contract, namely his failure to appoint a replacement scheme administrator, in his favour. This was sufficient to meet the requirements for personal bar.

Evidence risk of prejudice

Delivering the opinion of the court, Sheriff Principal Anwar noted: “It is somewhat surprising that [the standard terms] do not require a formal notice of cessation or nomination to be served upon a contractor in the event that the Architect/Contract Administrator ceases to act. Having clarity and precision in relation to this matter is plainly in the interests of both the employer and the contractor.”

She went on to say: “Having regard to the pivotal role performed by the Architect/Contract Administrator in the contractual arrangements between the parties, the risk of prejudice to the appellant’s position if he failed to nominate a replacement is evident and one to which, on the basis of the material before the sheriff, the appellant alone had exposed himself.”

Considering whether the respondents’ defences to the counterclaim had a real prospect of success Sheriff Principal Anwar said: “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 respondent’s conscious and deliberate decision to take no steps to ensure that the contractual payment mechanism provided for was operable.”

Turning to the personal bar arguments, she continued: “There was an onus upon the appellant to nominate a replacement to WCP if WCP ceased to act. The respondent avers and offers to prove that the appellant facilitated the respondent to attend the site and to perform works which the respondent would expect to be certified for payment by WCP, after WCP’s resignation. The prejudice to the respondent while not expressly averred, is plain.”

Sheriff Principal Anwar concluded: “The various defences asserted by the appellant 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 v Devonport Royal Dockyard Ltd (2005) has cautioned the courts to examine with a degree of scepticism. The sheriff was correct to so examine the defences and to conclude that they had no real prospects of success. We are not persuaded that in granting the respondent’s motion for summary decree the sheriff either erred in law or was plainly wrong.”

For these reasons, the appeal was refused. The case was then sisted pending the outcome of further adjudication between the parties.

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