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Adjudication decisions procured by fraud

There is a robust policy of enforcing adjudicators’ decisions, and in not allowing that policy to be undermined simply because a party alleges fraud. However:

“Where, exceptionally, it is properly arguable on credible evidence that an adjudication decision was itself procured by fraud that was reasonably discovered after the adjudication, the court is unlikely to grant summary judgment.”

So said Pepperall J in PBS Energo AS v Bester Generacion UK Ltd, which proved to be one such exceptional case.

PBS had obtained an adjudicator’s decision in its favour for £1.7 million plus interest, but Bester successfully resisted enforcement on the basis of PBS’ fraud in procuring the adjudicator’s decision.

PBS Energo AS v Bester Generacion UK Ltd

Bester was engaged by Equitix to design and construct a biomass power plant in Wrexham and it entered into a sub-contract with PBS for that purpose. In 2017, the parties fell into dispute and both the main contract and the sub-contract were terminated.

The first adjudication between PBS and Bester concerned termination. The adjudicator declined to declare that Bester validly terminated the contract. In a second adjudication, before a different adjudicator, PBS sought a valuation of the sum alleged to be due to it upon termination of the parties’ sub-contract.

In November 2018, during the second adjudication, PBS represented that:

  • Bespoke equipment had been manufactured for the project, which was held to Bester’s order in its premises in the Czech Republic, and would be released to Bester upon payment.
  • If and/or when the equipment could be sold, it would give credit to Bester, but PBS denied it had completed any sales.

In his decision of 7 December 2018, the second adjudicator decided that Bester was liable to pay £1.7 million to PBS, based on the total value of works completed (43%) less previous payments. However, the adjudicator did not give any credit on the sum he considered to be due to PBS, on the understanding of PBS’s representations.

Fraud

On 5 December 2018, in underlying TCC proceedings (coming on for trial in July 2019), PBS gave disclosure of some 57,000 documents, 17,000 of which were in Czech or Slovak. Those documents were rather revealing, albeit only available after the adjudicator had reached his decision.

Bester’s solicitor, Ms Rebecca Williams and her team’s “diligent analysis of PBS’s disclosure” led the judge to find that “it was properly arguable on credible evidence” that a number of representations made during the adjudication were false:

  • Certain equipment was not actually in the Czech Republic at all, but had been sold on and installed in another power plant, in Poland, or deconstructed for use elsewhere.
  • PBS had not in fact paid for nor obtained title from its suppliers to certain equipment, never held it to Bester’s order, and had achieved credits in its favour.

Thus, PBS had:

“… made false representations knowing them to be false, alternatively without belief in their truth or recklessly, not caring whether such statements were true or false.”

This meant PBS had obtained an advantage in the adjudication. Consequently, Pepperall J dismissed PBS’s application for summary judgment. This was:

“… one of those rare adjudication cases where there is a properly arguable defence that the decision was obtained by fraud.”

As the dispute was a single dispute, no issue of severance arose.

Importantly for the enforcement proceedings, disclosure in the underlying TCC proceedings was after close of submissions in the second adjudication and so, Pepperall J found, Bester could not reasonably have been expected to raise the fraud allegations before the second adjudicator.

Legal and practical points

This judgment gives rise to a number of points for practitioners, which can be summarised under the following headings:

  • The circumstances and type of case in which the fraud defence is available.
  • The court’s approach to a fraud defence in adjudication enforcement.
  • Pleading and evidence of fraud.

The circumstances and type of case in which the fraud defence is available

In finding good and credible evidence of fraud, the court considered the decisions in SG South v Kingshead, Gosvenor v Aygun and Speymill v Baskind.

In those cases, the question of fraud was an issue in the adjudication itself. However, in PBS, the fraud only came to light after the adjudication.

Pepperall J considered that in cases of the former, the fraud is in effect adjudicated upon and the adjudicator’s decision, without more, will be enforceable. However, in cases of the latter, fraud can be raised a defence to the enforcement proceedings provided the point could not and should not have been taken in the adjudication itself.

The court’s approach to a fraud defence in adjudication enforcement

In SG South v Kingshead, Akenhead J made clear that the court:

“… should be astute and cautious on adjudication enforcement applications in assessing pleas of fraud.”

That is, of course, proper and correct, and there are policy considerations to support that, as Fraser J explained in Gosvenor.

In this case (as in previous cases), Pepperall J stated that successful fraud cases are “rare”. That is also true, and is reflected by the reported decisions. But, each case will turn on its own particular facts and careful and detailed analysis is called for.

Pleading and evidence of fraud

CPR 24.4(2) does not require a defendant to file a defence before a summary judgment hearing, if a claimant applies for summary judgment before a defence has been filed, as will almost invariably be the case in adjudication enforcement.

As Pepperall J noted, the enforcing party has no valid procedural complaint if the first they know of the defendant’s case (including its fraud allegations) is in the evidence filed in response to the application for summary judgment.

Finally, allegations of fraud must be supported by clear and unambiguous evidence and argument, as they were in this case.

Tom Owen appeared for Bester with Steven Walker QC, instructed by Watson Farley & Williams.

One thought on “Adjudication decisions procured by fraud

  1. Those interested in instances where “fraud unravels all”, ought to consider the Supreme Court’s judgment in Takhar v Gracefield Developments Ltd and others [2019] UKSC 13, where it held that, where it can be shown that a judgment has been obtained by fraud, a requirement of reasonable diligence should not be imposed on the party seeking to set aside the judgment.

    Aileen McErlean at Hardwicke discusses this judgment, commenting that:

    “The judgment provides important clarification that lack of due diligence will not render an action to set aside a judgment procured by that fraud an abuse of process, where no allegation of fraud had been made in the underlying proceedings. However, where fraud was alleged in the underlying proceedings and the victim is seeking to set aside the judgment on the basis of further evidence in support of the allegation of fraud, the question of whether lack of due diligence in the conduct of the underlying proceedings would render the claim to set aside an abuse remains unanswered.”

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