Adjudication and fraud: The Speymill case

In the following case the Court of Appeal agreed with the first instance judgment of the effect of fraud on an adjudicator’s decision.

Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120

The employer, Mr Baskind, engaged the contractor, Seymill Contracts Ltd, to carry out works to Raby House, a former country house hotel, to convert the property to a private residence. No formal contract was executed although agreement was reached in correspondence. That agreement incorporated the terms of the JCT Form of Building Contract 1998 edition.

Disputes concerning payment arose between the parties and the contractor commenced adjudication proceedings. The adjudicator found in favour of the contractor as the employer was unable to produce evidence that valid withholding notices had been issued. When the employer refused to pay the disputed amounts the contractor issued summary judgment proceedings to enforce the decision of the adjudicator.

The employer’s arguments

The employer resisted the summary judgment application on the basis that the contractor had undertaken conduct amounting to fraud. The employer alleged that the contractor had stolen the withholding notices from the employer which had been issued in the course of the works; and had denied receipt of those withholding notices. The employer further alleged that this had been followed coincidentally by an electrical thunderstorm which had disabled the employer’s computer so preventing the employer from producing copies of the withholding notices.

The judge at first instance concluded that the employer’s defence disclosed an arguable defence and refused to grant summary judgment to enforce the adjudicator’s decision (but as the judge had reservations about the strength of the employer’s defence on this point he granted leave to defend conditional on the employer paying into court the whole sum claimed). The contractor appealed to the Court of Appeal.

The issue before the Court of Appeal

The issue before the Court of Appeal was whether the allegations of fraud had been considered by the adjudicator. The contractor maintained that the employer’s fraud defence had been considered by the adjudicator and the adjudicator’s decision, whether right or wrong, had to be enforced.

Fraud: the legal principles

The Court of Appeal noted that over the last 12 years since the introduction of the Construction Act, the Technology and Construction Court and the Court of Appeal have emphasised the special character of adjudicators’ decisions and the policy considerations which underlie section 108 of the Construction Act.

In summary, adjudicator’s decisions are an interim resolution of the referred dispute which, if either party is discontent, can be litigated or arbitrated to achieve the correct determination. Adjudicators' decisions are usually enforced even if they result from errors unless the adjudicator acted in excess of jurisdiction or in breach of the rules of natural justice (Carillion Construction Limited v Devonport Royal Dockyard [2005] EWCA Civ 1358).

However, the Carillion case did not involve any allegations of fraud. Could fraud be a ground for the court not to enforce an adjudicator’s decision?

The Court of Appeal adopted the principles set out by Mr Justice Akenhead in SG South Limited v Kings Head Cirencester LLP [2009] EWHC 2645 where he said:

  • Fraud or deceit could be raised as a defence in an adjudication provided it was a real defence to whatever the claims were.
  • If fraud was to be raised to avoid enforcement of an adjudicator’s decision or to support an application for a stay of execution of the enforcement judgment, it had to be supported by clear and unambiguous evidence and argument.
  • A distinction had 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 were not raised nor could have been raised as a defence in the adjudication but which emerged afterwards. In the former case, if the behaviour, acts or omissions were in effect adjudicated upon, the decision was enforceable. In the latter case, it was possible that such behaviour could be raised as a defence to enforcement.

Fraud: applying the principles

The Court of Appeal noted that this was not a case of fraud coming to light after the adjudicator’s decision. The adjudicator had addressed the theft allegation and the fraud to the extent that was necessary to do so and had dealt with the allegations in a measured way. On the balance of probability the adjudicator had concluded that the employer had not served withholding notices. Even if the employer’s personal copies of the withholding notices had been stolen that hardly explained the failure to produce other copies for example those held by the professional team. Applying the principles set out in SG South, the allegation of fraud formed no basis for refusing to enforce the adjudicator’ decision.

In conclusion, the Court of Appeal held that the employer had not established any ground for not enforcing the adjudicator’s decision. As a result the contractor’s appeal was allowed and summary judgment of the adjudicator’s decision should be entered.

However, enforcement of the adjudicator’s award was nevertheless stayed due to the contractor’s financial position.

Editors’ comments

A similar approach to fraud and adjudication was taken by Mr Justice Ramsey in GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] EWHC 283 (TCC), a judgment delivered after the hearing in the Speymill case (see below).

Case summary of SG South Limited v Kings Head Cirencester LLP [2009] EWHC 2645

View: SG South Limited v Kings Head Cirencester LLP [2009] EWHC 2645

View: Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120

Adjudication and fraud: GPS Marine case

GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] EWHC 283 (TCC)

In this case, the employer, Ringway, engaged the contractor, GPS, to undertake dredging works at the White Mountain Berth on the River Thames. Disputes concerning payment arose between the parties and the contractor commenced adjudication proceedings. The adjudicator found in favour of the contractor who sought to enforce the decision by way of summary judgment.

The employer sought to argue, amongst other things, that the adjudicator’s decision was obtained by fraud and was therefore unenforceable.

Fraud: the allegation

The fraud allegation was based on the premise that the contractor acted recklessly as to the truth of the statements made in support of its claim for costs of labour in the adjudication. The employer maintained that the timesheet records were inconsistent with the costs claimed.

The inconsistencies in the time sheet records were raised by the employer in its rejoinder once the contractor had provided evidence of the labour costs. However, as the adjudicator refused to take into account the rejoinder in reaching his decision, the adjudicator did not in fact adjudicate on the question of the inconsistency of the time sheet records.

Fraud: the court’s view

The court held that the employer was aware of the inconsistencies between the invoices and the claimed figures during the adjudication and put forward a case on that basis. The employer could not raise those matters, reformulated as fraud, to resist enforcement.

The court’s reasoning was as follows:

  • Fraud was not alleged in the adjudication.
  • However, the allegations of fraud raised on the summary judgment application depended on inferences drawn from the inconsistencies raised by the employer in the rejoinder.
  • Having raised those inconsistencies in the adjudication, the employer could not later rely on the same matters to reconstitute a case based on fraud to resist the enforcement of the decision of the adjudicator. As Mr Justice Akenhead said in SG South Limited v Kings Head Cirencester LLP [2009] EWHC 2645:

“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…”

  • If the adjudicator had been in breach of the rules of natural justice in failing to allow the employer to raise the question of inconsistencies by putting in a rejoinder then the fact that the employer was unable to raise the inconsistencies would go to the question of the materiality of the adjudicator’s breach. However, if the adjudicator was not in breach of natural justice then the fact that the employer had been unable to raise the contention of inconsistencies meant that the employer could not raise that contention, reformulated as fraud, to challenge enforcement of the adjudicator’s decision.
  • In a similar way, where a party was aware of a matter and did not raise it during the adjudication, it could not then raise it to seek to challenge enforcement. It was only if new matters came to be known after the adjudication and before enforcement that they might form the basis for resisting enforcement. Otherwise a party could challenge enforcement on the basis of matters they knew about at the time of the adjudication but failed to deploy.

Editors’ comments

From a practical point of view, it seems that if a party is aware of a fraud before the adjudication proceedings and the adjudicator determines the question of fraud then the decision of the adjudicator is capable of enforcement. However, if a party is aware of a fraud before the adjudication takes place, but does not raise it, he will not be able to raise the fraud allegation as a defence to enforcement. If new matters concerning fraud emerge after the adjudicator has made his decision but before enforcement, those matters can form the basis for resisting enforcement.

View: GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] EWHC 283 (TCC)