Henry Construction Projects Ltd v ProMEP Ltd[1]

In this unusual adjudication enforcement case, Henry sought to defend the enforcement of an adjudicator’s decision on the basis that it had been procured fraudulently by ProMEP. Henry’s allegation, which was dismissed by the judge, was that, in its submissions in the adjudication, ProMEP had deliberately only provided the good parts of counsel’s advice to the adjudicator and had omitted the part that were unhelpful to its case.

The TCC also considered the effect of a company voluntary arrangement (“CVA”) on ProMEP’s claim and whether automatic insolvency set-off applied such that ProMEP’s claim was settled by the CVA. George Boddy explains more.

Background

ProMEP is an M&E contractor engaged by Henry to carry out works across a number of different projects over a four-year period. Under one of those contracts, ProMEP was engaged to design, supply and install M&E works at a project at Stanbridge Earls (“the Stanbridge Contract”).

In early 2021, the relationship between the parties deteriorated. Both claimed that they were entitled to terminate various contracts, including the Stanbridge Contract. As is common in a termination scenario, each party claimed that the other had repudiated the contract. In July 2021, ProMEP claimed that Henry was in repudiatory breach and had accepted that repudiation as terminating the contract.

Henry disputed that it was in repudiatory breach and that ProMEP had a right to terminate. Henry therefore claimed that ProMEP’s termination was wrongful and thus repudiatory itself.

Later, in October 2021, the directors of ProMEP proposed that it enter into a CVA. On 28 March 2022, Henry submitted a proof of debt form for three debts arising out of contracts with ProMEP, but not the Stanbridge Contract. By 27 July 2022, the CVA was successfully completed.

The adjudication

In November 2022, ProMEP commenced an adjudication against Henry seeking a declaration that Henry was in repudiatory breach of contract and claimed payment for work done and damages of £887,545.80. Henry rejected this claim and advanced its own counterclaim for £825,208 on the basis that ProMEP was in repudiatory breach.

One of Henry’s arguments in the adjudication was that ProMEP’s claim had been settled by the CVA. Henry argued that the CVA was intended to function in the same way as insolvency where set-off was mandatory so that a creditor ends up with a final position and cannot be pursed for further monies. As part of its rejoinder, Henry included advice from counsel that supported its position as regards the effect of the CVA.

ProMEP disagreed that its claims were settled by the CVA and contended that they were excluded from it. ProMEP did not follow suit in its surrejoinder, but instead summarised some advice that it had previously received from counsel on the effect of the CVA.

On 5 January 2023, the adjudicator found that Henry had repudiated the Stanbridge Contract and awarded ProMEP the sum of £90,380.49. The adjudicator also found that ProMEP’s claims were not settled by the CVA.

Henry subsequently issued Part 8 proceedings seeking a declaration that the CVA had settled ProMEP’s claim and ProMEP issued Part 7 proceedings seeking to enforce the adjudicator’s decision.

Was the adjudicator’s decision procured by fraud?

In defence of the enforcement proceedings, Henry sought to argue that the adjudicator’s decision had been procured fraudulently by ProMEP and that it should not be enforced. Since the decision, Henry obtained a full copy of the advice ProMEP had received from counsel that it had summarised in its surrejoinder.

Henry contended that ProMEP had deliberately provided a partial extract of the advice and had presented it as counsel’s unequivocal opinion when no such opinion had been given. In other words, according to Henry, ProMEP had only included the good parts of counsel’s advice and had left out the bad parts; the summary was selective and, therefore, misleading. Henry argued that this met the threshold in PBS Energo v Bester Generacion[2] that “the evidence on which the adjudicator has relied is shown to be both material and arguably fraudulent”.

However, the judge disagreed and held that ProMEP had not fraudulently misrepresented counsel’s advice.  ProMEP had made clear in the surrejoinder that the summary was only its understanding of the advice and had not been approved by counsel. While ProMEP’s summary had omitted the sections setting out the argument that ProMEP’s claims were settled by the CVA, counsel had not expressed an opinion that preferred that view and ProMEP’s summary was clear that counsel had contemplated the competing arguments in the advice. The judge held that it went too far to infer from these omissions that ProMEP’s summary was fraudulent.

Even if it had been fraudulent, it was not material because the advice was not “evidence” relied on by the adjudicator and was simply legal argument. The advice was held to be “more akin to a representation as to the law, and a flawed statement of the law made by a party in an adjudication would not be a reason that the decision was unenforceable since the decision on the applicable law would be a matter within the jurisdiction of the adjudicator”.[3]

The judge noted that it was common practice to include in adjudication submissions an open advice from counsel, which was “a mechanism or technique to put arguments before the adjudicator as if they were submissions from counsel with the intention and hope that the arguments will carry some weight with the adjudicator as the views of counsel”.[4] It is then a matter for the adjudicator to form his own view when faced with two conflicting opinions from counsel, particularly when the adjudicator is an experienced lawyer (as was the case here).

The “nature of the reliance” of an adjudicator or tribunal on legal submissions, which provide an exposition of the competing legal arguments, was quite different from the “nature of the reliance” on statement of existing fact.[5] The failure to disclose the full advice could not, therefore, give rise to an arguable defence that the decision was procured by fraud when it was only legal argument and not statements of fact.

Further, the judge also found that Henry could have raised its concerns about ProMEP’s summary of its counsel’s advice during the adjudication but had not done so. Henry’s defence, therefore, also fell foul of the established principle that if the allegation of fraud could have made in the adjudication itself, but was not, then it could not be raised as a defence to enforcement[6].

Was ProMEP’s claim settled by the CVA?

This question was the subject of the counsel’s advice that the parties deployed in the adjudication. It was to be answered by applying the usual rules of contractual construction to the terms of the CVA.

ProMEP’s position was that its claim against Henry was excluded by the terms of the CVA, the purpose of which was to deal with its debts but allow it to continue trading and pursue claims in the future. ProMEP relied on clause 8.3 of the CVA which expressly provided that all assets, other than those identified in the clause, were excluded from the CVA. It argued that its claim against Henry was an asset that was excluded.

Henry maintained that the CVA was intended to operate as a full and final settlement of all amounts due to the creditors of the company and that the set-off process under rule 14.25 of the Insolvency Rules automatically applied.  In other words, Henry argued that the effect of the CVA was that any debts owed to ProMEP from Henry were set-off against Henry’s claims against ProMEP and were accordingly compromised. Henry had submitted a proof of debt in the CVA for almost £3.5 million, but received less than 10% of that sum in dividends.

The judge found that, on a proper construction of clause 8.3 of the CVA, ProMEP’s claim was excluded from the CVA and it was free to pursue it against Henry. The declarations sought by Henry were therefore rejected and there was no reason not to enforce the adjudicator’s decision.

Despite this finding, the judge expressed some sympathy for Henry’s argument, primarily because ProMEP’s claim against Henry had not been disclosed in the CVA Proposal and Statement of Affairs. This was a requirement of the Insolvency Rules which obliged ProMEP to set out its assets, which assets are to be excluded from the CVA and “any other matters the proposer considers appropriate to enable members and creditors to reach an informed decision on the proposal”.[7] The judge described the omission of ProMEP’s claim against Henry as a “significant failure of disclosure”.[8]

Commentary

The judge’s remarks on the status of counsel’s advice deployed in the course of an adjudication will be of interest to practitioners and adjudicators. The disclosure of counsel’s advice in adjudication is a tactic sometimes used to persuade adjudicators of the merits of a party’s position as the views of counsel. Both parties adopted it here, although, whereas Henry provided the full advice, ProMEP only provided a summary.

While Henry argued that ProMEP’s summary was so partial that it had procured the adjudicator’s decision fraudulently, the judge decided that it was sufficiently clear that the summary was ProMEP’s understanding of the advice. In any event, counsel’s advice is not evidence of fact, which, if knowingly misrepresented, could amount to fraud, but rather legal argument designed to persuade the adjudicator of a party’s position.

Ultimately, it is for an adjudicator to consider the parties’ competing arguments and reach a decision on the law. If one party makes a flawed or incomplete statement of law in the course of its submission, including the provision of a partial summary of counsel’s advice, then that is clearly not a reason not to enforce a decision. In the end, the judge doubted whether there could ever be circumstances in which a legal opinion was so badly misrepresented that would amount to fraud.

[1] [2024] EWHC 1825 (TCC).

[2] [2020] EWCA Civ 404.  I’m getting [2020] EWHC 223 (TCC) as the citation, not what is listed here.

[3] [43].

[4] [44].

[5] [44].

[6] SG South Ltd v King’s Head Cirencester LLP [2009] EWHC 2645 (TCC).

[7] Insolvency Rules Part 2, Rule 2.3(1).

[8] [90].