Fraud in Construction Adjudication

Introduction

This blog considers the extent to which an adjudicator can decide an issue of fraud which amounts to the subject matter of an adjudication or arises in an adjudication referred under the Act[1]. It further considers the related issues of the use of fraud allegations to resist enforcement.

Part 1: Fraud as a defence in the adjudication itself

Nothing in the Act prevents a defence of fraud in adjudication being raised. Such defences have been deployed in adjudication just as in litigation or arbitration.

The landmark case is SG South Limited v (1) King’s Head Cirencester LLP (2) Corn Hall Arcade Limited [2009] EWHC 2645 (TCC). The adjudicator found he had no power to decide the allegations of fraud. Akenhead J held there was no credible case that the award was procured by fraud, but if there had been credible evidence of fraud raised in the adjudication, the adjudicator would have had jurisdiction to decide the issue.

A responding party can raise any defence available to it, including fraud. Where a party is aware of relevant facts which support a challenge to an argument or has evidence of such when the adjudication is running, it can and should raise it as an issue in the adjudication.

If a party wishes to allege fraud or fraudulent behaviour in adjudication, there must be “clear and unambiguous evidence” to support it. Fraud must be proved on the balance of probabilities “to a convincing degree” (Gosvenor below).

Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWHC 227 (TCC) a decision of Fraser J. involved allegations of fraud including stolen site information, falsified records and fraudulent claims for payment. No allegations of fraud were raised in the adjudication. During enforcement proceedings the court was asked whether the respondent could raise allegations of fraud which were known about but were not put forward in the adjudication. Such allegations of fraud could have been decided by the adjudicator, if raised.

The latest case on this point is Assesmont Ltd v Brookvex IMS Ltd (2018) QBD (TCC) judgment given on 29 August 2018 by Jefford J who following SG South held that allegations of fraud based on fraudulent time sheets could have been raised in the adjudication and therefore could not be used to prevent enforcement of the award.

Part 2: Fraud as the basis for a claim in adjudication

In SG South Akenhead J commented that it was possible that a claiming party may not be able to refer a claim to adjudication for the tort of fraud or deceit: it being arguable such a claim did not arise ‘under’ the contract.

In Air Design (Kent) Limited v Deerglen (Jersey) Limited [2008] EWHC 3047 (TCC) the same judge said that an adjudication clause should be construed in the same way as the arbitration clause in Fiona Trust & Holding Corp v Privalov and others [2007] UKHL 40, (2007) 114 ConLR 69. By applying business sense, the words “arising under” the contract, were wide enough to capture disputes “arising out of” or “connected with” the contract.

Akenhead J added that it was unlikely that anything other than a very narrowly worded adjudication clause would do to deprive an adjudicator of jurisdiction to deal with allegations of fraud.

On the other hand, in Hillcrest Homes Limited v Beresford & Curbishley Limited [2014] EWHC 280 (TCC) HHJ Raynor held that a claim for damages under section 2(1) of the Misrepresentation Act 1967 based on a negligent misrepresentation, was not a claim “arising under” the contract. The adjudicator had no jurisdiction to consider it.

In his book, Coulson on Construction Adjudication (third edition) Sir Peter Coulson says at paragraph 7.98:

“As previously noted, on a strict interpretation of the words ‘arising under the contract’, such a conclusion may well be right but, save for saying that, because the words had derived from statute rather than from a contract, different considerations may apply, Judge Raynor does not explain fully his answer to Lord Hoffman’s underlying point, which is that reasonable businessmen must be taken to have agreed that they would only have one forum for all of their dispute. The point therefore remains open for clarification. Its potential importance should not be underestimated.”(Emphasis supplied).

There remains some doubt as to whether an adjudicator has jurisdiction to decide a claim for fraudulent (or innocent) misrepresentation or to deal with claims arising from contract induced by fraud. These doubts should not affect the power of an adjudicator to decide claims based on fraudulent performance of a construction contract.

Part 3: Fraud as a ground for resisting enforcement

Fraud may be capable of being used as a defence to adjudication enforcement proceedings.

This issue was also addressed in SG South. Akenhead J held that fraud or deceit can be raised as a defence in adjudication provided it is a real defence on the merits, supported by evidence:

“20. Some basic propositions can properly be formulated in the context albeit only of adjudication decision enforcements:
(a) Fraud or deceit can be raised as a defence in adjudications provided that it is a real defence to whatever the claims are; obviously, it is open to parties in adjudication to argue that the other party’s witnesses are not credible by reason of fraudulent or dishonest behaviour.
(b) 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.
(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.”

SG South was approved by the Court of Appeal in the leading authority of Speymill Contracts Limited v Eric Baskind [2010] EWCA Civ 120, (2010) 129 ConLR 66 .

In GPS Marine Contractors Limited v Ringway Infrastructure Services Limited [2010] EWHC 283 (TCC) a challenge to enforcement failed because it was based on inferences to be drawn from the same inconsistencies relied upon by the defendant in the adjudication. Ramsey J therefore held the matters had already been raised in the adjudication and enforcement was granted.

Even if fraud allegations are raised too late to prevent enforcement, those allegations may still be relevant to an application for a stay of execution e.g. where they lead to the possibility that the receiving party might dissipate the adjudication sum Gosvenor.

Part 4: Enforcement—’not reasonably discoverable at the time’?

Where the line is to be drawn to decide whether the matter of fraud should have been raised before the adjudicator depends on the facts.

In Andrew Wallace Limited v (1) Artisan Regeneration Limited (2) Artisan Holdings Limited [2006] EWHC 15 (TCC), the defendant sought to resist enforcement on the basis that manuscript amendments to the contract had been fabricated. This allegation had not been raised before the adjudicator because of substantial changes in the defendant’s personnel. HHJ Kirkham refused enforcement in light of the explanation as to why the point had not been taken in the adjudication.

In Speymill, the Court of Appeal said Andrew Wallace was a case where the facts upon which the fraud allegation was based emerged after the date of the adjudication so could not have been raised in the adjudication even though those facts were known by relevant witnesses and the respondent could have contacted them but did not.

In Gosvenor, Fraser J considered that the lack of proper management of the contract, and the limited time available in an adjudication, did not explain or justify the failure to raise issues of fraud during the adjudication.

Part 5: Relevance of the fraud to the decision

As well as being not reasonably discoverable at the time, the allegation of fraud raised on enforcement must be one which ‘directly impacts’ on the subject matter of the decision.

Part 6: Fraud in the adjudication process

A deliberate and material mis-statement to an ANB designed to influence the identity of the adjudicator appointed will provide good grounds to resist enforcement Eurocom Limited v Siemens PLC [2014] EWHC 3710 (TCC), (2014) 157 ConLR 120.

Conclusion

  1. A party may raise an allegation of fraud in defence to an adjudication claim and if he knows about and relies on it must do so (SG South with approval in Speymill).
  2. Fraud can be a defence to enforcement unless it was known about but not raised in the adjudication (SG South, Speymill, Andrew Wallace, Gosvenor, Assesmont, Eurocom).
  3. It is likely that an adjudicator also has jurisdiction to decide a claim based on the fraudulent performance of a contract. The phrase “arising under the contract” has been given wide judicial meaning following Fiona Trust. In contrast Hillcrest suggests a claim based on the Misrepresentation Act is not to be regarded as arising “under the contract” even on its wider meaning. As the authorities are somewhat divided, the question whether there is jurisdiction to decide a claim based on the fraudulent procurement or formation of the contract may best be regarded as not settled.
  4. The standard of proof required is the civil one, but the evidence necessary to support the allegation must be “convincing”, “clear and unambiguous”.

[1] The Act means: the Housing Grants, Construction and Regeneration Act 1996 (as amended)