“Real risk of dissipation” test
Coulson LJ had raised the possibility of there being a particular test for fraud in Equitix v Bester (when he was still Coulson J), musing in passing on the possible need for a test to suit a situation where the fraud potentially impacted on the financial standing of a company.
However, it seems unlikely that the test of a “real risk of dissipation” was really the one that the TCC was looking for, especially where it has been emphasised at every turn that the test is likely to be used only rarely and given Coulson LJ’s concession that another judge at first instance might not have granted a stay on the basis of the evidence available.
Indeed, one issue with the test as formulated is that staying an adjudication award on the mere possibility of risk needs to be considered very carefully. There is clearly a certain logic to it: if there is a concern that the money will not be available by the time a final determination is made, then it feels right that such a concern should be protected against.
However, in Wimbledon v Vago, the question of whether the money would still be there at the time of any final determination was answered on the basis that there was “probably [an] inability to repay”, which is something rather more than a risk. The Court of Appeal is clearly correct when it says that the TCC is permitted to grant a stay wherever there is any “special circumstance” pursuant to CPR 83.7. The principles set out in Wimbledon v Vago are not, as Coulson J (as he then was) acknowledged in Equitix, “set in stone”. In Wimbledon, Coulson J had also acknowledged that:
“… each case must turn on its own facts. Whilst I respectfully agree with that, it does seem to me that there are a number of clear principles which should always govern the exercise of the court’s discretion when it is considering a stay of execution in adjudication enforcement proceedings.”
Those factors were that:
- Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
- Adjudicators’ decisions are intended to be enforced summarily and the claimant should generally not be kept out of its money.
Therefore, although Coulson LJ accepted that the application of (only part) of the freezing order test was appropriate – after all it is not the full test, which is also about “just and convenient” and a “good arguable case on the underlying merits” – a freezing order is a different species of thing. It is a mechanism for preserving funds where there is no current determination as to who has the right to them, where there is dispute.
The situation is different when you are looking at an adjudication decision because, although it is a decision of temporary finality, there has been a determination of rights that Parliament (and the courts) have decided must bind the parties (such that it can be enforced) even in the face of it being quite wrong as a matter of law or fact.
Therefore, if the court is permitted to grant a stay on the basis of a risk, authority and principle would militate in favour of the approach taken by O’Farrell J in BN Rendering Ltd v Everwarm Ltd, where enforcement was stayed pending provision of a guarantee bond or other form of guarantee.
In that case, the director of the claimant company had started to move large sums of money out of the company and had, as O’Farrell J said, used the company as his own personal piggybank. She said:
“It is the movement of money that is new and is an indication, to my mind, that the claimant would have no compunction about organising its affairs in such a way that the defendant might be deprived of the adjudication sum or other assets of the company if the adjudication decisions were to be subsequently reversed and the claimant company required to repay the funds.”
Indeed, looking at O’Farrell J’s approach, it is surprising that in Gosvenor the stay was not made conditional and that the Court of Appeal was not willing to consider if that, at least, was something that Fraser J had not got right.
Evidence before the adjudicator and the court
However, regardless of that issue, an important differentiating factor between BN Rendering and Gosvenor is that there was no, what the court in Gosvenor described as:
“… overlap between the evidence that was or could have been deployed in the adjudication and the evidence deployed in support of the stay.”
In BN Rendering, all of the evidence was evidence about the financial standing of the company, that is to say, evidence drawn from the various transactions undertaken by the company and its accounts. It was not said, as in Gosvenor, that the monies awarded by the adjudicator had been obtained by fraud. In any event, the court in Gosvenor held that it is always:
“… for the judge in each case to assess the extent (if at all) of that overlap… and to determine the consequences (if any) of that overlap.”
Indeed, the principles set down to regulate how the court treats an adjudicator’s decision and the evidence placed (or which could have been placed) before the adjudicator is important because it helps the court to maintain the balance that undermines the adjudication regime.
Evidence and fraud
So, the question is whether what has been decided in Gosvenor about the treatment of the evidence and the adjudicator’s decision maintains this balance. As ever, the devil is in the detail.
Although Coulson LJ sought to minimise the fact on appeal, Fraser J did at least say that he was taking into account Aygun’s allegations of fraudulent over-billing – it fortified him in his belief that there was a hint of impropriety.
Coulson LJ had acknowledged that Aygun had defended the adjudication on the basis that Gosvenor’s invoices:
“… were exaggerated and that there was a huge discrepancy between the value of the work actually performed – the remaining 3% of the work – and the labour costs of well over £500,000 invoiced by Gosvenor.”
He also acknowledged that the adjudicator:
“… considered all the issues and awarded Gosvenor the sum of £553,958.47 plus VAT.”
Therefore, the fact that Gosvenor was entitled to the sums they had claimed was a matter the adjudicator had decided. On that basis, it was something they had agreed to be bound by until a final determination.
If Aygun could show that the adjudication sums had been obtained by fraud, that would have been enough to provide a defence to the summary judgment application. However, in fact, Fraser J had accepted that such an allegation could not get passed the hurdles imposed by SG South v King’s Head Cirencester. Therefore, the adjudicator’s decision was still intact and binding when the court came to consider the stay.
However, the Court of Appeal decided that Fraser J had been entitled to conclude that “the discrepancy argument, and the resulting allegations of fraudulent invoicing, was also solid evidence of a real risk of dissipation” and that he could take it into account. In doing so, the court has essentially removed the restrictions that had previously been assumed to be imposed by SG South (as affirmed by Speymill Contracts v Baskind) on how fraud could be raised in respect of a stay. Most surprisingly, this seems to include a restriction that the parties are bound by an adjudicator’s finding, at least where fraud is being raised.
On one view, the adjudicator’s determination as to the fact that money was owing to Gosvenor was, therefore, relegated to the status of a “factor to be taken into account”. Coulson LJ found that:
“… if a particular part of the evidence had been rejected by the adjudicator, and that same evidence was said to be relevant to the risk of dissipation, the adjudicator’s rejection may well be a material consideration in the exercise of the court’s discretion, but it will not necessarily be decisive.”
This also allows the court to scrutinise what has been decided in a way the court would not normally do. Of course, a court may be required to scrutinise an adjudicator’s decision in instances where issues of jurisdiction or natural justice are raised as a defence. However, on such occasions, the scrutiny goes much more to form than the substance of what was decided.
The court in Gosvenor has not, perhaps, heeded Ramsey J’s warning, given in GPS Marine v Ringway, that the court must be wise to parties merely trying to reformulate a case the adjudicator rejected as one of fraud:
“Otherwise a party could challenge enforcement on the basis of matters they knew about at the time of the adjudication but failed to deploy.”
The fact that an adjudicator might be wrong about any decision he makes on matters of fraud should not change that. Furthermore, the reason for treating fraud differently in respect of a stay (namely that the court is applying the evidence of fraud for a different purpose, that is in assessing the risk of dissipation) does not defeat the issues of policy addressed in SG South and GPS Marine.
Indeed, the approach suggested by the court in Gosvenor could lead a defendant (albeit perhaps only the most calculating) to see a tactical advantage in leaving allegations of fraud out of the more detailed consideration to be carried out by the adjudicator – where, for example, an adjudicator can hold a hearing to hear evidence – so as to raise them for the first time on enforcement where the level of scrutiny that they can be subjected to is less, to the extent that cross-examination is not (at least usually) part of the enforcement process.
If all that is required is for the other side to put in some evidence in response, then it cannot easily be seen why the court should be expected to give time to allegations, as a matter of policy.
In Hutton Construction v Wilson Properties, Coulson J was willing to restrict the category of Part 8 claims that could be brought along side an enforcement to those that where short, self-contained matters, that were capable of being determined without oral evidence and which it would be unconscionable to ignore.
The reasoning of the court was clear:
“In my view, many of the applications which are currently being made on this basis by disgruntled defendants (and which are not the subject of the consensual process noted above) are an abuse of the court process. The TCC works hard to ensure that there is an enforcement hearing within about 28 days of commencement of proceedings. The court does not have the resources to allow defendants to re-run large parts of an adjudication at a disputed enforcement hearing, particularly in circumstances where the adjudication may have taken 28 days or 42 days, whilst the judge might have available no more than two hours pre-reading and a two hour hearing in which to dispose of the dispute.”
Even acknowledging that there is something about fraud that always sets a tribunal on edge, it is not clear why the court should hear allegations of fraud, especially if they have been dealt with by the adjudicator. By saying that the allegations should be examined because they give rise to an inference of a risk of dissipation gives rise to a frustrating and unnecessary circularity, which essentially elevates allegations of fraud to a status that the previous authorities acknowledged they did not deserve.