Practical Law

Earlier this year, Fraser J gave a significant judgment in which he:

• Confirmed the circumstances in which fraud could be a successful ground to resist the enforcement of an adjudicator’s decision.
• Developed a new circumstance, or principle, in which a stay of execution of an adjudicator’s decision may be granted.

Gosvenor London Ltd v Aygun UK Ltd was discussed by Dr Tim Sampson on this blog and is subject to an ongoing appeal. This post focuses on, and analyses in further detail, Fraser J’s so-called “principle (g)”.

Principle (g)

The facts of fraud in Gosvenor v Aygun were striking and, equally strikingly, unrebutted. Nevertheless, Fraser J did not grant a stay of execution simply because there was clear and unambiguous evidence of fraud. Rather, Fraser J added a new principle to those in Wimbledon v Vago. Principle (g) (labelled to follow (a) to (f) provided by HHJ Coulson (as he then was) in that case) states that the court may grant a stay:

“(g) If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay.”

Assesmont v Brookvex

As may be expected, parties facing enforcement have sought to rely on principle (g), despite Fraser J’s clear statement as to the limited circumstances in which it would apply and the “clear and unambiguous evidence” required.

In Assesmont v Brookvex, the defendant sought to resist enforcement and, in the alternative, a stay of execution on grounds of fraud. The essence of the defendant’s allegations was that the claimant had forged timesheets.

Jefford J held that:

• In terms of the resistance to enforcement, the allegations of fraud should have been raised in the adjudication so were taken to have been adjudicated upon.
• The evidence of fraud fell far short of the clear and unambiguous evidence required to resist enforcement or seek a stay of execution.

Principle (h)?

Jefford J’s analysis, and the facts of this case, shine a light on particular elements of principle (g) as formulated, with obvious precision, by Fraser J in Gosvenor. Most importantly, as foreshadowed above, fraud alone is not enough. Rather, there must be evidence:

• Of a real risk that the assets will be deliberately dissipated.
• That, as a result, the adjudication sum would not be repaid.

In Gosvenor, there was evidence of collusion and a statement that any sum received by Gosvenor from the adjudication enforcement would be so dissipated.

One argument the claimant relied on in Assesmont was that, even if the court was satisfied as to the alleged fraud in respect of the timesheets, there was no evidence that the claimant would dissipate its assets such that it would be unable to repay the adjudication sum.

A matter understandably not considered in the judgment, but raised briefly in argument was whether arguments of fraud in this context were limited to principle (g). With good timing, Coulson J (as he then was) had already confirmed in Equitix v Bester that the principles in Wimbledon v Vago were not exhaustive. Therefore, it is possible that a principle (h) could be added in the simple terms that, if there is clear and unambiguous evidence of fraud by the applicant, a stay of execution to adjudication enforcement will be granted.

Principle (g) is too narrow

Further analysis supports such a principle and suggests that principle (g), as currently drafted, is too limited:

• As Fraser J confirmed in Gosvenor (at paragraph 40), the party seeking a stay of execution already faces a high test.
• Practically, the evidence and arguments of the parties will be focused on whether there is clear and unambiguous evidence of fraud. Evidence of financial strength, or lack thereof, is an (unnecessary) complication.
• It is conceivable that there could be clear, unambiguous evidence of fraud by an extremely wealthy company but, given the company’s wealth and assets compared to the amount of the adjudication sum, principle (g) would not be satisfied. It would be unsatisfactory for the wealth of the company, and the value of the adjudication decision, to carry so much weight.
• As a matter of law, the court’s power to grant a stay comes from CPR 83.7. There must be “special circumstances” that render it inexpedient to enforce the judgment or order. Fraud alone would appear to be a special circumstance.

The narrow and complex nature of principle (g) appears to  arise from the framing of this new principle, which is related to fraud, in the language of the pre-existing financial inability tests in Wimbledon v Vago.

It is correct for the court to consider this guidance and not simply adopt the broad wording of the Civil Procedure Rules. The circumstances in which a stay of execution may be granted for an adjudication enforcement are more limited than stays for other judgments or orders due to the policy reason of enforcing the temporary finality of adjudication decisions, thus giving effect to the intent of the Construction Act 1996.

However, fraud also raises policy considerations: the court should not be seen to facilitate fraud. On balance, given the safeguard requirement for “clear and unambiguous evidence”, this second principle should carry greater weight than the temporary finality of adjudication.

Summary

The Court of Appeal in Gosvenor could provide a positive development in the law by adding a principle (h), which focuses on fraud itself, not the possible inability to repay sums paid following an adjudication. Principle (h) would offer simplicity and fairness, removing the financial position of the fraudulent party and the amount awarded by the adjudication as relevant issues in the court’s determination. Principle (g) would still be relevant to future deliberate dissipation or the non-fraudulent dissipation of assets.

The one element for the court to develop and consider in adding a principle (h) would be the extent to which the fraud would need to relate to the subject matter of the adjudication decision. The solution, perhaps, would be to leave the relationship between the fraud and the adjudicator’s decision as one of the issues relevant to whether the court exercises its discretion to grant a stay, as opposed to a qualifying requirement before it can consider doing so.

James acted for the successful claimant in Assesmont v Brookvex.