10 June 2019
Where an adjudication decision is procured by fraud which later comes to light, the court is unlikely to enforce it by way of summary judgment.
In April 2016, Bester Generacion UK Limited (Bester) entered into a contract with Equitix ESI CHP Wrexham Limited (Equitix) to design and build a biomass-fire energy-generating plant in Wrexham (the Project).
In May 2016, Bester then entered into a sub-contract with PBS Energo A.S. (PBS) for the engineering, procurement, construction and commissioning of the plant for a price of £14,230,000 (plus VAT).
An adjudication was held in January 2018 (the First Adjudication) after the parties fell into dispute regarding the termination of the sub-contract. In June 2017, PBS had given Bester notice of its intention to terminate the sub-contract, which Bester initially resisted.
Bester then later terminated the sub-contract resulting in Equitix calling on Bester's performance security. This in turn triggered the counter-guarantees provided by PBS. Equitix also terminated the main contract with Bester.
The adjudicator ultimately held that PBS was entitled to terminate the sub-contract and had validly done so in June 2017. Bester was then ordered to repay the performance security of £2,709,277.99 to PBS. When Bester failed to pay, PBS commenced further proceedings to enforce the adjudicator's decision.
In April 2018, the TCC gave summary judgment in favour of PBS. Stuart-Smith J was unimpressed with Bester's conduct relating to the adjudication, and said "Bester's conduct has been unreasonable at almost every turn." Despite this, Bester still failed to pay the judgment sum or the adjudicator's fees with PBS only receiving full payment in July 2018.
As the First Adjudication only dealt with questions of liability and the repayment of the payment security, PBS served notice of adjudication in November 2018 (the Second Adjudication), seeking the valuation and payment of its claims under the sub-contract with Bester.
The adjudicator ordered Bester to pay £1,701,287.22 (plus interest) to PBS. PBS brought summary judgment proceedings when Bester failed to make payment. Bester sought to resist enforcement on the ground that this adjudication decision was procured by fraud.
In the Second Adjudication, PBS alleged that the equipment manufactured for the Project was "stored to Bester's order and would be available to Bester upon payment of the sums found to be due". Bester argued this was untrue and pointed to evidence that PBS had cancelled its order for some equipment resulting in its claim in the Second Adjudication being overstated.
Further, late disclosure of documents by PBS demonstrated that the sum claimed in the Second Adjudication did not take into account the value of equipment that had been fully manufactured and in fact sold by PBS. Bester therefore alleged that PBS' statements were false or, at the very least, reckless and had directly influenced the second adjudicator's decision.
PBS conversely asserted that there was no fraud and in any case that PBS still had an outstanding claim in the main action in excess of £3.9 million.
Pepperall J dismissed PBS's application for summary judgment and found credible evidence that the decision in the Second Adjudication was obtained by fraud on the basis that:
Whilst it is unusual for an adjudication decision to be procured by fraud which later comes to light, Pepperall J confirms that "where, exceptionally, it is properly arguable on credible evidence that the adjudication decision was itself procured by a fraud that was reasonably discovered after the adjudication, the court is unlikely to grant summary judgment."
The TCC also helpfully distinguished between two types of cases, those being:
In terms of the former, the fraud is taken into consideration in the adjudication and so the decision will be enforceable.
However in the latter case, such as on these facts, enforcement of the adjudication decision can be successfully resisted on the basis of fraud that was not, and could not reasonably have been, known about before issue of the adjudication decision.