Adjudicator Has No Jurisdiction Because Of “A Very Strong Prima Facie” Case Of Fraudulent Misrepresentation At Appointment Stage

Nov 12 2014

By Mike R. Stewart and Mary E. Lindsay, K&L Gates, London

Eurocom Limited v Siemens PLC

[2014] EWHC 3710 (TCC)

http://www.bailii.org/ew/cases/EWHC/TCC/2014/3710.html

It is never easy to resist an action for enforcement of an adjudicator’s decision. Speed and certainty are central tenets to the adjudication mechanism provided by the Housing Grants Construction and Regeneration Act 1996. However, the judgment in the recent case of Eurocom Limited v Siemens PLC shows that the courts will not put enforcement of the adjudicator’s decision above basic legal principles.

The dispute arose in relation to a sub-contract allowing for the installation of communication systems in the London Underground. Siemens terminated the sub-contract in August 2012. A first adjudication took place and the decision made on 27 September 2012. That decision provided that a net sum was due from Eurocom to Siemens. Eurocom served a second notice of adjudication on 21 November 2013 and it was that adjudication that gave rise to these enforcement proceedings.

In the enforcement proceedings the judge considered, amongst other things, whether appointment of the second adjudicator was valid.

The adjudicator was appointed under the RICS’s nomination procedure. This required Knowles, acting for Eurocom, to complete a form in which it was asked to identify “any Adjudicators who would have a conflict of interest” in the case (who would not thereby be appointed). A number of adjudicators, the adjudicator in the first adjudication (who might very well and sensibly have been appointed as adjudicator in the second adjudication) and a firm of solicitors were listed in this section of the form. The form was not initially shared with Siemens.

However, it subsequently came to light and it transpired that the adjudicators identified did not in fact have a conflict of interest in the case. Knowles accepted they did not “properly” answer the question asked by the RICS about conflicts of interest, but merely referred to people without any conflicts who they did not want to be appointed.

Siemens’ primary case was as follows:

The application form sent to the RICS by Knowles seeking the appointment of an adjudicator misrepresented to the RICS that a number of individuals had a conflict of interest;
This was a false statement, made deliberately and/or recklessly by Knowles; and
A nomination based upon such a fraudulent misrepresentation is invalid and a nullity, such that the adjudicator has no jurisdiction.

The Court decided the point as follows (at para 65 of the judgment):

“… there is a very strong prima facie case that [Knowles] deliberately or recklessly answered the question “Are there any Adjudicators who would have a conflict in this case?” falsely and that therefore he made a fraudulent representation to the RICS as the adjudicator nominating body.”

The Court said that the consequence of this was as follows (at para 75 of the judgment):

“… I conclude that the fraudulent misrepresentation would invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have jurisdiction.”

The Court also agreed with Siemens’ alternative case that the completion of the form gave rise to a breach of an implied term to act honestly. Here the Court referred to the judgment in Makers v Camden (at [29(7)]) that there might be an implied term “by which the party seeking a nomination should not suborn the system of nomination”. Eurocom, through its advisors, had sought through fraudulent misrepresentation to influence the discretion to be applied by the appointing body, the RICS. Eurocom should not benefit from this benefit and the appointment of the adjudicator was invalid.

The ramifications of this decision will be keenly monitored by the industry.