Once adjudication had found its feet in the early noughties, there was said to be only two ways for a responding party to avoid the consequences of an adjudicator’s decision. The first was to demonstrate that the adjudicator did not have the necessary jurisdiction, and the second was to demonstrate that they had made a material breach of the rules of natural justice. But then some inventive team of lawyers, no doubt reeling at the perceived injustice of coming second in an adjudication, came up with a third option: fraud. It might be taking it a little far, but I have visions of that team sat around singing the opening song from Oliver! (but replacing “food” with “fraud”) when they realised that fraud could be added to their arsenal of weapons to avoid enforcement!
The fact that fraud has taken some time to develop as a means of resisting enforcement is demonstrated by the fact that the first edition of Coulson on Construction Adjudication, published in 2007, made no reference to it. The first mention of fraud was in the second edition (published in 2011), and this commentary has steadily grown in the third and fourth editions.
TCC enforcement cases involving fraud now seem to come along quite frequently. For example, last month Matt blogged about Alexander Nissen QC’s judgment in BM Services Inc Ltd v Greyline Builders Ltd. I make no apology for the fact that I’m going to discuss another fraud case this week, namely Jefford J’s judgment in Grandlane Developments Ltd v Skymist Holdings Ltd, because this is such an important area.
Grandlane v Skymist
In 2013, Skymist purchased an extensive country property, Beaurepaire Park in Hampshire. The aim was to develop it to be a family house. Grandlane was engaged to provide development management services in connection with that development. It engaged other consultants, including the project architect, PTP.
Grandlane’s engagement was terminated in October 2017. Towards the end of 2017, it made a claim for its fees and for those consultants it engaged, including PTP. They amounted to something just under £475,000. By the following July, the total amount being claimed had risen to almost £2.2 million.
In August 2018, Grandlane referred the fees dispute to adjudication. After a failed first attempt, Mr Riches was appointed (and survived a jurisdictional challenge) and proceeded to reach a decision, concluding that while Grandlane was only entitled to a further (small) sum (some £62,000), it was entitled to be paid for those consultants’ fees that it was liable for. This included just over £1 million for outstanding PTP fees.
Allegations of fraud
The fraud allegations surfaced because of the way the claim for consultants’ fees, particularly PTP’s fees, came about. The judgment is particularly detailed on this point, but can be split into those parts dealing with Skymist’s suspicions (paragraphs 28-33), Skymist’s application for pre-action disclosure (paragraphs 34-37) and the court’s review of the papers disclosed and which formed part of its application (paragraphs 44-84).
In a nutshell, it seems that Skymist’s suspicions were aroused either before or during the adjudication. One witness said:
“The only inference I can draw is that Grandlane and PTP were colluding to increase artificially the value of PTP’s claim to the disadvantage of myself and Skymist and, it appears, had something to hide in the course of the adjudication.”
However, no fraud allegations were made in the adjudication. Instead, Skymist made its pre-action disclosure application and pursued the fraud allegations when Grandlane sought to enforce the adjudicator’s decision.
In the enforcement proceedings
Jefford J considered all of the evidence that had been disclosed and found that there was no clear and unambiguous evidence of fraud. In her normal, logical and common sense style she said that the documents disclosed showed that there was “nothing surprising or inherently suspicious” about how the increase in PTP’s fees came about, and she summed it up at paragraph 85 of the judgment as follows:
“At the time of termination, Skymist said it would make no further payments to Grandlane or in respect of any consultants. Grandlane’s first claim in November 2017 sought to recover its own fees and what had already been invoiced by PTP. However, PTP had indicated that there was more to come. Grandlane was exposed to that liability; Grandlane was not in funds to discharge that liability; and Grandlane would, in the normal course, have expected PTP’s fees to be paid by Skymist. Grandlane faced the risk of having to fight on two fronts, adjudicating, or otherwise seeking to resolve, PTP’s claim against it and bringing its claim against Skymist. By agreeing to take PTP’s claim to Skymist, Grandlane was seeking to mitigate its own exposure and it doubtless made commercial sense to wrap everything up into one adjudication.”
The judge also said that, in any event, the allegation of fraud could and should have been raised as a defence in the adjudication and, as such, it could not be relied upon to resist enforcement. As many of you reading this will know, the authority for this conclusion is the third of Akenhead J’s (as he was then) principles in SG South v King’s Head Cirencester LLP:
“20(c) A distinction has to be made between fraudulent behaviour, acts or omissions which were or could have been raised as a defence in the adjudication and such behaviour, acts or omissions which neither were nor could reasonably have been raised but which emerge afterwards. In the former case, if the behaviour, acts or omissions are in effect adjudicated upon, the decision without more is enforceable. In the latter case, it is possible that it can be raised but generally not in the former.”
The judge also rejected Skymist’s application to adjourn the summary judgment application and refused its application for a stay of execution. In doing so, she applied principle (g), which was added to the Wimbledon Construction Co 2000 Ltd v Vago principles by Fraser J in Gosvenor London Ltd v Aygun Aluminium UK Ltd. Principle (g) is concerned with a party “dissipating or disposing of the adjudication sum so that it would not be available to be repaid”. Acknowledging Coulson LJ’s analogy with the test for granting a freezing order in Gosvenor, she noted that the test for establishing a real risk of dissipation is a high one, but that there was “scant” evidence of this here, whether matters were taken individually or collectively.
First and foremost, Grandlane v Skymist is a useful reminder to parties that, if the alleged fraud could and should have been raised during the adjudication, it cannot be relied upon to resist enforcement of the adjudicator’s decision. I appreciate that it was not clear cut that the issues raised in front of Jefford J could have been raised in the same detail in the adjudication itself (not least because Skymist’s pre-action disclosure application was only heard by the Commercial Court in February), but this will have no doubt been a costly exercise for Skymist that other parties should heed.
Secondly, in order to succeed, the fraud must be supported by “clear and unambiguous evidence and argument”, which is another requirement arising from SG South v King’s Head. Eurocom v Siemens is an example of a case where there was such evidence, where the claims consultants were shown to have manipulated the nomination process in a fraudulent way. Other examples could be where it can be demonstrated that a signature on a certificate was falsified, or that a default payment notice a contractor claimed to have sent was demonstrated not to have been sent at all. Either way, the bar is clearly set quite high when it comes to using fraud to resist enforcement.
So, all in all, perhaps fraud is not so glorious after all!