Mcgivney Construction Ltd Against (first) Jozef Kaminski And (second) Glen Maree Contracts Ltd
| Jurisdiction | Scotland |
| Judge | Lord Woolman |
| Neutral Citation | [2015] CSOH 107 |
| Court | Court of Session |
| Docket Number | CA61/13 |
| Published date | 11 August 2015 |
| Date | 11 August 2015 |
| Year | 2015 |
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 107
CA61/13
OPINION OF LORD WOOLMAN
In the cause
MCGIVNEY CONSTRUCTION LTD
Pursuer;
against
(FIRST) JOZEF KAMINSKI
(SECOND) GLEN MAREE CONTRACTS LTD
Defenders:
Pursuer: J Brown; Lindsays,
Defenders: Upton; Balfour and Manson LLP, The McKinstry Co, Ayr
11 August 2015
Introduction
[1] Peter McGivney is a qualified electrician. He set up McGivney Construction Ltd (‘MCL’) in 1998. He owns 80 per cent of its shares and his wife owns the remaining shares. MCL typically undertakes works in relation to street lighting and traffic signals. It receives most of its work from local authorities and main contractors.
[2] Mr McGivney met Mr Kaminski several years ago when they worked on the same construction project. In 2002 MCL employed Mr Kaminski as a labourer. He proved to be a good employee. In early course he became the foreman of MCL and took charge of its day‑to‑day operations. He prepared and submitted tenders, gave orders to the workforce and deployed the plant and materials. His role brought him into contact with many of MCL’s customers. Apart from their working relationship, Mr Kaminski also developed a close friendship with Mr and Mrs McGivney. He often took his evening meals at their house.
[3] In late 2007 Mr McGivney considered giving Mr Kaminski a half-share in the company. Before doing so he consulted MCL’s accountant, William White. Mr McGivney accepted Mr White’s advice to take matters forward in stages. He made Mr Kaminski a director of MCL with effect from 1 January 2008. At the same time, he mentioned that he would arrange a share transfer if everything continued to progress smoothly.
[4] In 2010 Mr McGivney received unwelcome news about Mr Kaminski. He learned that Mr Kaminski was doing a “homer” for a landscaping business in Ayr. It was called Shades of Green and was owned by a friend of Mr Kaminski. In other words, he had used MCL’s labour, plant and materials to carry out the works, but without rendering an invoice from MCL for their value.
[5] Mr McGivney again consulted Mr White and the two men decided to confront Mr Kaminski. The meeting took place on 10 May 2010 at Mr White’s office. In his evidence Mr White stated that at the meeting he followed the points set out in a handwritten note he had prepared in advance. He reminded Mr Kaminski of his fiduciary duties, and raised concerns about their breach in relation to Shades of Green. Mr Kaminski indicated that he would raise an invoice in relation to that job, and he subsequently did so. Other than to confirm that he was not involved with any other business, he did not say anything else at the meeting.
[6] In late 2012 Mr McGivney received a tipoff that Mr Kaminski had applied for an operator’s licence for a new company. Mr McGivney asked his solicitor to investigate. She discovered that in 2011 Mr Kaminski had incorporated a company called Glen Maree Contracts Ltd (‘GM’). Her enquiries also disclosed that GM had been awarded several sizeable contracts in the same field as MCL. They included a contract with North Ayrshire Council (‘the Council’) for which GM had received payment of around £159,000 in September 2012. As MCL is on the framework agreement for the Council, it would have expected to bid for such a contract.
[7] On 5 April 2013, MCL wrote to Mr Kaminski suspending him from his duties. He replied the next day enclosing a resignation letter dated 4 February 2013. Mr McGivney denies receiving that letter. Because he wished to terminate his business relationship with Mr Kaminski, however, Mr McGivney stated that he accepted his resignation with effect from 11 April 2013.
[8] MCL raised the present action for count, reckoning and payment to recover the sum it claims is properly due for the period in which the defenders were acting improperly. GM accepts liability to account. It has lodged a set of accounts relating to the 16 month period from the date of GM’s incorporation in 2011 until 1 September 2013. Kevin Ottley of Wilson and Dunn, chartered accountants prepared these accounts. He has based them on earlier accounts prepared by his predecessor as GM’s accountant, Robin Burnside of McMorland & Co.
[9] MCL lodged a note of objections to the restated accounts. It retained an independent chartered accountant, John Kerr, to provide it with expert assistance. He and Mr Ottley met in September 2014 and they were able to resolve a number of matters in dispute.
The scope of the proof
[10] There are five questions for decision. The first three relate to the outstanding objections to GM’s accounts.
(a) Is the entry of about £75,000 in respect of cash withdrawals from the bank in relation to (i) wages, (ii) materials, and (iii) motor expenses justified?
(b) Are the deductions for payments to sub-contractors justified?
(c) Is the provision for £93,000 for work still to be done justified?
(d) When did Mr Kaminski resign from MCL?
(e) Is Mr Kaminski entitled to relief under s 1157 of the Companies Act 2006?
Preliminary
MCL’s Investigations
[11] Prior to the proof MCL made extensive enquiries to investigate the validity of GM’s position in relation to the disputed entries in the accounts. MCL brought a petition to recover evidence under section 1 of the Administration of Justice (Scotland) Act 1972. It held an open commission at which Mr Kaminski gave evidence. It lodged letters of request to the High Court in England to take the evidence of four persons in relation to payments to sub-contractors. MCL was largely unsuccessful in its enquiries. It was unable to find the contract documents it sought, or to trace the witnesses it wished to question.
Mr Burnside CA
[12] Mr Burnside was not a witness at the proof, but MCL lodged an affidavit from him. MCL had not originally intended to call him as a witness, but changed its mind after the defenders revised their pleadings in early 2015 to criticise his role in preparing GM’s accounts. MCL discovered that he would be abroad at the time of the proof and elected not to cite him. While he was not available for cross-examination, I decided that I could take his affidavit into account.
The burden of proof
[13] Where a defender admits liability to account, the burden of proof initially rests on the objector: Smith v Barclay 1962 SC 1. The onus may, however, shift to the person relying on the accounts. It will depend on the circumstances of a particular case: Murad v Al-Suraj [2005] EWCA Civ 959 para 76; Condliffe v Sheingold [2007] EWCA Civ 1043, para 23.
[14] Where the evidential burden lies may, however, be irrelevant as “questions of onus usually cease to be important, once the evidence is before the court”: Sanderson v McManus 1997 SC (HL) 55, 62G per Lord Hope of Craighead. The court makes its factual findings after evaluating all the testimony, oral and written. It can draw an adverse inference if a party fails to lead evidence that it would be expected to lead: Wisniewski v Central Manchester Health Authority [1998] PIQR 324.
Credibility and reliability
[15] Actions of count, reckoning and payment often focus on matters of a technical nature. That is not the case here. Questions of credibility and reliability loom large. Because there is so little paperwork to support the entries in the accounts, Mr Kaminski’s evidence is crucial.
[16] Mr Brown appeared on behalf of MCL. At his invitation, I gave directions to Mr Kaminski about self-incrimination at the start of his cross examination. He elected to answer all the questions put to him. In his closing submissions, Mr Brown submitted that Mr Kaminski was a liar and a perjurer, who had “robbed the company blind”. Mr Brown invited me to hold that Mr Kaminski had committed eighteen separate acts of dishonesty. I see no need to undertake that lengthy exercise. Instead, I propose to test his credibility and reliability in relation to four key issues.
A. The North Ayrshire Council contract
[17] A significant chapter of the evidence related to the 2012 contract that the Council awarded to GM. The works in question related to traffic signals at a series of junctions on the main road from the centre of Irvine going north along the Ayrshire coast through Kilwinning, Stevenston, Saltcoats and Ardrossan. This contract would have required heavy plant and machinery, and several men to carry it out.
[18] Mr Kaminski’s initial account, as contained within his witness statement, about the award and performance of this contract can be summarised as follows:
(a) GM obtained the contract from the Council in July 2012.
(b) GM sub-contracted the works to Bonza Green Ltd.
(c) The works were carried out in July 2012 and lasted three weeks.
(d) He was not present when the works were carried out.
(e) The Council paid £159,000 to GM in respect of the works on 4 September 2012.
(f) GM paid Bonza Green Ltd in July of the following year.
[19] The award of the contract is shrouded in mystery. No procurement exercise took place. GM was not on the framework agreement. At that time, it did not have its own workforce, plant and materials. It had not registered with the Construction Industry Scheme (“CIS”) operated by HM Revenue and Customs.
[20] Mr Gooding, the Council official responsible, gave evidence. His account was as follows. The Council made the award in haste to use up funds from Strathclyde Partnership for Transport, which would otherwise expire at the end of the financial year. Mr Kaminski told him that MCL and GM were in partnership. Accordingly, Mr Gooding had assumed that there was no difficulty with GM not being on the framework. When he had visited the sites to inspect the contract works from May onwards, Mr Kaminski had always been present. Mr Gooding never saw any sub-contractors, nor did he see any licences, insurance certificates or CIS forms.
[21] Although Mr Gooding was clearly defensive about a number of aspects of the contract award, I formed the clear impression...
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