Adjucation enforcement: When to use the f-word

There are three reasons why the loser in these adjudication proceedings refused to honour the adjudicator’s decisions. One is unusual: fraud. I can’t recall another case in these 11 years of Construction Act adjudication when the court was asked to torpedo the adjudication because a party behaved fraudulently in it.

And yet, the topic is bandied about quite a bit. The other two reasons run were that once the money was paid to the builder it would go bust, and that the final account was imminent and would show that the builder was already overpaid.

Let’s talk about the notion of fraud. The customer is a commercial developer. The builder has been in building some time but his company is only two years old. The contract is no tiddler – it is a retail shopping arcade and hotel worth £4.5m.

The contract is a management contract; meaning, in this case, broadly the cost of the works and a management fee. The developer engaged a contract administrator, whose job included certifying sums due to the builder each month. Then we have “works contractors” under the management contract, some of which the developer paid direct. The date for completion was supposed to be Christmas Eve 2008.

Come the following May, the job was still continuing. So were the rows. The builder had complained about underpayments and begun an adjudication or two. Soon he left site altogether. Soon he had the benefit of an adjudicator’s decision pointing to £100,000 or so being owed to him. Soon he went to court because the developer wouldn’t pay up.

The judge was told that there was a “strong prima facie case that the builder had behaved in a fraudulent way” and “the court should not permit itself to be used as a vehicle for a party guilty of such fraudulent behaviour to enforce claims”.

Now then, fraud is a defence in adjudication and for that matter all other proceedings. So it is up to a party to run the allegation in front of the adjudicator. The adjudicator then has the burden of deciding those fraud points and the outcome binds the court in regard to enforcement. But if the fraud information only comes to light after that adjudication, the court will listen, provided the fraud is something that goes to the subject matter of the adjudicator’s decision.

It is not surprising that one party believes the other is over or understating what’s to be paid. But an overstated application is not presumed to be fraud. The developer’s QS gave evidence of how wrong the account was, and detected duplicated invoices and charges. Hmmm, could be simple incompetence. Another attack was on the allegedly criminal removal of items from the demolished premises.

But, said the judge, arisings and debris during demolition might, contractually, belong to the builder. It’s still too vague for fraud. The same goes for an allegation that the cost-plus-charges-for-plant was said to be over-charged. It might be true but it takes much more than a prima facie case of fraud to coax the court to go with the allegation. The allegation of a vastly inflated final account required a detailed analysis. Simply because the payee believes the account is substantially too high or unrealistic is not enough to ground a charge of fraud.

The judge concluded: “A credible case for fraud on any account has not been raised in evidence or argument such that it can be deployed to defeat enforcement.”

He added: “Fraud is a very serious charge to make in civil proceedings of any sort and, although it is established in a (relatively) few cases, the court always demands that the allegations be spelt out and are at least on their face supportable by credible evidence.

“This applies equally, if not more so, in adjudication enforcement proceedings when it would be very easy to ‘bandy about’ fraud allegations to seek to avoid enforcement.”

On the other two points, the judge refused to accept that the final account agreement was just around the corner. Nor would he accept that the tight financial position of the new company was enough to stop enforcement. The builder is to get his cash.

Credit: Simone Lia