What happens when there is evidence that an adjudicator’s decision was obtained fraudulently? A recent decision means that Stuart Pemble can answer that conundrum.
Key points
- The Technology and Construction Court has clarified when fraud can be used to defeat an application to enforce an adjudicator’s award
- A separate Supreme Court judgment on fraud might mean that the TCC has to revisit its approach
Ever since the landmark decision in Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] EWHC 254 (TCC); [1999] 3 EGLR 7, the courts have had a firm policy of enforcing adjudicators’ decisions regardless of errors of procedure, fact or law. The main exceptions to that policy are where there has been a breach of the principles of natural justice or the adjudicator has exceeded their jurisdiction.
The courts’ approach to fraud in adjudication
Judges have also had to consider allegations of fraud in adjudication cases. The leading authorities are Akenhead J’s judgment in SG South Ltd v King’s Head Cirencester LLP [2009] EWHC 2645 (TCC) (which was approved by the Court of Appeal in Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120; [2010] PLSCS 62) and Fraser J’s decision in Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWHC 227 (TCC) (upheld by the Court of Appeal: [2018] EWCA Civ 2695).
In SG South, Akenhead J stressed the key principles:
- Fraud can be raised as a defence in an adjudication (and it was in both SG South and Gosvenor).
- Where fraud is raised as a defence in an adjudication enforcement, it must be supported by clear and unambiguous evidence and arguments.
- Where an allegation of fraud has been considered by an adjudicator, then the decision of the adjudicator will (absent new evidence) be upheld.
- The courts should be cautious in treating alleged overcharging as being fraudulent since disputes about the value of construction work are all too common and the supposed overcharging could represent one party’s genuine belief as to the correct amount due.
In Gosvenor, Fraser J emphasised that it is rare for allegations of fraud to be considered at an enforcement hearing: “The policy considerations in respect of the approach of the courts to allegations of fraud on enforcement… include not allowing parties a ‘second bite of the cherry’ if such allegations could have been raised before the adjudicator. It is also the case that enforcement of decisions is almost always done with… argument based upon written evidence, and without actually calling witnesses. If all a party has to do to avoid summary judgment is to raise allegations that have to be resolved with oral evidence… speedy conversion of adjudication decisions into actual payment received would be frustrated.”
A relatively rare decision
This background makes Pepperall J’s decision in PBS Energo AS v Bester Generacion UK Ltd [2019] EWHC 996 (TCC) all the more interesting. The judge dismissed the application by PBS for summary judgment of an adjudicator’s award in its favour because there was “credible evidence that the adjudication decision was itself procured by a fraud that was reasonably discovered after the adjudication”.
The case involved disputes under a subcontract for the engineering, procurement, construction and commissioning of a biomass-fired energy plant in Wrexham.
Bester was the main contractor and, in May 2016, had entered into the subcontract with PBS for £14.23m. The project had not gone well. Both parties attempted to terminate the subcontract during the summer of 2017, this was their second adjudication and, at the time of this hearing, a 12-day trial was listed for later this year.
The adjudicator awarded PBS £1.7m – the unpaid balance of the value of work done at the time PBS stopped working – plus interest. When PBS applied to court to force Bester to pay, it was met with some clever detective work from Bester’s solicitor. She had been able to use documents produced during disclosure in the main TCC litigation to show that PBS had made false representations regarding the existence of parts and equipment manufactured under the subcontract and which were claimed (incorrectly) to have been held to Bester’s order pending payment.
Because the judge was satisfied that PBS made those representations either (i) deliberately knowing that they were untrue or (ii) recklessly not caring whether they were true or not, and that it was “properly arguable” that PBS obtained some advantage in the adjudication, he accepted that “PBS seeks to enforce an adjudication decision which was arguably procured by fraud”.
Pepperall J was also satisfied that Bester could not have reasonably been expected to raise the alleged fraud in the adjudication itself. The adjudication took place between 5 November and 7 December 2018, but Bester was only able to start reviewing the electronic disclosure in the main litigation on 5 December. More than 57,000 documents were disclosed, with 17,000 being in Czech or Slovak without any translation.
He concluded: “…this is one of those rare adjudication cases where there is a properly arguable defence that the decision was obtained by fraud. In such circumstances…it is not for this court to seek to re-engineer [the adjudicator’s] decision and to identify what, if any, sum might have been ordered to be paid in the event that there had been no arguable fraud.”
Lessons to be learned
The case provides a clear example of how the TCC will let evidence of fraud be used to defeat an application to enforce an adjudicator’s decision.
However, the decision of the Supreme Court in Takhar v Gracefield Developments Ltd [2019] UKSC 13; [2019] EGLR 19 might mean the TCC has to revisit this issue. The Supreme Court stressed that a party looking to set aside a judgment because of fraud does not have to show it could not have discovered the fraud before the judgment. Lord Kerr considered it contrary to the principles of justice that a fraudulent individual should profit because their opponent failed to act diligently.
Will the Supreme Court’s decision override the TCC’s concern to ensure speedy enforcement of adjudication decisions in cases of fraud? Watch this space.
Stuart Pemble is a partner at Mills & Reeve
