Adjudication, lies, and enforcement of determinations: the England and Wales High Court considers the effect of fraud on a payment adjudication in PBS Energo A.S. v Bester Generacion UK Limited  EWCA Civ 404 ||| MTECC News 20.11
Under Australian security of payment legislation, an adjudication determination based on a claimant’s fraud is voidable, rather than void. Fraud cannot be raised in opposition to an application for an order, although it is grounds for judicial review of the determination.
In the United Kingdom, adjudication is also used to resolve payment issues, under Part II of the Housing Grants, Construction and Regeneration Act 1996 (indeed, it is used to resolve constructions disputes generally). Unlike Australia, a respondent can resist enforcement by showing, in its defence, that a determination was based on fraud.
PBS Energo A.S. v Bester Generacion UK Limited  EWCA Civ 404 was an appeal from Pepperall J’s decision at first instance ( EWHC 99), his Honour declining to enforce the adjudicator’s determination for fraud. The Court of Appeal agreed.
The respondent was engaged by a third party to design and build a “biomass-fired energy-generating plant” in Wrexham (located in Northern Wales). It engaged the appellant as a sub-contractor for “engineering, procurement, construction and commissioning of the plant.” The parties subsequently fell out, and the matter went to adjudication.
The litigation stemmed from the determination of a Mr Judkins, who valued the appellant’s work in the sum of £1,701,287.22. The amount included payment for several bespoke items of plant, which were manufactured by the appellant specifically for the project. Before Mr Judkins, the evidence indicated the items were stored in the appellant’s factories, and he found the appellant was entitled to payment, because once that occurred, those items of plant would be the respondent’s property.
Except this wasn’t true.
Through documents discovered in the enforcement proceeding (many not translated), it became clear the items of plant had been sold to third parties, or otherwise disposed of. At first instance, Pepperall J held it was properly arguable the appellant had made false representations to the adjudicator, either knowingly or recklessly, and declined to grant summary judgment.
In upholding the decision, Coulson LJ (Rose LJ and Sir Timothy Lloyd agreeing) noted the several propositions where fraud is alleged in an enforcement application (as earlier set out by Akenhead J in S G South Ltd v Kingshead Cirencester LLP  EWHC 2645), as follows (my paraphrasing):
- Fraud and deceit can be raised as a defence provided the allegations are a ‘real defence to whatever the claims are’
- If fraud is raised in an effort to avoid enforcement, or to obtain a stay of execution of a judgment, ‘clear and unambiguous evidence and argument’ is needed;
- There is a distinction between fraud that could have been alleged in the adjudication, and fraud which could not have been (as evidence only emerged afterwards). If fraud was arguable in the adjudication, it cannot be raised afterwards;
- It is important to distinguish between fraud which directly impacts on the adjudication determination, and a fraud which is independent of it (which should not be raised). An example of the first category is where a certificate on which a determination was based on a fraudulent valuation.
The principle ground of appeal (Ground 3) was that because the respondent had not filed a defence alleging fraud, the allegations were not open.
The Court dismissed that ground, noting the appellant itself had chosen to use the accelerated summary judgment procedure – described in a similar fashion to Australian originating motion procedures – which does not require pleadings, and involves the risk that new matters (such as fraud) will arise. While a defendant would be ‘well-advised’ to plead a fraud defence, it is not a condition precedent.
Although in Australia, fraud cannot be raised in this fashion, permitting it to occur would not cause the “pay now, argue later” system to fail, particularly if a respondent alleging fraud were required to pay monies into court (as already occurs, in Victoria, where an application is made to set a judgment based on adjudication aside).
Liability limited by a scheme approved under professional standards legislation