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Eurocom v Siemens: a “strong prima facie” case of fraudulent misrepresentation

In adjudication, the identity of the adjudicator can be of critical importance. Not only do adjudicators decide the referred dispute, they also deal with questions of jurisdiction, and manage the fairness of the process. Some experienced users of adjudication develop favourites or those they would rather avoid.

Not surprisingly, referring parties have sought to influence the appointment of the adjudicator by the nominating body (ANB). The courts have generally taken a permissive view of this. For example:

  • In Makers UK Ltd v Camden, it was held that there was no implied term preventing a referring party from making unilateral representations to the ANB as to who should act as the adjudicator. Akenhead J noted that this practice was “at least not uncommon” and held that ANBs may want to consider whether they welcome such representations, and whether notice of such representations should be given to the other side.
  • In Lanes Group plc v Galliford Try Infrastructure Ltdthe Court of Appeal held that a referring party who gets an adjudicator it does not want can allow the referral to lapse. At first instance, Akenhead J referred to the “relatively minor” constraints on such a practice, such as the extra costs and the nomination fee.

Eurocom Ltd v Siemens plc

In Eurocom Ltd v Siemens plc, the referring party (Eurocom) had strong views as to the identity of the adjudicator. Its representative, Knowles Ltd, applied to the RICS for a nomination. The RICS’ nomination form contains two boxes, the first where particular characteristics can be named. The second box asks the referring party to name anyone who might have a conflict of interest. In this case, this was completed as follows:

“We would advise that the following should not be appointed:

Mr Leslie Dight and Mr. Nigel Dight of Dight and partners; Mr. Slamak Soudagar of Soudagar associates; Rob Tate regarding his fees – giving rise to apparent bias; Peter Barns for dispute of a minimum fees charge and apparent bias; Additionally Keith Rawson, Mark Pontin, J R Smalley, Jamie Williams, Colin Little, Christopher Ennis and Richard Silver, Mathew Molloy who has acted previously or anyone connected with Fenwick Elliott solicitors who have advised the Referring Party.”

At this stage it is necessary to introduce a little history of the matter. The works were the installation of communications systems at Charing Cross and Embankment underground stations for London Underground. Siemens sub-contracted Eurocom to carry the works out. The works were delayed and disputes arose between the parties. Eurocom commenced a first adjudication for payment under the contract but was unsuccessful. In a decision dated 27 September 2013, Mr Matt Molloy (the first adjudicator) held that the balance of the account was in Siemens’ favour.

The second adjudication

Over a year later on 21 November 2013, Knowles served a notice of adjudication on Siemens and gave notice that they would be applying to the RICS for the appointment of an adjudicator forthwith. The RICS appointed Mr Anthony Bingham (the second adjudicator). Neither Eurocom/Knowles nor the RICS sent the form to Siemens.

Siemens asked for the nomination form on 29 November 2013, day 3 of the adjudication. After some persistence, it eventually received the form from RICS on 7 January 2014, day 39 of the adjudication (which ran to day 60). Upon receipt of the form, Siemens asked Eurocom and Knowles to explain what the alleged conflicts of interest were. Of particular significance was the fact that Mr Molloy had been named as one of those conflicted on the basis that he had “acted previously”. This was important because the RICS’ explanatory note to the nomination form explained that where there was a series of adjudications under one contract, “Normal policy is to nominate the same adjudicator because of potential savings in costs and time”.

No explanation for the alleged conflict was given by Eurocom or Knowles who ploughed on with the adjudication, this time obtaining an award of £1.6 million.

Enforcement proceedings

It took Eurocom almost 6 months to commence enforcement proceedings. When it did, the court directed it to:

“disclose copies of all communications relating to the appointment of the adjudicator and, in relation to any potential adjudicator whom it claimed to have a conflict of interest, within ten days of service of this order it is to state briefly what that conflict of interest was.”

The explanation given by Mr Giles of Knowles was:

“I largely use this box as a means of stating which adjudicators, based on previous experience, I would not send a referral document; in effect a pre-emptive rejection list. This saves time and money that would otherwise be expended in allowing notices of adjudication to lapse and reapplying for alternative adjudicators. In the instances where there is a conflict I obviously say why.”

The approach adopted appeared to be using the application form as a way of avoiding even the “minor constraints” Akenhead J referred to in Lanes Group v Galliford Try.

As regards the inclusion of Mr Molloy, the explanation given was that:

“with regard to Mr Matthew Molloy who had adjudicated on a previous dispute between the parties, I considered that he had been inundated with jurisdictional challenges and I thought that a fresh mind was appropriate.”

Siemens’ challenge to enforcement

Siemens resisted enforcement (among other grounds) on the basis that the adjudicator’s appointment was invalid because:

  • There was a clear misrepresentation. A false statement was made deliberately and/or recklessly and a nomination based upon such a misrepresentation was invalid and a nullity so as to go to the foundation of the adjudicator’s jurisdiction.
  • It was an implied term of the sub-contract that the party seeking a nomination should not subvert the integrity of the nomination process by knowingly or recklessly making false representations to the ANB or so as to improperly limit or fetter the ANB’s ability to choose an adjudicator.

Fraudulent misrepresentation

With regard to fraudulent misrepresentation, Ramsey J held that the statement in the conflicts box that “the following [adjudicators] should not be appointed” was a false statement. In particular, he held that there had not been any justification in saying that Mr Molloy was conflicted:

“Mr Molloy dealt with jurisdictional challenges raised by Siemens early in that adjudication and rejected them, deciding in favour of Eurocom. Such challenges are common in adjudication and there does not seem any justification either in saying that Mr Molloy was inundated with such challenges or in there being a need for a fresh mind on that basis. There was clearly no conflict of interest.”

Thus the first adjudicator who received and rejected jurisdictional challenges was not conflicted out of a subsequent adjudication on that basis. The judgment endorses RICS’ policy that, unless there are particular reasons not to, it will save time and costs in serial adjudications if the same adjudicator is appointed.

As to whether the statement was made deliberately or recklessly, Ramsey J held:

“63. On an application such as this for summary judgment based upon evidence in witness statements without cross examination it is not appropriate for me to come to a concluded view as to whether Mr Giles acted fraudulently in making that false statement. However the evidence gives rise to a very strong prima facie case that Mr Giles deliberately or recklessly answered the question as to whether there were conflicts of interest so as to exclude adjudicators who he did not want to be appointed. Indeed he says in paragraph 9 of his first witness statement that that was the reason he mentioned those people in that box. It is very difficult to understand how Mr Giles, as a non-practicing barrister, could otherwise complete that box in that way.

64. Again this is supported by Mr Giles’ explanation of the reason he included Mr Molloy within that box. I find it very difficult to accept his explanation as to a fresh mind which, as I have said, is not justified by the facts. It seems much more likely that the reason for including Mr Molloy was that Eurocom did not want Mr Molloy to be appointed because of the result of the First Adjudication being unfavourable to Eurocom in deciding that Eurocom owed money to Siemens.”

Finally, and of particular interest, was the issue of materiality of the false statement. Ramsey J held that:

“As a matter of general principle where a party makes a material fraudulent representation to an independent body which is exercising a discretion, I consider that the exercise of that discretion would be invalidated.”

This is based on Rous v Mitchell [1999] 1 WLR 469 and Lord Denning’s famous dicta in Lazarus Estates Ltd v Beasley [1956] 1 QB 702 that “fraud unravels everything”, as recently applied in the Supreme Court by Lord Sumption JSC in Prest v Petrodel Resources Ltd. As such, it was not necessary to prove reliance by the ANB as the fraudulent misrepresentation voided the transaction altogether. Further, and in any event, Ramsey J held that the pool of potential adjudicators had been “improperly limited”, which was sufficient causation between “the fraudulent misrepresentation and the process of appointment” to defeat an application for summary judgment.

Was there an implied term?

On Siemens’ alternative argument as to there being an implied term, Ramsey J again made findings that will be of future interest to parties in adjudication.

Following Akenhead J’s obiter comments in Makers v Camden, Ramsey J held that parties enter contracts on the basis that the other party will act honestly. A party applying for a nomination should not act dishonestly and any party that did so would be in breach of an implied term to that effect. This was sufficient to mean that the adjudicator did not have jurisdiction.

Siemens’ other arguments

Ramsey J went on to consider Siemens’ other arguments, and the judgment contains interesting findings on jurisdiction for overlaps between adjudications, stay of enforcement due to the financial position of Eurocom and on the court’s approach to arguments of natural justice.

Lessons to learn when approaching nomination issues in adjudication

Focusing on the nomination point in light of this decision, what are the lessons for the respective entities in approaching nomination issues in adjudication?

Referring parties

Referring parties need to be aware that tactical attempts to influence the nomination process can be a high risk strategy. Responding parties are now likely to seek the nomination form and referring parties need to be careful that what they put in that form does not risk a successful challenge rendering the decision unenforceable.

As set out above, it is probably permissible under the case-law for a referring party to make representations to the ANB as to the identity of adjudicators they do, and even those they do not want. This could be done in the covering letter. What they cannot do is give the misleading impression that certain adjudicators have a conflict of interest when in fact they do not. Further, any conflicts claimed should be explained on the form.

Responding parties

Responding parties will now be well-advised to demand a copy of the nomination form. If this is not granted, it is worth persisting, even up to any enforcement proceedings. If the form is disclosed and a conflict is alleged without any explanation, it is important to ask the referring party to explain the alleged conflict. The adjudicators named as having a conflict could also be approached, as they were in this case, to ask them whether they consider themselves to be conflicted.

ANBs

For ANBs, Ramsey J held that there was no obligation on them to send the form to the parties. Nevertheless, he described doing so as “evidently best practice”.

It is suggested that an ANB can best protect its position and the integrity of the adjudication system by being as transparent as possible. There is nothing to be lost by the ANB sending the nomination form to the responding party, in particular when it is claimed that some adjudicators have a conflict of interest or where unilateral representations are made. In most cases, the ANB simply does not have the time or resources to check whether there is in fact a conflict. By passing the form onto the responding party, the ANB is giving it to the party in the best position (and with the greatest incentive) to police the accuracy of the information given. If necessary, a responding party can always make an appropriate application to the court if it takes issue with representations on the application form.

Adjudicators

Adjudicators need to be aware that this is a ground of challenge that may nullify their jurisdiction and render their decisions unenforceable. If the point arises they could consider a direction requiring the referring party to disclose the form and/or explain any alleged conflicts in order to avoid the parties incurring unnecessary expense of going to court. If no explanation is forthcoming, the adjudicator may wish to consider whether they should resign. If he or she does so voluntarily, there will be limited opportunity for either party to argue against a re-nomination of the same adjudicator following the proper nomination process being followed.

Fionnuala and Paul appeared before Ramsey J on behalf of the defendant, Siemens plc.

One thought on “Eurocom v Siemens: a “strong prima facie” case of fraudulent misrepresentation

  1. Along with Suber Akther, solicitor-advocate and in-house litigation lawyer at Siemens plc, Fionnuala and Paul are joining a roundtable workshop on adjudication appointment tactics.

    This two-hour practical workshop will explore the various tactics that referring parties use when seeking to obtain adjudication appointments. It will look at the issues from the perspectives of both the referring party and the responding party.

    If you are interested in attending, please follow this link, which provides more information and registration details: see Practical Law, Roundtable Workshop: Adjudication Appointment Tactics – The do’s and don’ts following recent case law.

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