SG South Limited v (1) King’s Head Cirencester LLP (2) Corn Hall Arcade Limited [2009] EWHC 2645 (TCC) [Lawtel AC0122579]

Depending on the facts, fraud is a defence in adjudication proceedings, just as it is in court or arbitration proceedings. However, an allegation that an adjudicator’s award was procured through fraud, as a defence to enforcement, must always be supported by substantial evidence. In the absence of such evidence, as in this case, the allegation must fail.

In the case of SG South Limited, the defending developers employed the claiming building contractor to complete works at two sites. At the time, the contractor had only just been incorporated and had little or no trading record. The contractor alleged non-payment of an interim monthly payment certifi cate and issued a notice of adjudication. The adjudicator found that monies were due. A second adjudication was subsequently commenced about the alleged non-payment of another interim payment certifi cate. The developer tried to stop the adjudication, alleging that it had discovered widespread fraud by the contractor in relation to the works. The adjudicator noted that the issue of alleged fraud was beyond his jurisdiction and decided that further monies were due to the contractor.

The developer did not pay either award and the contractor applied to enforce the adjudicators’ decisions. The developer argued that there should be a stay of execution, on the basis that: (1) the Final Account could be fi nalised shortly and it would show that the contractor had been overpaid; (2) the contractor had removed items from the site and had duplicated invoices, both of which amounted to fraud; and (3) the contractor would be unable to repay any judgment sum.

The court set out some basic propositions governing allegations of fraud in the context of adjudication decision enforcements:

1. Fraud or deceit can be raised as a defence in adjudications provided that it is a real defence to whatever the claims are. So, for example, a defending party might assert that the contract was induced by fraudulent misrepresentation, or that the certifi cation on which the claiming party relies was procured by fraud, or that materials or plant for which charges were claimed were not provided, or that some of the claim was based on forged invoices or on some other criminal or fraudulent behaviour. Obviously, it is also open to parties in adjudication to argue that the other party’s witnesses are not credible by reason of fraudulent or dishonest behaviour.

2. If fraud is to be raised in an effort to avoid enforcement, or to support an application to stay execution of the enforcement judgment, it must be supported by clear and unambiguous evidence and argument.

3. A distinction has to be made between fraudulent behaviour, acts or omissions that were or could have been raised as a defence in the adjudication and such behaviour, acts or omissions that neither were, nor could reasonably have been, raised but that emerge afterwards. In the former case, if the behaviour, acts or omissions are in effect adjudicated upon, the decision is enforceable. In the latter case, it is possible that it can be raised as a defence to enforcement.

4. Even if fraud can be raised as a defence to enforcement, one must differentiate between fraud which directly impacts on the subject matter of the decision and that which is independent of it. Examples of the fi rst category are where it is later discovered that the certifi cate upon which an adjudication decision is based has been issued by a certifi er who has been bribed, or by a certifi er who has been fraudulently misled by the contractor into issuing the certifi cate by a fraudulent valuation.  

The court rejected the defending party’s arguments. In relation to their fi rst submission, the court noted that there was little or no prospect of the Final Account being agreed within the short term, or even at all. In relation to the defendant’s allegation of fraud, no attempt had been made to quantify the fraud. The works involved the demolition and gutting of a number of buildings, but the court had not been provided with any analysis of the contractual documentation as to whether or not the claimant was required to preserve the debris and other items during removal operations. Nothing in the documents provided to the court obviously required it to do so. Similarly, the inclusion of a rogue invoice or the duplication of invoices could simply be due to incompetence or mistake. Finally, although the claimant was clearly in some fi nancial diffi culty, its fi nancial position had not changed since the time the contract was made. In addition, that fi nancial position was either wholly or signifi cantly due to the defendant’s failure to pay the sums that were awarded by the adjudicators.

The court held that there was no justifi cation for not paying the sums held due by the adjudicators. To read the judgment, click here: http://www.bailii.org/ew/cases/EWHC/TCC/2009/2645.html