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New limb (g) added to Wimbledon v Vago principles and fraud allegations merit stay

Last week, Fraser J handed down his judgment in Gosvenor London Ltd v Aygun UK Ltd, a case in which the defendant (Aygun) was seeking to resist payment of an adjudicator’s award of around £650,000 on the grounds that a substantial part of the award was allegedly derived from fraudulent invoicing of Aygun. In the alternative, Aygun sought a stay on the basis of fraud, alleged witness intimidation and, most importantly, the entirely unsatisfactory nature of the claimant’s (Gosvenor) statutory accounts for 2016/2017 and the unbelievable explanations given on its behalf as to the contents. This combination of factors led the court to conclude it was unlikely that Gosvenor would repay the adjudicator’s award, were it required to do so following a challenge to the adjudicator’s decision in subsequent TCC proceedings.

Fraser J’s judgment is important for a number of reasons. Critically it has added a further principle to those set out by HHJ Coulson QC (as he then was) in Wimbledon v Vago in order to deal with the factual situation presented to it.

Gosvenor London Ltd v Aygun UK Ltd

This judgment is also important because it confirms (if confirmation were necessary) that where a claimant (such as Gosvenor) is faced with a credible fraud defence pleaded in response to the summary proceedings – with substantial evidence in support – together with having been put on notice that credibility of its statutory accounts will be challenged at the summary judgment hearing and it fails to file any evidence in response, then there is a substantial likelihood that a stay will be granted. This is so even where the claimant is entitled to summary judgment on the adjudicator’s award.

Furthermore, Fraser J was highly critical of the “evidence” provided by Gosvenor’s accountant on the day of the summary judgment application, confirming the position flagged by Coulson J in Equitix ESI CHP (Wrexham) Ltd v Bester Generation UK Ltd that the court will take a dim view when presented with partial or otherwise misleading evidence in relation to a company’s financial position, when challenged under the Wimbledon v Vago principles on an application for a stay.

In all the circumstances, Fraser J rejected Aygun’s fraud defence on the grounds that it could and should have been put before the adjudicator for determination at that stage. Consequently, applying the decisions of Akenhead J in SG South Ltd. v King’s Head Cirencester LLP and the Court of Appeal in Speymill Contracts Ltd v Eric Baskind meant that Aygun’s fraud allegations – irrespective of any merit they might have – could not be relied upon by it to resist summary judgment on the unpaid adjudicator’s award.

That part of the judgment is entirely in line with previous TCC decisions, save to note that the judge did raise a judicial eyebrow at the fact that Gosvenor chose to file no evidence in reply to Aygun’s allegations or, in fact, the allegations of witness intimidation.

Breaking new ground in test for stay

However, as noted above, the judgment does break new ground in relation to the test for a stay of enforcement of adjudicators’ awards pursued through summary judgment applications before the TCC. Fraser J has concluded that a new limb “(g)” could and should be added to Wimbledon v Vago to deal with the facts of the present case. The judgment also provides important clarification in relation to evidence of fraud (that could have been raised in the adjudication) in relation to the application of that new limb.

For a little over 13 years it has been taken for granted that the decision in Wimbledon v Vago set the somewhat narrow limits of the court’s powers to stay enforcement of an adjudicator’s award. Essentially, it requires the paying party to demonstrate that the recipient would not be in a financial position to repay the adjudicator’s award at a later date if required to do so ((f)(i) and (ii)), subject to the important provisos that the:

  • Recipient company had not been placed in its straightened financial position by the payor’s acts.
  • Recipient’s financial position was not substantially different to that when it entered into the contract.

However, none of the original Wimbledon v Vago principles quite fitted the facts in Gosvenor v Aygun and Fraser J concluded (in the first draft of his judgment) that he had the power to add to those principles, following Equitix, where Coulson J opined that:

“It was, of course, not my intention that this summary should be set in stone. It was simply a summary of the main points established by the cases up to that time. It does not, for example, deal with the position where allegations of fraud are made, particularly in circumstances where those might affect the financial standing of the referring party (who is almost always the party opposing the stay).”

Furthermore, Coulson J also made clear that one of the key reasons for granting the stay in Equitix was because he was forced to conclude that:

“I am confirmed in that conclusion by what I find to be the deliberately limited financial information made available by the claimant so far. It is not appropriate for a party to recover £10 million by way of an adjudication and then, in answer to legitimate concerns raised by the other side as to their financial position, effectively stonewall the requests until the last minute and beyond.”

As the decision in Equitix was handed down after the hearing of Gosvenor’s summary judgment application, but before Fraser J handed down his first draft judgment in Gosvenor v Aygun, the parties were invited to provide further submissions on the legal implication of Equitix to the present case (but no further evidence was to be filed or served by either party, despite Gosvenor’s repeated requests for permission to do so).

Having considered those further submissions, Fraser J concluded (in the second draft of his judgment) that he did have the power to add to the Wimbledon v Vago principles and chose to do so in the following form:

“(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.”

He specifically rejected, as completely unworkable, Gosvenor’s submissions that the appropriate alternative course (to adding new limb (g)) was for Aygun to be required to pay the judgment sum to Gosvenor and immediately apply for a freezing injunction.

However, Fraser J made clear that:

  • This new new limb (g) “is only likely to arise in a very small number of cases, and in exceptional circumstances” and that, in most cases, the original Wimbledon v Vago principles will be sufficient.
  • A high test will be applied to the evidence need to make out this limb, equivalent to that required to obtain a freezing injunction, and:

    “… mere assertions will not be sufficient. Isolated discrepancies on statutory accounts will not be sufficient either.”

  • The claimant’s future intentions will not be a relevant consideration when applying limb (g).

Evidence in support of new limb (g)

Having determined that he had the power to add a new limb (g) to the Wimbledon v Vago principles, Fraser J then turned to the question of the evidence the defendant could rely upon in support of an application for a stay of execution. He identified three categories:

  • The pleaded allegations of fraud that should have been raised in the adjudication.
  • The allegations of witness intimidation.
  • The unsatisfactory nature of Gosvenor’s statutory accounts and the even less satisfactory explanations of the discrepancies in those accounts provided at the summary judgment hearing.

Gosvenor’s counsel argued forcefully that the court could not take into account the fraud allegations when considering the stay application, as they could and should have been raised in the adjudication (as the judge had already found). They could not be recycled in support of the stay because such an approach was contrary to Akenhead J’s judgment in SG South Ltd.

Fraser J rejected this approach and took the view that the court needed to take into account the different jurisdictions that underpinned an application for summary judgment (CPR 24) and those applying to a stay (old RSC Order 47 / CPR 83.7(4)), which is part of the High Court’s inherent jurisdiction. Summary judgment was available “as of right” in relation to the enforcement of an adjudicator’s decision, while the imposition of a stay required the court to identify “special circumstances” that would justify imposing a stay.

Having considered the decision in SG South Ltd, Fraser J:

  • Decided that allegations of fraud were relevant to the question of the imposition of a stay under CPR 83.7(4).
  • Concluded that Aygun’s fraud allegations could still be raised in relation to the stay, even if they could not be relied upon to resist summary judgment being granted on the claim.
  • Considered that, contrary to Gosvenor’s submissions, this was not “new law”, which would now excuse its failure to file evidence in relation to the alleged fraud for the purposes of its summary judgment application.

It is worth noting that the result in this case would have been no different had there been no fraud allegation as Fraser J regarded the evidence in relation to Gosvenor’s accounts as “very unsatisfactory” and the explanations provided in court so deficient that he would have granted a stay for that reason alone. The force of his criticism of Gosvenor’s evidence on this accounting issue can be gleaned from the following:

“Gosvenor has specific notice that Aygun would rely upon Gosvenor’s own accounts at the hearing on the 1st February 2018. There was ample time for a proper explanation to have been given to the court. Further time could have been sought if that was necessary, but it was not, nor was any adjournment of the hearing of the 1 February 2018 sought. Secondly, the explanation given at the hearing of the 1 February was so obviously wrong, that had the matter not been so serious, it would have been verging on the comical. A High Court Judge is entitled to rely on what he or she is told at hearings. This was not an irrelevant sideshow (not that this would justify the court being told obviously wrong matters in any event). This went to the central issue of Gosvenor’s financial standing, its very own statutory accounts, and was in the context of serious allegations of fraud.”

Just as in Equitix, partial or unsatisfactory evidence as to the claimant’s financial position is likely to lead to a stay on enforcement of any judgment.

In the circumstances, Fraser J concluded that the test under new limb (g) was met and there would be a stay on enforcement, and that no conditions would be imposed on that stay (as requested by Gosvenor) requiring the adjudication sum to be paid into court or Aygun to file and serve a claim challenging the adjudicator’s award.

Conclusions

The two headline issues from this decision are:

  • The addition of a new limb (g) to the principles set out in Wimbledon v Vago to deal with the suspected dissipation of the adjudicator’s award by the claimant.
  • The fact that properly pleaded allegations of fraud can be taken into account when applying that new principle to stay applications even if those allegations could and should have been raised in the adjudication.

The final point to note, for practical purposes, is that it is now clear that it is not open to a claimant to argue that it should be allowed to file evidence (after the summary judgment hearing), where it has failed to file evidence prior to that hearing, on the grounds that the defendant had not made a formal application for a stay. Such stay applications are part of the inherent jurisdiction of the court and it should therefore be assumed by the claimant that if it wishes to resist a stay being imposed, it should file and serve any evidence it wishes to reply on prior to the summary judgment hearing. This is particularly so where the defendant’s evidence raises serious issues that any reasonable party would wish to address, even if just to formalise their denials.

Tim acted for the defendant, Aygun Aluminium UK Ltd, on the summary judgment and stay applications.

Lamb Chambers Dr Tim Sampson

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