Fraud Unravels Some More – The Increasing Importance of Fraud in Security of Payment Cases

03021401My paper on the increasing importance of fraud in challenges to adjudicator’s decisions has just been published in the Australian Construction Law Newsletter. It looks not only at some recent case law, but also at how fraud – as widely defined for this purpose – is remarkably common in this context. The article in full is here; it begins thus:

The recent decision in Sugar Australia v Southern Ocean Pty Ltd [2013] VSC 535, a decision of Justice Vickery on 15 October 2013, sheds some vivid light on the potential importance of fraud in security of payment cases. This paper considers how the law stands in this area, how this case develops the detailed application of the relevant principles, and what the potential avenues are for parties seeking to challenge adjudicators’ determinations on this ground.

A starting point is not hard to find; the statement of principle that has been repeatedly cited is that of Lord Denning in Lazarus Estates Ltd v Beasley [1956] 1 QB 702, 712:

No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever…

The reference to “all transactions whatsoever” needs be treated with some caution, for example in the context of real estate transactions affecting third parties, but it is well established in Australian law that fraud is a ground for certiorari; SZFDE v Minister for Immigration and Citizenship [2007] HCA 35.

It will be necessary to consider in more detail below what “fraud” means in this context, but it might be noted at the outset that dishonesty is hugely common in the area of construction claims. Those of us who have practised in the field for many years will have seen many cases where a party who has done work will knowingly exaggerate the quantity of work done for the purpose of interim payment applications, or exaggerate the impact of some event such as the ordering of a variation has had on his work, or support his application for payment with a statutory declaration saying that all subcontractors have been paid, when he knows full well that that is not the case[1]. In many cases, the party in question might well feel that such conduct is normal practice or even appropriate: for example he may feel that he owes it to his own subcontractors to pass on claims even if he does not personally think they are accurate, on the basis that it is for the next party up the contractual chain to knock the application down…

[1] As to the last, see the evidence at page 56 of the Collins Report of “mass dishonesty” in the industry.

One thought on “Fraud Unravels Some More – The Increasing Importance of Fraud in Security of Payment Cases

  1. Robert, may it ever by thus! Lets hope the Russian criminals that took down Talk Talk and seek to take advantage of their criminal acts see the rest of their time in a Gulag like home!

Leave a Reply