Case note on: PBS Energo A.S. v Bester Generacion UK Ltd [2019] EWHC 996 (TCC)

The maxim “fraud unravels all” applies in general law equally to building adjudications. In PBS Energo A.S. v Bester Generacion UK Ltd the TCC considered the limited jurisdiction to refuse enforcement of an adjudication decision where that decision was procured by fraud.

Summary

In PBS Energo A.S. v Bester Generacion UK Ltd [2019] EWHC 996, the High Court held that where, exceptionally, it is properly arguable on credible evidence that an adjudication decision had been procured by a fraud, and this was reasonably discovered only after the adjudication, summary judgment was unlikely to be given on an enforcement application.

However, any party who suspects the commission of a fraud as part of an adjudication should still take diligent steps to obtain evidence of any dishonesty or wrongdoing and to bring it to the attention of the Adjudicator at the earliest possible time, or risk an unsuccessful challenge to enforcement down the line.

Fraud unravels all

The UK Supreme Court gave strong approval to the age-old maxim of “fraud unravels all” in Takhar v Gracefield [2019] UKSC 13. In Takhar the Supreme Court decided that, where it can be shown that a judgment has been obtained by fraud and no allegation of fraud had been raised at the trial which led to that judgment, then a requirement of reasonable diligence should not be imposed on the party seeking to set aside the judgment.

How does this apply to challenging the enforcement of building adjudications obtained by fraud in construction contracts? In PBS Energo A.S. v Bester Generacion UK Ltd, Pepperall J. provided the answer: Where, exceptionally, it is properly arguable on credible evidence that an adjudication decision has been procured by a fraud that was reasonably discovered only after the adjudication had completed, summary judgment was unlikely to be given on an enforcement application.

Following the design and build of an energy generating plant, the contractor and a sub-contractor fell into dispute. One of the main issues was whether the sub-contractor should give credit for bespoke equipment procured for use in the project, but which it had not delivered up at the time of termination.

At a summary judgment hearing to enforce the adjudication decision, the contractor alleged, for the first time, that the adjudication decision had been procured by fraud. It alleged that assertions made by the sub-contractor that it was holding certain pieces of the bespoke equipment, which it would hand over once paid, were untrue. The application for summary judgment was rejected.

Pepperall J. held that: 

  • Fraud could be raised as a defence in an adjudication only as long as it was a real defence to the claims being made.
  • If fraud was raised to avoid enforcement of an adjudication decision, it had to be supported by clear and unambiguous evidence, and the court had to be cautious about labelling allegations of overcharging as fraud.
  • Where fraud could have been raised as a defence in the adjudication, it was generally not possible to raise the same issue to avoid enforcement (Speymill Contracts Ltd v Baskind).

There was an important distinction between cases in which the allegation of fraud was, or should have been, put in issue in the adjudication, and those in which the adjudication decision had itself been procured through fraud. Where, exceptionally, it was properly arguable on credible evidence that the adjudication decision had been procured by a fraud that was reasonably discovered only after the adjudication, the court was unlikely to grant summary judgment. The statutory policy of enforcing the finality of adjudication decisions pending any other process, while important, had to yield to the principle that the court would not allow its procedures to be used as a vehicle to facilitate fraud.

In the adjudication, the sub-contractor made various representations about bespoke equipment, including that various pieces had been fully manufactured and would be available to the contractor upon payment. On the evidence which arose prior to Court proceedings, it was properly arguable that those representations were false in respect of certain pieces of equipment and that the sub-contractor had made them knowing them to be false, without belief in their truth, or recklessly. The contractor's fraud argument was based on documents disclosed by the sub-contractor in the main action, after the close of submissions in the adjudication. Therefore, the contractor could not reasonably have been expected to raise the fraud point during the adjudication.

The sub-contractor argued that allegations of fraud had to be (and had not been) properly pleaded, and criticised the contractor for not filing a defence and instead raising the fraud allegation in evidence.

Pepperall J. held that criticism was misconceived. It was trite law that fraud had to be properly pleaded, but the obligation to plead had not yet arisen in the instant case. CPR r.24.4(2) provided that if a claimant applied for summary judgment before the defendant filed a defence, the defendant was not required to file a defence before the hearing. Therefore, claimants could either make an immediate application for summary judgment, or could await sight of the defence. They could not complain if they chose the former course and the defendant then elected not to file a defence. This means that although credible evidence suggesting fraud needs to be shown to resist enforcement the precise particulars of the fraud do not need to be set out in formal pleading.

If you suspect fraud...

The best advice for any party who suspects the commission of a fraud as part of an Adjudication is to take diligent steps to obtain evidence of any dishonesty or wrongdoing and to bring it to the attention of the Adjudicator at the earliest possible time. If it is not possible to do that before the Adjudication is complete then this should be raised by way of an application to resist enforcement at the earliest possible opportunity prior to enforcement being sought. Opposition to enforcement will have to be supported with clear and unambiguous evidence as to how and when the fraud came to light and the steps that were taken by the party opposing enforcement, both prior to, at the time of and since the original Adjudication to discover the truth.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.