Czech mate: PBS v Bester and fraud as a defence to the enforcement of an adjudication decision
Fraud can be raised as a defence in adjudications. It can also be raised at the enforcement stage, provided that the alleged fraud is supported by clear evidence and could not have been raised in the adjudication itself.
This blog post considers these principles and contrasts two recent cases where the defence of fraud was raised at the enforcement stage.
PBS Energo AS v Bester Generacion UK Ltd
In PBS v Bester the TCC refused to enforce an adjudication decision as there was credible evidence that the decision had been obtained as a result of fraudulent representations made by PBSin the adjudication. PBS v Bester is a rare example of a defendant successfully opposing a summary judgment application for enforcement on the grounds of fraud.
Bester engaged PBS to carry out the construction of a biomass-fired energy-generating plant in Wrexham. Bester was main contractor. The parties fell into dispute and PBS terminated the subcontract. On 14 November 2017, PBS issued proceedings against Bester in the TCC (the Main Action).
In a second adjudication between the parties (the first adjudication having decided that PBS was entitled to terminate the subcontract), PBS sought a decision as to whether the valuation of the works performed exceeded the payments already made to it and, if so, by how much. PBS’ works included the manufacture of bespoke items of plant.
PBS represented in the adjudication that certain items had been produced, were in storage at its factories in the Czech Republic and that they no longer had any use. PBS asserted that Bester could collect the items if they paid for them. In his decision, the adjudicator declined to make a deduction for the equipment from the amount payable to PBS and awarded it £1.7m.
" Crucially, the allegations of fraud could not have been made during the adjudication itself as the fraud was only discovered afterwards following disclosure in the Main Action. "
However, following disclosure in the Main Action, Bester discovered that some of the items in question had been sold by PBS, used in another of PBS’ projects in Poland or not been paid for by PBS. Bester therefore resisted the enforcement of the decision on the basis that it had been procured by fraud. The TCC held that it was properly arguable that the representations PBS had made in the adjudication were false and that the adjudicator had been influenced by them in making his decision.
Crucially, the allegations of fraud could not have been made during the adjudication itself as the fraud was only discovered afterwards following disclosure in the Main Action.
Grandlane v Skymist
In Grandlane v Skymist, on the other hand, Skymist’s allegations that Grandlane had committed fraud in their adjudication failed and the decision was enforced.
Skymist appointed Grandlane to provide project management services in relation to the development of Skymist’s property in Hampshire. Part of Grandlane’s services included engaging construction professionals in connection with the project who would be paid either by Skymist directly or by Grandlane on Skymist’s behalf. One of the professionals engaged by Grandlane in this manner was a firm of architects, PTP.
In October 2017, Skymist terminated Grandlane’s appointmentand Grandlane started an adjudication. Grandlane was awarded around £960,000, a considerable part of which related to PTP’s fees. Skymist failed to pay and resisted enforcement, alleging fraudulent collusion between Grandlane and PTP in the presentation of the claim in the adjudication.
After the adjudication, Skymist obtained disclosure of various emails passing between Grandlane and PTP in separate proceedings in the Commercial Court involving claims of breach of fiduciary duty. Skymist argued that Grandlane and PTP had inflated PTP’s fees and had colluded in a side agreement whereby they would share in the costs and profits of any adjudication and that the emails demonstrated this. However, after considering the correspondence, the Court decided that it did not provide clear and unambiguous evidence of fraud.
The Court also decided that Skymist could and should have raised fraud as a defence in the adjudication. Skymist’s director, Mrs Baturina, had submitted a witness statement in the separate proceedings which recorded that she had suspicions of fraudulent activity during the adjudication. Even though the emails were not obtained until after the adjudication, the Court held that as Skymist had suspected fraudulent collusion during the adjudication, it should have raised this. Even if the Court had found clear and unambiguous evidence of fraud, it is doubtful that Skymist would have successfully defended the enforcement proceedings in any event.
It is only in very rare circumstances that the Court will not enforce an adjudication decision on the basis of fraud. Not only must there be clear and unambiguous evidence of the fraud, but the party alleging it must not have been aware of it or could not reasonably have become aware of it during the adjudication such that it could have been raised. If it is raised, and dismissed, in the adjudication then the decision will be enforced. It seems therefore that only in very rare cases, where clear evidence of fraud is discovered after the conclusion of the adjudication, will fraud succeed as a defence to enforcement.