REUTERS | Jim Young

Fraud and its impact on proceedings, including adjudication

I was in Dublin last week giving a talk to the Irish branch of the SCL. I’d prepared a talk on fraud in arbitration, adjudication and mediation and, during the day, I was made aware of the judgment in WL Construction Ltd v Chawke and Bohan (a thank you is due to Mark Warren in this regard). As it wasn’t a case I was familiar with, I thought I’d take a look and share my thoughts on the blog.

Funnily enough, it is almost exactly 12 months since I last looked at fraud, and on that occasion I borrowed from Lord Denning’s infamous statement in Lazarus Estates Ltd v Beasley that:

“No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.”

When you see what happened in WL Construction, you will realise just how on point Lord Denning was over 60 years ago.

WL Construction Ltd v Chawke and Bohan

This dispute had its roots in a building contract entered into in 2005. Mr Chawke and Mr Bohan owned the Lord Lucan pub in Lucan and wanted to renovate it, and WL Construction was employed to carry out the building works. The price for phase 1 of the project was €583,000. In addition, the contract allowed for a number of provisional sums that had to be agreed, and which became one of the “major controversies” in the case. Phase 2 of the works related to the fit-out of the premises and were priced at €120,000.

As is often the way, the project experienced delay. There was also an issue over the architect certifying the sums due to the contractor, but it seems the pub re-opened in time for people to celebrate Halloween in 2006 and all works were completed by the end of 2006.

Between January 2007 and July 2009 (when the contractor’s statement of claim was delivered), it seems the contractor put forward various figures for the final balance owing to it for the works at the Lord Lucan pub, ranging from about €170,000 to €221,000. However, it didn’t stop there. In early 2015, the sum claimed increased again, this time to something in the region of €342,000, and the trial started in November 2015 with this as the sum in dispute. (Towards the end of the judgment, the judge suggests the contractor presented 14 different versions of the claim!)

The contractor advanced such a wide range of figures that it is perhaps no surprise that when the matter came to trial, the court took an interest in some of the contractor’s invoices, particularly those that showed evidence of being changed, whether it was the client’s name or something else. For example:

“The second alteration that has been made to the invoice is that the price shown at the foot thereof, being €700, has been modified by the addition of a zero so that it now reads ‘€7,000’.”

The court’s conclusion on the contractor’s claim is succinctly set out in paragraph 66:

“At the end of the day therefore, the proof of the plaintiff’s claim and its quantum rests upon the evidence of Mr. Loughnane and Mr. O’Kane. I have already referred to parts of Mr. Loughnane’s evidence. I have found that he deliberately and repeatedly lied on oath in giving that evidence. He fraudulently altered invoices which were entirely unrelated to this claim to give them the appearance that they were so related. This included the Hubert Maxwell Haulage invoice on foot of which the plaintiff advanced a fraudulent claim for €17.025. Not content with that, in one case he changed the invoice from €700 to €7,000 and in another, from €641 to €5,175. By including these fraudulent invoices in his affidavit of discovery Mr. Loughnane swore on oath that these were relevant to the claim and supportive of it, a fact he knew to be untrue. The entire claim is tainted by the lies and dishonesty of Mr. Loughnane.”

Mr Kane was the independent expert instructed by the contractor, but it seems he didn’t fare much better:

“Mr. O’Kane accepted at face value what he was told by Mr. Loughnane when any reasonably careful analysis of the item claimed ought to have disclosed that it could not be sustained.

… Mr. O’Kane engaged in a process of constantly altering, amending and reinventing the plaintiff’s claim, almost a decade after the event. This was starkly demonstrated on Day 25, the last day of Mr. O’Kane’s evidence, when, as alluded to above, he was unable to say what the plaintiff’s claim was without the benefit of an adjournment to calculate it.

In summary, I find Mr. O’Kane’s evidence to be confused and utterly confusing and, for the many reasons I have identified, quite unreliable.”

The court had to decide whether the contractor’s dishonesty was such that there was an abuse of process, with the ultimate sanction of striking out the claim. It concluded there was because the case “stands or falls on the evidence of Mr. Loughnane and Mr. O’Kane” and they had completely undermined it.

It is perhaps unsurprising that the contractor’s claim was struck out. The case clearly shows how a lack of credibility, coupled with fraud, can result in a claim being struck out.

It is also an example of how long, lengthy and expensive litigation can be. This was a 30-day trial that collapsed after about 10 years. The court suggested that the contractor was responsible, noting that how the claim was presented had a “dramatic effect on the length of time” the case had taken (the trial estimate had increased from six days) and because at any given time the defendants did not know:

“… what case they have come to court to meet with new claims being constantly presented for the first time right up to Day 25 of the trial.”

As the court noted, a party may have a right to bring court proceedings, but that right is not absolute and the court’s resources must be “protected” for the benefit of all litigants. What the contractor did was “the clearest abuse of the court’s process”.

Could it have been different?

With hindsight, I wonder if adjudication would have helped the parties, although one concern I have is how an adjudicator would have coped with the contractor’s ever-changing claim and whether it would have been possible to spot the dishonest behaviour in the time scales allowed in an adjudication.

Sometimes I think that parties think they can try things on in adjudication, and we do see examples where they try to abuse the procedure with sharp/fast practice. As a result, I really think adjudicators need to have a touch of healthy cynicism when assessing submissions and evidence, and must always be alive to the possibility of fraud. However, adjudicators also need to be able to differentiate between, on the one hand, speculative or arguable claims and, on the other, serious acts of fraud, which, to be established, will need to be supported by clear evidence.

MCMS Ltd Matt Molloy

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