BM SERVICES INC LTD v GREYLINE BUILDERS LTD

BM SERVICES INC LTD v GREYLINE BUILDERS LTD

The adjudicator did not fail to consider the contractor’s defence of fraudulent collusion in the alleged overvaluation of the sub-contractor’s account when he rejected it on the ground that the contractor had not adduced any or any sufficient evidence of its allegation
 

BM SERVICES INC LTD v GREYLINE BUILDERS LTD
TECHNOLOGY AND CONSTRUCTION COURT 
ALEXANDER NISSEN QC SITTING AS A DEPUTY HIGH COURT JUDGE 
5 DECEMBER 2018

The adjudicator did not fail to consider the contractor’s defence of fraudulent collusion in the alleged overvaluation of the sub-contractor’s account when he rejected it on the ground that the contractor had not adduced any or any sufficient evidence of its allegation.

A dispute arose about the contractor’s failure to pay the balance of the sub-contractor’s final account which the sub-contractor referred to adjudication. The adjudicator decided the dispute in favour of the sub-contractor and awarded it a specified sum despite the contractor’s defence of fraud. The defence was that (i) It had engaged the sub-contractor at the joint request of the local authority's clerk of works and its site manager, who was also the sole director and majority shareholder of the sub-contractor (ii) The site manager had a conflict of interest as an employee of the contractor and director and shareholder of the sub-contractor and (iii) Collusion between the site manager and the clerk of works had led to the sub-contractor’s work being overvalued. The contractor contended that the adjudicator (i) took a deliberate decision to treat allegations of fraud as relevant only to jurisdiction (ii) did not include the contractor’s allegations of fraud in his list of issues for decision and (iii) did not in fact deal with them on the merits merely by saying that there was no evidence supporting them despite saying that he would deal with the issues in his decision.

Alexander Nissen QC rejected the contractor’s contention and held that the adjudicator did not fail to consider the contractor’s defence of fraud.

The judge stated that the adjudicator concluded in his decision that (i) The contractor had not adduced any evidence, and certainly no sufficient evidence, to demonstrate that any fraud or collusion had actually occurred (ii) The dual-employment of the sole director and owner of the sub-contractor in that he was also the contractor’s site manager was a matter known to all parties and (iii) He was therefore on matters of valuation entitled to treat the documents which allegedly overvalued the sub-contractor’s account as having been honestly prepared. It then became a matter of conventional valuation as to whether the contents of the measure were substantively right or wrong. This was therefore a case in which (i) All the material issues about fraud were or could have been known at the time of the adjudication in that the issues were cited and pleaded in the contractor’s rejoinder and evidence was given on the contractor’s behalf in these proceedings that the issues were submitted within the adjudication and (ii) The adjudicator had those matters before him and took them into account.

THE FULL TEXT OF THE JUDGMENT OF ALEXANDER NISSEN QC

1. This is an application for summary enforcement of an adjudicator’s decision made on the 26th January 2018 by the appointed adjudicator, a Mr Williams. Summary judgment is claimed in the sum of £138,275.65 (together with interest, VAT and legal fees) and for the adjudicator’s fees which were the subject of separate proceedings instituted by him for recovery of those fees against both the claimant and defendant in these proceedings.

2. This was a Scheme adjudication pursuant to the Housing Grants Construction and Regeneration Act in the absence of any provisions for adjudication. Paragraph 23(2) of the Scheme requires the parties to comply with the decision of the adjudicator but that is subject, of course, to any defences on enforcement that may be raised.

3. As to the overarching test in respect of such defences, the leading case is Carillion Construction Ltd v Devonport Royal Dockyard [2005] EWCA Civ 1358 . I refer particularly to paragraphs 85 to 87 of that case, setting out the principles which are well-known, and which I follow. In his skeleton argument, Mr Winser recognises that cases in which enforcement can be successfully resisted are rare but he identifies two grounds which are, in principle, capable of being defences to enforcement as follows: At paragraph 2A: “The adjudicator failed to consider a defence raised by the defendant, namely that the applications upon which the claimant’s account was calculated were fraudulently produced by the claimant”. And at paragraph 2B, alternatively, “If the adjudicator did consider the allegations of fraud and rejected them, he failed to provide any reasons for doing so.”

4. So, the backdrop against which the defence to summary enforcement is raised is one of fraud. Particular emphasis is firstly placed on a failure by the adjudicator to have considered a defence, that defence happening to be fraud, which failure is said to be a breach of natural justice; secondly, a complaint of a failure to provide adequate reasons in respect of the conclusion on fraud. There is authority that in the rarest of cases that can also amount to a reason for non-enforcement.

5. So far as fraud itself is concerned, the leading case which sets out the principles in detail is SG South v King’s Head Cirencester [2009] EWHC 2645 a decision of Akenhead J. I refer to paragraphs 20 and 21 of that case, which are of importance; I also refer to paragraph 20(c) which identifies the difference between, on the one hand, fraudulent behaviour, acts or omissions, which were raised as a defence in the adjudication, or which could have been raised as a defence in the adjudication, and, on the other hand, those which emerge after. And this is a case in which the allegations were made during the course of the adjudication, so it is the former type of case that we are concerned with here. There is a suggestion in Mr White’s witness statement that some further evidence of fraud has become available after the adjudication but the nature of that evidence has not been detailed.

6. At paragraph 21, Akenhead J said the court should be astute and cautious when looking at pleas of fraud by the defendant, and there will not be many challenges successfully made in answer to those types of points.

7. Pargraph 20 of SG South was approved in the Court of Appeal case of Speymill Contracts v Baskind [2010] EWCA Civ 120 and was also followed in GPS Marine Contractors v Ringway Infrastructure Services [2010] EWHC 283. More recently, indeed very recently, it has also been endorsed in the Court of Appeal in Gosvenor London Ltd v Aygun Aluminium Ltd [2018] EWCA Civ 2695. The relevant paragraphs in that case are paragraphs 3 to 6, and paragraph 35 where Coulson LJ said, ”Accordingly, … I consider Akenhead J was right to maintain for adjudication enforcement purposes the difference between an issue that was or could have been decided in the adjudication, and an issue raised for the first time on enforcement …” , and he then goes on to consider stay of execution.

8. So, those are the principles in respect of fraud. So far as the general enforcement law is concerned, I have been assisted by reference to the case of Pilon v Breyer Group [2010] EWHC 837, a decision of Coulson J, as he then was, where the point about failing to address a question is considered by him. I refer to paragraph 22 of Pilon v Breyer, and in particular subparagraphs (2), (3) and (4) of Coulson J’s summary. And lastly, I mention Jacques v Ensign Contractors [2009] EWHC 3383, a case of Akenhead J. At paragraph 26(d) of that case, he said the important point was to distinguish between a failure to consider a substantive defence and a failure to address all the aspects of the evidence in respect of that defence. It is essential to consider a substantive defence but it need not be essential to address all the aspects of the evidence in respect of a given defence. That is simply a matter of detail.

9. In respect of the law on the giving of reasons, as opposed to failure to consider a defence, the most relevant cases are: Thermal Energy Construction v AE &E Lentjes UK Ltd [2009] EWHC 408; and Balfour Beatty Engineering Services v Shepherd Construction [2009] EWHC 2218 . It is worth referring to the latter authority because it encompasses the passages from the former. Mr Winser has referred me to paragraphs 44, 45 and 47; and Ms Shipley relies on paragraph 48. And I have taken those principles into account. I mention, in particular, the reference by Jackson J (as he then was) in Carillion to it only being in an extreme case that the court will decline to enforce an otherwise valid decision because of lack of reasons. I also mention the test as to whether it is impossible to make sense of the reasons as the threshold to be applied. In addition, I refer to the passage from His Honour Judge Steven Davies that the reasons had to make clear that all the essential issues had been decided. Lastly, I adopt all the reasoning as it is drawn together in the whole of paragraph 48 of Balfour Beatty but particularly sub-paragraphs (f) and (g) that, ”The reasons can be expressed simply” . It is only if they are, ”So incoherent that it is impossible for the reasonable reader to make sense of them, it will not be a reasoned decision”, and that, “Adjudicators are not to be judged too strictly … by the standards of judges or arbitrators” . And that it should reflect the brevity of the period that adjudicators have.

10. So, those are the legal principles. The key issues therefore are, firstly, whether the adjudicator, having dealt with fraud as a jurisdictional question, took a deliberate decision to treat allegations of fraud as relevant only to jurisdiction; or whether he in fact dealt with them on the merits; or whether he inadvertently did not deal with them on the merits, as he should have done, if it had been raised. So, that is the Pilon type point. And secondly, to look at the adequacy of the reasons that he gave for the conclusions that he reached.

11. The context of this is that fraud was raised in the Rejoinder during the course of the ongoing adjudication, and was raised as a jurisdictional defence under the heading, “Jurisdiction” at paragraph 8. I will not read it out. But then the allegations of fraud were substantively raised in the context of various aspects of the Account, and in particular, at paragraphs 16, 17, 19, 34 and 38, and 73. That is not an exclusive or exhaustive list. And Mr Winser has summarised those, or the context in which they are put, in paragraph 7 of his skeleton argument.

12. Whilst I accept that there are individual nuances to the various ways in which this is put, a summary of the allegations drawn together is that Mr Chirica, who is a director of the claimant company, was concurrently employed by Mears, thereby giving rise to a conflict of interest; and, further, that there were allegations of collusion between Mr Chirica and a representative of Mears, Mr Marfleet, which led to matters of overvaluation occurring.

13. In his decision, the adjudicator addresses the allegation of fraud, firstly, in the context of jurisdiction at paragraph 5.6 of his decision. He says, ”Greyline have challenged my threshold and internal jurisdiction on the following points: (3) the alleged presence of fraudulent activity, and if I continue, any decision reached will be unenforceable” . And he then refers to the denial of fraud at paragraph 5.8 where he says BMS replied that no evidence of fraudulent activity has been demonstrated, and that any errors are genuine mistakes. At paragraph 5.9 he then goes on to look at the authorities, and explains what test he is applying in respect of fraud, and at paragraph 5.10.3 he concludes that those matters do not deprive him of jurisdiction; and he says, expressly in his finding, he will consider the merits of the issues which have been put, ”And continue to make my decision” .

14. So, on the face of that paragraph, having ruled that he had, in a non-binding way, got jurisdiction to continue, he certainly expressed the intention to consider fraud on the merits within his decision.

15. Then, at paragraph 7.3 of his decision, he identifies the issues that arose in the adjudication, which I will not read out. Mr Winser notes that it is significant that those listed issues do not include the question of fraud, and that is certainly true as they are expressed. But it seems to me that the issues he listed are those raised by the pleadings within the adjudication: firstly, repudiation; and secondly, valuation. Fraud in this context is merely a piece of evidence that goes to the question of whether documents to be used in the valuation process can be regarded as having been genuinely prepared; it is not an independent cause of action, or an independent defence. It ultimately has only evidential significance, and can of course be very significant in that context. The question as to whether there has been fraud ultimately feeds into the relief sought in the adjudication which is about valuation of the Account. So, I do not regard the absence of express reference to fraud in the list of issues in paragraph 7.3 as material.

16. At paragraph 7.4 the adjudicator explained that he did not intend to repeat each and every part of the submissions, but that he had referred to those main aspects of the submissions which he considered to be relevant to the issue under consideration, and gave his findings in respect of each matter. Mr Winser criticises, or at least observes, that that is a standard rubric paragraph, and does not add anything substantive to the current issues that the court has to consider. In my judgment, that is a little unfair. What the adjudicator is doing here is saying that he will refer to the main aspects which have been submitted to him which he considers to be relevant. From that one can take it that if something has not been referred to at all within his decision, then he did not regard it as a main aspect of the matter. Conversely, if he has referred to it, then he does consider it to be a main aspect of the matter which was canvassed before him.

17. The focus, then, has been on the substance of the decision on the merits. As I have previously indicated, this included fraud because the adjudicator said he would take account of it in that context. During the course of submissions, particular, although not exclusive, focus, has been on paragraphs 7.3.3.5 to 7.3.3.9, in which it is said that the adjudicator did consider the questions of conflict of interest between Mr Chirica and Mears, and the allegations of collusion. Reference was also made to paragraphs 7.3.3.25 and 7.3.3.26.

18. I have carefully looked at those paragraphs, and in essence what I take them to mean is, firstly, that the adjudicator is aware of the allegations of fraud, not only because he said so during the jurisdictional aspect of the challenge, but because he said that he would go on to consider them in the context of the merits. Secondly, because he has specifically identified and referred to the allegations within the decision, he considers them to be part of the main aspect of the matter. And thirdly, he has reached decisions on them as they arise in the context of the heading of, ”Supervision and record documents” . He had well in mind the email of 15 December 2017 and the allegation of collusion which had been made. He also had in mind the fact that Mr Chirica worked for Mears, and specifically records in his decision that Greyline had themselves been informed of that fact, as Mr White had acknowledged.

19. What the adjudicator has decided is that there was no evidence, nor any materials of any kind, which proved any form of collusion; nor was there any evidence to demonstrate that the remeasurements produced a different result or a reduction in recovery of values from those which are claimed; and he notes that the documents were signed off, and so on.

20. In a nutshell, his conclusion was that the defendant, as the responding party to the adjudication, had not adduced any evidence, and certainly no sufficient evidence, to demonstrate that any fraud had actually occurred; and, therefore, on matters of valuation he was entitled to treat the documents as having been honestly prepared. It then becomes a matter of conventional valuation as to whether the contents of the measure are substantively right or wrong. In the context of a particular example, such as the incorrectly sized kitchen areas, he was persuaded that due to an erroneous ticking of a box, rather than any question of fraud, the valuation was incorrect, and he therefore made a reduction in the value of the claim of £17,000-odd on that account.

21. It therefore seems to me that this was a case in which, firstly, all the material issues about fraud were known at the time of the adjudication, or could have been known. Secondly, the adjudicator had those matters before him, and took them into account. The fact that they were known is apparent because they were cited and pleaded in the Rejoinder, in the paragraphs to which I have earlier referred; and Mark White’s evidence in these proceedings acknowledges at paragraph 23 of his witness statement that they had been submitted within the adjudication. He also says that, since the adjudication, other evidence has become apparent but, of course, it is never an answer to a claim for summary adjudication enforcement that more evidence has become available in respect of a given point. New evidence is ultimately is dealt with at a substantive trial.

22. So far as the evidence of alleged fraud is concerned, the matters which Mr White exhibits in his witness statement in these proceedings were, as I understand it, all before the adjudicator. This includes the email from Mr Haldys, which identifies that there was a conflict of interest, and that an allegation of gross over-measures was brought to his attention. All of these matters were therefore before the adjudicator, and he concluded that, nonetheless, there was insufficient evidence to treat those matters as either collusion, or giving rise to an actual conflict of interest.

23. Mr Winser’s submission is that the material which had been placed before the adjudicator called for a detailed response from the referring party in the adjudication, and yet there was not one given at that time. But the adjudicator has necessarily disagreed with that. He has concluded that there was no prima facie evidence–– he does not use that expression, but he concludes that there was no evidence–– before him of collusion. And it must follow, therefore, that the claimant cannot be criticised for having adopted the position in the adjudication that there was insufficient evidence even alleged in the Rejoinder to warrant any detailed response from them. The principle of collusion was rejected during the course of the adjudication.

24. Therefore, having applied the tests to which I have previously referred, I conclude that the adjudicator did not fail to consider the defence of fraud at all. In my judgment he did do so. In addition, he gave reasons for his decision in that he concluded there was no evidence of collusion and that the dual-employment of Mr Chirica was a matter that was known to all parties. But, ultimately, to the extent that there were any discrepancies in valuation, he expressly dealt with that in the adjustment of the values that he reached. And I consider in particular that the matters on pages 64 and 65 of the bundle are his reasons, and are sufficient reasons, for his decision, applying the test in Balfour Beatty.

25. There is a further difficulty, it seems to me, so far as the natural justice limb of Mr Winser’s objections are concerned. That is the absence of materiality of any breach in circumstances where the adjudicator himself identified that Greyline had not provided any correspondence evidencing a reduction in or recovery of their values from Mears. In other words, the problem here is that even if the adjudicator had been minded to accept that there had been fraud, which he did not, no evidence was given to him, nor adduced to this court, which shows what material effect that would have had on the outcome beyond those valuation reductions which the adjudicator had already made in his assessment.

26. For those reasons, I reach the conclusion that the adjudicator’s decision should be summarily enforced. I then turn to the question of the adjudicator’s fees. At paragraph 9.5 of the decision, he identifies his fees and expenses in the sum of £16,252.50, inclusive of VAT. He decided that the defendant should be responsible for those in full, and says in terms at paragraph 9.6, ”Should one party have paid more than their share, then the other party shall reimburse the appropriate amount forthwith” .

27. After some discussion between counsel, it became clear that if the conclusion of the court was, as it now is, that the adjudicator’s decision should be summarily enforced, that the liability for fees necessarily follows.

28. But that cannot give rise to enforcement of a greater sum than that which the claimant has itself been liable to pay. The circumstances are that the adjudicator issued his own proceedings, as I earlier mentioned, and those proceedings were settled by payment by the claimant of a sum, I think, of £16,000, together with the court fee of £100. And therefore that is the extent of the claimant’s ability to seek reimbursement from the defendant, so far as that is concerned, but there will be summary judgment for those sums.

29. The last remaining point is in respect of the claim for legal fees, which are the legal fees in the sum of £2,238 for dealing with the claim by the adjudicator in respect of his fees. The position is that paragraph 25 of the particulars of claim in these proceedings said, ”The claimant seeks damages for breach of contract and enforcement decision. The claimant also seeks repayment of the legal costs it has incurred in respect of reaching a settlement with the adjudicator in respect of his fees and his costs of these enforcement proceedings” . But the prayer did not include a claim for damages, nor did it quantify the damages that were claimed in respect of the legal costs.

30. In principle, it seems to me that the claim in respect of legal costs are damages which flow from the breach of contract by the defendant in not honouring the adjudicator’s decision as it should have done. And, therefore, the defendant should be liable for those costs. However, objection is taken on the basis that the damages were not identified in the prayer and quantified in the pleading, and that it is therefore inappropriate for summary judgment to be given in respect of them.

31. The extent of the objection taken by Mr Winser is that, if I conclude that the claim has not been properly articulated at all such that it would require a new set of proceedings in order to recover those fees, that would be one thing and I should then dismiss the claim for summary judgment. If, on the other hand, I was to conclude that the claim had been sufficiently pleaded in principle but merely not adequately quantified, such that summary judgment should technically not be given in respect of the amount, then although in theory the matter could be transferred to the small claims court to deal with the assessment of those damages, in practice if that were the position, the matter could be dealt with in some other way.

32. In my judgment, this is a matter in which the legal fees claimed as damages has been sufficiently pleaded by paragraph 25, and therefore they are encompassed within this action. It seems to me that I cannot, at this stage, give summary judgment in respect of those costs because there was no pleading as to their amount, nor was there any exhibit in respect of those costs. Instead, they were erroneously included in a statement of costs for the purposes of this application, which seems to me to be a quite different thing.

33. Therefore, as a matter of theory, whilst I will not give summary judgment during the course of this judgment for those legal costs, I do consider the principle of the claim has been sufficiently raised by the pleading. It would therefore be open to me to give permission to the claimant to amend its pleading to quantify the value of that head of claim and have the matter then transferred to the small claims court for assessment. I will give Mr Winser the opportunity, in the light of this judgment, to take instructions on how that matter could be satisfactorily resolved today. So, subject to that, I will give summary judgment in amounts to be discussed and agreed between counsel.