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14 May 2018
Gosvenor agreed to perform certain cladding works for Aygun. Disputes arose and Gosvenor applied to enforce an adjudicator's decision in the sum of £555k. Aygun accepted that adjudicators' decisions will be enforced by the courts, regardless of errors of fact or law, but alleged fraud on the part of Gosvenor. No allegations of fraud were raised in the adjudication proceedings.
However, in the defence to the enforcement proceedings Aygun said that following enquiries "a substantial proportion" of the adjudication award was based on sums which had been fraudulently invoiced. The sums invoiced by Gosvenor for operatives simply could not reflect the amounts due, because of an "enormous discrepancy" in sums invoiced to Aygun and works actually done or labour actually provided. A valuation assessment had been performed by Aygun that showed that the very maximum of £100k of labour costs could and/or should have been invoiced, rather than the figure of over five times that. Aygun also said that they "simply" did not have the evidence to hand at the time of the adjudication to make such a serious allegation.
The Aygun claims were supported by witness statements. There was no evidence at all served by Gosvenor in response to these witness statements until after submission of the draft judgment. As Mr Justice Fraser said, not only was it far too late, it was "extraordinary". The Judge considered the principles that arise on enforcement when fraud is alleged. If fraud is to be raised in an effort to avoid enforcement or to support an application to stay execution, it must be supported by clear and unambiguous evidence and argument. Further, a distinction has to be made between fraudulent acts that could have been raised as a defence in the adjudication and those which neither were nor could reasonably have been raised but which emerged afterwards.
The Judge recognised that a particular issue for Aygun was why they had not raised some of these issues in the adjudication. For example, the valuation evidence showing the large discrepancy could have been, and the Judge thought should have been, deployed in the adjudication: "Parties to construction contracts who do not manage their own projects properly are not granted some sort of immunity in terms of adjudications, or the enforcement of adjudicators' decisions."
Therefore, the Judge granted the application for summary judgment. However, Aygun also brought an application for a stay of execution, relying on the fraud issue and the lack of financial viability on the part of Gosvenor. The Judge considered the basic principles as outlined in the Wimbledon v Vago case (Dispatch, issue 61) and held that there were the following "special circumstances" to justify the grant of a stay of execution:
(i) Facts relating to the alleged fraudulent acts which should have been deployed before the adjudicator.
(ii) Facts relating to the behaviour in January 2018 of Gosvenor's employees, including threats and intimidation, in relation to the enforcement proceedings.
(iii) Facts relating to the unsatisfactory and contradictory accounts of Gosvenor.
These represented an extension to the points listed in the Wimbledon v Vago case. However, as Mr Justice Fraser said, there was no question of fraud in that case. The Judge therefore added the further following principle:
"(g) If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay."
The Judge made it clear that this item was only likely to arise in a very small number of cases, and in exceptional factual circumstances. A high test was to be applied as to whether the evidence reached the standard necessary for this principle to apply. Further, it was not intended to re-open the whole issue of the basis upon which stays of execution will be ordered in adjudication enforcement cases. Here the evidence was that Gosvenor (or those who control it) "would specifically organise its financial affairs, other than in the ordinary course of business, to ensure that the adjudication sum paid to it would be dissipated or disposed of so that any future judgment against it would go unsatisfied".
Accordingly it was appropriate to stay the execution of the adjudication decision.
For further information on this topic please contact Jeremy Glover at Fenwick Elliott Solicitors by telephone (+44 20 7421 1986) or email (email@example.com). The Fenwick Elliott Solicitors website can be accessed at www.fenwickelliott.com.
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