Monday 23 August 2010

Adjudication - allegation of fraud

Like it or not, construction companies face a great deal more challenges in the issue of fraud than other types of companies do. In Speymill Contracts Limited v Eric Baskind [2010] EWCA Civ 120, the Court of Appeal has now confirmed how parties should proceed when allegations of fraud are raised during adjudication.

Background

Baskind engaged Speymill to convert a former country house hotel into his personal residence. Agreement was reached in correspondence incorporating the JCT Standard Form of Building Contract 1998. During the course of the works the architect issued 15 interim payment certificates but Baskind made no payments in respect of certificates 13, 14 and 15 and only partial payment in respect of certificate 12. Speymill served a notice of adjudication, seeking payment of all outstanding sums which were due.
One of the issues during the adjudication was whether Baskind had served withholding notices in respect of the certificates not paid. Baskind alleged that he had served such notices but was unable to produce any evidence because Speymill’s employees had stolen files belonging to Baskind containing the notices, and electronic copies which remained on Baskind’s computer were destroyed during a lighting strike. Speymill denied the theft allegation. The adjudicator made a decision in favour of Speymill but Baskind refused to comply with that decision.

Technology and construction court

Speymill sought enforcement in the TCC but the judge declined to enforce the adjudicator’s decision because he said that Baskind had an arguable defence with respect to the alleged theft. Unsatisfied with the judge’s decision, Speymill appealed to the Court of Appeal

Court of appeal

The first issue was whether the parties had agreed that the adjudicator should not consider the theft of the withholding notices. During the adjudication Baskind argued that the theft issue could not properly be resolved by the adjudicator and he should not make an award. Speymill argued that the theft issue was merely a tactic by Baskind to disrupt the adjudication. The judge concluded that no agreement had been reached that the adjudicator should consider the theft issue.
The second issue was whether the adjudicator properly addressed the theft issue to the extent that it was necessary for him to do so. As it was Baskind who was asserting the right to withhold payment it had the burden of proving its entitlement.
The adjudicator found that Baskind failed to produce any evidence of serving withholding notices, which included a failure to produce copies held by his professional team. Accordingly, the judge considered that the adjudicator had taken the theft issue into account in a measured way.
The final issue was whether the adjudicator’s decision should not be enforced because it was tainted by the fraud of Speymill. The judge concluded that because the fraud issue was raised directly before the adjudicator and taken into account in the course of his decision, and was not a case of fraud coming to light after his decision, the fraud issue was not a basis for refusing to enforce the decision.

Comment

So far as fraud is concerned it may be, depending on the facts, a defence in adjudication proceedings. There is nothing in the Construction Act to limit any type of dispute arising under the contract in question being referred to adjudication. For example, part of that defence may be that on the evidence some of the claim is based on forged invoices or on some other fraudulent behaviour. Fraud can be raised as a defence in adjudication provided that it is a real defence to whatever the claims are and it must be supported by clear and unambiguous evidence and argument.