Adjudication: Fraud unravels all

16 May 2019

The procedure for enforcing adjudication decisions is designed to be quick and cost effective.  In most cases, the Court will enforce adjudication decisions by way of summary judgment unless it can be shown that (i) the adjudicator lacked jurisdiction, and/or (ii) there has been a breach of natural justice.

In PBS Energo A.S. v Bester Generacion UK Limited[1], the Court considered whether to enforce an adjudicator’s decision where the claimant had allegedly obtained the decision by fraud.

Facts

Bester Generacion UK Limited (Bester) engaged PBS Energo A.S. (PBS) under a sub-contract to design, build and commission a new biomass plant. Disputes arose between the parties and in May 2017 PBS gave notice of its intention to terminate the sub-contract.

PBS commenced an adjudication seeking payment for the work done prior to termination. One of the main issues was whether PBS should give credit for bespoke equipment which it had procured, but which it had not delivered at the time of termination.  Bester argued that PBS could mitigate its loss by selling those items, whereas PBS argued that the equipment was being held to Bester’s order and would be delivered to Bester upon payment.

The adjudicator agreed with PBS and ordered Bester to pay £1.7 million plus interest. Bester refused to pay and PBS applied for summary enforcement of the adjudicator’s decision.

During the summary judgment hearing, and for the first time, Bester alleged that the adjudicator’s decision had been procured by fraud.  In particular, PBS’s representation that certain equipment would be delivered to Bester proved to be false and there was evidence that PBS knew those representations were untrue at the time they were made in the adjudication.

Decision

The Judge decided it was properly arguable on the evidence before him that PBS had obtained the adjudication decision by fraud, and declined to give summary judgment enforcing the decision.

In reaching his decision, the Judge concluded that Bester could not have raised the fraud allegations during the adjudication as it was not aware that the equipment was not being held to order at the time.  This was important, as the decision would probably have been different if the allegation of fraud had been considered and decided by the adjudicator as part of the adjudication.

Comment

This case makes it clear that the courts will not allow their procedures – including adjudication enforcement – to be used to facilitate fraud.  Where it can be shown that an adjudication decision was obtained by a fraud that was not reasonably discovered until after the adjudication, the Court will decline to enforce the decision by way of summary judgment.

It is clear, however, that this does not signal a departure from the general policy in favour of summary enforcement.  Indeed, the Judge made it clear that an allegation of fraud will not, by itself, be sufficient to defeat enforcement; the allegation needs to be supported by credible evidence and the fraud must have been discovered after the adjudication.  On any view, these criteria are only likely to be met in exceptional cases.

[1] [2019] EWHC 996 (TCC)

Christian Charles Author
Christian Charles
Senior Associate
About the author

Chris Wilkinson Author
Chris Wilkinson
Trainee Solicitor
About the author

Tags: