Grandlane Developments Ltd v Skymist Holdings Ltd

In adjudication enforcement proceedings, fraud may provide a defence only where it is a real defence to the adjudicated claim. Fraud must be supported by clear and unambiguous evidence. Matters known, or reasonably capable of being raised, during the adjudication will generally not prevent enforcement, particularly where they were not raised then. Fraud must also affect the subject matter of the adjudication; collateral fraud will generally not justify refusing enforcement.

A speculative possibility that further disclosure may reveal fraud does not justify adjourning enforcement. A stay of execution requires special circumstances. Financial weakness alone is insufficient where it reflects the claimant’s pre-existing position or the defendant’s failure to pay. Dissipation requires a high threshold: an objectively assessed real risk of unjustifiable dissipation.

Grandlane applied for summary judgment to enforce an adjudicator’s decision requiring Skymist to pay approximately £964,000 plus VAT and interest in respect of development management and consultants’ fees.

Skymist alleged that Grandlane and an architect had colluded to inflate the architect’s fees and that Grandlane had obtained a secret financial benefit from pursuing the claim. It argued that the adjudicator’s decision was thereby tainted by fraud, or alternatively that enforcement should be adjourned pending further pre-action disclosure. Skymist also sought a stay of execution based on Grandlane’s financial position and an alleged risk of dissipation.

The issues were whether the alleged fraud could be raised against enforcement, whether the application should be adjourned, and whether special circumstances justified a stay.

1. Fraud. The principles in SG South v King’s Head Cirencester LLP [2010] BLR 47 applied. Fraud may be raised in answer to enforcement where it is a real defence to the adjudicated claim, but any fraud relied on must be supported by clear and unambiguous evidence. A distinction must be drawn between fraud which was, or could reasonably have been, raised in the adjudication and fraud discovered only afterwards. Fraud directly affecting the subject matter of the adjudicator’s decision may exceptionally be relevant; fraud independent of that subject matter generally should not prevent enforcement.
2. The evidence showed cooperation between Grandlane and the architect in presenting the architect’s fees claim, but it did not establish dishonest conduct, inflation of the claim, a secret commission, or recklessness as to truth. Any possible breach of agency or fiduciary duty was distinct from clear and unambiguous evidence of fraud. Grandlane’s liability for the architect’s fees was not reduced merely because the architect agreed to contribute towards adjudication costs. The claim might have been overstated, but that did not establish fraudulent intent.
3. Skymist’s suspicions existed during the adjudication. It could have raised the alleged collusion and secret-commission case then. The later disclosure did not alter that conclusion. The application was therefore not adjourned, and summary judgment was granted.
4. Stay of execution. The principles in Wimbledon v Vago [2005] EWHC 1086 (TCC), as supplemented by Aygun Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWCA Civ 2695, applied. A stay may be justified by probable inability to repay, but ordinarily not where the claimant’s financial position is materially the same as when the contract was made or results substantially from the defendant’s non-payment. A stay based on dissipation requires an objectively assessed real risk that assets will be unjustifiably dissipated so that repayment will not be possible.
5. Ordinary use of adjudication proceeds in the claimant’s business, including payment of a genuine liability to a consultant, is not improper dissipation. Skymist’s evidence did not establish either the necessary financial exception or a real risk of unjustifiable dissipation. The stay was refused.

First-instance decision. The judgment records that permission to appeal in related jurisdictional proceedings had been refused by both Waksman J and the Court of Appeal.