Developers — Building contract – Adjudication – Claimant applying to enforce adjudicators’ awards in its favour – Defendants resisting enforcement on basis that claimant overpaid – Defendants alleging fraud on part of claimant — Whether claimant entitled to summary judgment — Whether defendants establishing case for stay of execution – Application granted
The defendants were commercial developers that employed the claimant building contractor in connection with the construction, conversion, restoration and refurbishment of a retail shopping arcade and hotel. The contract was an amended JCT standard form of management contract (1998 ed) that involved payments to the contractor of costs reasonably and properly incurred in connection with the works together with a management fee. The payment regime was by way of certificates issued monthly by the contract administrator. Each party was entitled to refer disputes to adjudication.
The claimant issued a notice of adjudication in respect of alleged non-payment of an interim monthly payment certificate. The adjudicator found that money was due to the claimant because interest had accrued following a number of late payments made by the defendant. A second adjudicator dealt with the alleged non-payment of another interim payment certificate. The defendants sought to halt the adjudication on the basis that they had become aware of alleged widespread fraud on the part of the claimant in respect of the works. The second adjudicator considered that the issue of alleged fraud was beyond his jurisdiction and held that the defendants owed money to the claimant. The defendants did not pay either award. Meanwhile, they purported to terminate the contract and a third party would be completing the works.
The claimant applied for summary judgment of its claim to enforce the adjudicators’ decisions. The defendants argued that the enforcement of the awards should be deferred or stayed on the grounds that: (i) the final account on the project was closed to being finalised and would show that the claimant had been overpaid and that a net balance was owed to them; (ii) the claimant’s removal of items from the premises and its duplication of invoices or inclusion of invoices relating to other contracts amounted to fraud; (iii) the claimant would be unable to repay any judgment sum in circumstances in which the defendants had a reasonably arguable case that the claimant owed them a substantial sum.
Held: The application was granted.
(1) It was unlikely that the final account would be agreed within a few weeks or at all. The defendant had made serious allegations, which the claimant would doubtless not accept. It would seek to justify the claims for which invoices were said to be missing and assert that the determination was unlawful and that it should be entitled to various associated costs with that. Other issues would almost certainly arise.
(2) Depending on the facts, fraud might or might not be a defence in adjudication proceedings as it was in court or arbitration proceedings. Fraud or deceit could be raised as a defence in adjudications provided that it was a real defence to the claim in question. Parties in adjudication could argue that the other party’s witnesses were not credible by reason of fraudulent or dishonest behaviour. If fraud was raised in order to avoid enforcement or to support an application to stay the execution of the enforcement judgment, it had to be supported by clear and unambiguous evidence and argument. It was necessary to draw a distinction between fraudulent behaviour, acts or omissions that were or could have been raised as a defence in the adjudication and behaviour, acts or omission that were nor could reasonably have been raised but that emerged afterwards. In the former case, if the behaviour was subject to adjudication, the decision without more was enforceable. In the latter case, it was possible that it could be raised but generally not in the former. Although, under the Housing Grants, Construction and Regeneration Act 1996, decisions were to be enforced, the court should not permit the enforcement directly, or at least indirectly, of fraudulent claims or fraudulently induced claims.
In the instant case, the defendants could not show that the adjudicator’s decisions had been procured by fraud. Each adjudicator had been clear as to what he had done. Both decisions were related to allegedly unpaid certificates. There was no issue that the certificates had been properly issued by the defendants’ own consultants. One could presume that those consultants scrutinised the claimant’s applications for payment and decided that the certified sums were due. No case had been advanced or even suggested that the certificates had been procured by fraud and, on well-established authority such certificates had to be honoured in the absence of the requisite notices called for by the 1996 Act or the contract in question. If the contract administrator or quantity surveyor had been misled, the court would have expected evidence to that effect. No such evidence was produced.
(3) This was not a case in which it was appropriate to order a stay of execution on the judgment enforcing the valid adjudicators’ awards. A balance had to be struck and, were a stay of execution to be granted, there was a real risk that the claimant would not survive. On the other hand, it was likely, albeit not certain, that the claimant would survive if the money was paid. No supportably credible or relevant case on fraud had been advanced. Although the claimant was, primarily by reason of cash flow, in difficulties, it was no worse off than when the defendants took the risk of entering into the contract and it was more probable that its difficulties had in large part been caused or contributed to by the defendants’ unjustified non-payment.
The probable inability of the claimant to repay the judgment sum at the end of the substantive trial or arbitration hearing might constitute special circumstances within the meaning of CPR 47, r 1(1)(a) rendering it appropriate to grant a stay. If the claimant was in insolvent liquidation, or there was no dispute over the claimant’s insolvency, then a stay of execution would usually be granted. Even if the evidence of the claimant’s financial position suggested that it might be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if the claimant’s financial position was the same or similar to its financial position at the time the relevant contract was made; or the claimant’s financial position was due, either wholly, or in significant part, to the defendant’s failure to pay the adjudicated sums: Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1086 (TCC); [2005] BLR 374 applied.
Thomas Lazur (instructed by BPE Solicitors, of Cheltenham) appeared for the claimant; John Virgo (instructed by JP Fletcher & Co) appeared the defendants.
Eileen O’Grady, barrister
