UK: Fraud And Adjudication Enforcement

Last Updated: 3 March 2010
Article by Julian Bailey

The Current Landscape

The challenge for unsuccessful parties in adjudications is often to come up with ingenious arguments to avoid making payment pursuant to the adjudicator's decision. These arguments are either to the effect that the adjudicator's decision should not be enforced because it is invalid, e.g. because the adjudicator lacked jurisdiction, or because there are other reasons (e.g. the insolvency of the referring party) for not allowing it to be enforced straight away even if it is a valid decision.

The grounds on which the enforcement of an adjudicator's decision may be opposed are not closed, and the courts are constantly having to grapple with inventive arguments regarding enforcement. A decision made last Thursday by the Court of Appeal in Speymill considered such an argument, this one being based on fraud.

Summary of Facts

  • The employer engaged the contractor to convert a country house hotel into the employer's home. The contractor was engaged on JCT 98 terms (Private With Quantities) that incorporated the JCT adjudication procedure (which is not used in the current 2005 suite). As the contract was for the construction or alteration of a dwelling, the Construction Act did not apply, but the parties "opted in" by using the JCT 98 form.
  • The contractor made various claims for payment, which were certified by the project architect. The employer paid the first few of these, part-paid one certificate, and refused to make payment in respect of the remaining certificates.
  • The contractor brought an adjudication in respect of the outstanding payments. One of the issues in the adjudication was whether the employer had issued valid withholding notices against the payment certificates. The employer said that it had, but was unable to produce those withholding notices. This was because (the employer said) the contractor's workers had stolen files from the employer's office which included the withholding notices, and furthermore the employer did not have electronic versions of the notices because a lightning strike had damaged the employer's computer. The contractor, for its part, denied ever having received any withholding notices.
  • The respective arguments on whether withholding notices had been served were put to the adjudicator, who weighed up what evidence there was and decided there was insufficient evidence to show that any withholding notices had been issued. Accordingly, he allowed the contractor's claim. He did not make any decision as to whether or not any files had been stolen, as it was not necessary for him to do so.

Fraud

The successful contractor sought to enforce the adjudicator's decision in court by seeking summary judgment. However, the employer successfully resisted summary judgment by arguing that the contractor had obtained the adjudicator's decision as a consequence of its fraud, namely the supposed theft of the withholding notices. The contractor appealed.

The Court of Appeal disagreed with the judge in the lower court, and said that the adjudicator's decision was not unenforceable. The fraud point - which turned on whether the employer's files had been stolen by the contractor - was argued before the adjudicator, and he had decided the matter, on the evidence before him, by reference to whether the withholding notices had (or had not) been served. His decision was therefore binding, even if it turned out that the contractor had stolen the files containing any withholding notices.

The Court of Appeal did, however, distinguish between an adjudication taking place where an allegation of fraud is made (and can be made), and where a fraud only comes to light after an adjudication has taken place. In the latter case, fraud (or a strong allegation of fraud) could provide a basis for refusing to enforce an adjudicator's decision.

Comment

  • Fraud raises difficult issues for adjudicators and courts who have to deal with the enforcement of adjudicators' decisions. One issue is whether an adjudicator has jurisdiction to consider and make a decision regarding allegations of fraud. Is a dispute which involves fraud one arising "under" a construction contract? There is much force in the view that if the fraud occurs during the course of a contract, it arises "under" the contract; whereas if it concerns pre-contractual fraud it does not (in which case the adjudicator lacks jurisdiction to decide the matter).
  • From a tactical and ethical point of view, making an allegation of fraud - whether in an adjudication or in court - is a serious matter that requires strong evidence to support it. Alleging fraud without a credible basis for doing so will usually backfire on a party, and one can sense that the Court of Appeal did not think there was any persuasive evidence of fraud in the Speymill case.
  • Given this, it seems highly unlikely that unsuccessful parties in adjudications will be able routinely to avoid the enforcement of an adjudicator's decision by crying "fraud". There have, however, been other recent cases in which fraud has been put forward (unsuccessfully) as a basis for opposing enforcement. Notwithstanding, the decision in Speymill will almost certainly not act as a deterrent to lawyers and others in coming up with ingenious grounds for resisting enforcement. Some recent TCC decisions (http://tinyurl.com/yz3vk5f) give a flavour for the types of arguments and tactics that are being deployed.

Reference: Speymill Contracts Ltd v Baskind (www.bailii.org/ew/cases/EWCA/Civ/2010/120.html) [2010] EWCA Civ 120

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/03/2010.

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