REUTERS | Amr Abdallah Dalsh

Fraud allegations in adjudication enforcement prevent summary judgment

A couple of weeks ago when Matt was writing about the difficulties parties face in adjudicating because of the 2019 novel coronavirus disease (COVID-19), we were just starting week two of the coronavirus lockdown, and still getting used to working from home every day. Two weeks later, I’m sure we are all a bit more in the swing of things remote working wise, but having to juggle work and the joys of home schooling is adding an extra challenge for many.

At the moment there may be no end to the lockdown in sight but there are still judgments to write about and so that is what I’m going to do. This week, I’m looking at Coulson LJ’s judgment in PBS Energo AS v Bester Generacion UK Ltd.

PBS Energo AS v Bester Generacion UK Ltd 

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

In the first adjudication between PBS and Bester, the adjudicator declined to declare that Bester validly terminated the sub-contract. In a second adjudication, with a different adjudicator, PBS sought a valuation of the sum alleged to be due to it upon termination of the sub-contract. During the second adjudication PBS had made a number of representations, which the adjudicator took into account when deciding that Bester was liable to pay £1.7 million to PBS, based on the total value of works completed (43%) less previous payments.

However, in the adjudication enforcement proceedings that followed, Pepperall J had found the case was “one of those rare adjudication cases” where summary judgment to enforce the adjudicator’s decision should be refused because there was credible evidence that the decision was procured by fraud. Pepperall J reached his conclusion because, on the facts, it was clear that:

  • The representations PBS had made during the adjudication regarding the existence of parts and equipment manufactured pursuant to the parties’ sub-contract, which were held to Bester’s order, pending payment, were false.
  • Those “false representations were intended to and did influence” the adjudicator to reject Bester’s arguments as to any credit it should be given. It was “properly arguable” that PBS made those representations “knowing them to be false, alternatively without belief in their truth or recklessly, not caring whether such statements were true or false”.
  • Bester could not have raised the fraud allegations during the adjudication as disclosure of the relevant documents (in underlying TCC litigation) had not been given in time for them to be identified during the adjudication.

Tom Owen discussed the case at the time.

On appeal

On appeal, Coulson LJ upheld Pepperall J’s judgment and, in the process, identified the applicable principles on enforcement where allegations of fraud are raised. I liked his review of the law, and I think his principles are worth setting out:

They are a simple but useful reminder for those dealing with allegations of fraud in adjudication.

Grounds of appeal

PBS had originally applied for permission to appeal on four grounds, but only two were allowed:

“Ground 3: The judge should have found that, because the respondent had not filed a defence alleging fraud, the allegations of fraud were not open to the respondent.

Ground 4: The judge had failed to distinguish between granting summary judgment and enforcing judgment. He ought to have granted summary judgment, even if he had then stayed some or all of that judgment.”

In terms of ground 3, I have to say that I’m not surprised that Coulson LJ reached the conclusions he did, namely that although a defendant to an adjudication enforcement claim may be well-advised to provide a pleaded defence setting out any allegations of fraud (like in Grosvenor), there is no mandatory requirement that the defendant do so if the claimant is seeking summary judgment. He said it was sufficient for the allegations to appear in witness statements and counsel’s skeleton argument. This is in keeping with the TCC’s “speedy adjudication enforcement procedure”, which does not require a pleaded defence and nor does CPR 24.4(2) before the summary judgment hearing.

On the basis that ground 3 failed, PBS accepted that ground 4 fell away, but in any event Coulson LJ made it clear that he was in no doubt that Pepperall J was “quite entitled to refuse the application for summary judgment in its entirety”.

Finally, at the end of his judgment, Coulson LJ refers to Cockerill J’s substantive trial  judgment, which was handed down at the beginning of February 2020 (a little over a month before the appeal hearing). Cockerill J decided that PBS’ claim failed and Bester’s counterclaim succeeded. Given that factual background, it seems to me that Coulson LJ’s comments at paragraph 44 make perfect sense, in that, even if PBS’ appeal on grounds 3 and 4 had been successful, it would be inappropriate to enforce the adjudicator’s decision as it had been superseded by a substantive trial. He acknowledged that this was:

“… part of the philosophy behind the adjudication process is the production of a quick decision which is temporarily binding until the underlying issues are either agreed, or the subject of final determination by the court or an arbitrator.”

Reading this paragraph in isolation one might be forgiven for wondering why it was necessary for the appeal to be heard at all, but the reason is clear from paragraph 3, namely the issue of costs.

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