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Case Update: PBS Energo A.S. v Bester Generacion UK Ltd

The Court of Appeal’s judgment in PBS Energo A.S. v Bester Generacion UK Ltd[1] has dismissed the appeal against the TCC’s refusal to grant summary judgment in this case, providing useful guidance on the circumstances under which allegations of fraud can form the basis of resisting summary judgment of enforcement an adjudication decision.

Background

Bester was engaged in April 2016 on a design and build contract to build a biomass-fueled energy generation plant. They subsequently engaged PBS as a subcontractor on the project.

Things did not go well and by June 2017 the relationship had deteriorated to the point where PBS terminated the sub-contract. This led to a myriad of legal proceedings pursuant to both the main contract and the sub-contract.

In the adjudication that led to the Court of Appeal decision, PBS was awarded a sum of approximately £1.7m for work carried out under the sub-contract. It then sought summary judgment at the TCC, which was resisted by Bester on the basis of allegedly fraudulent representations by PBS.

The TCC dismissed PBS’s application for summary enforcement on the basis that there was an arguable case that fraudulent representations had influenced the decision of the adjudicator and that this had had a material effect on the decision. This decision was upheld by the Court of Appeal.

The TCC Judgment

The judgment of Pepperall J outlines the key area of alleged fraud as the representations regarding disposal of large bespoke plant items which PBS had designed and manufactured under the sub-contract. Central to the adjudication decision was PBS’s assertion that these items had been instructed under the sub-contract and would be available to Bester upon payment of the sub-contract price for these items.

However, it transpired that these large items of plant had either not been acquired in full by PBS, or had been sold as part of other contracts at the time of the adjudication, contrary to representations made as part of the adjudication. Pepperall J finds that these statements were made falsely, or at least recklessly, and that the information was material to the decision.

The judgment also deals with whether Bester should have raised the issue in the adjudication proceedings. Despite the documents in question being disclosed during the adjudication proceedings (albeit at a late stage) it was held that it would not have been reasonable to expect the allegation of fraud to have been raised. This was due to the late stage at which the documents were disclosed, the volume of information that was released, the lack of any order to the documents that were released and the language of the disclosed documents (17,000 documents in Czech or Slovak).

Pepperall J concluded that there was an arguable case of fraud, and as such summary judgment would not be granted. In addition, it ruled that it was not for the court to re-engineer the adjudicator’s decision and even though the alleged fraud only influenced part of the sum awarded by the adjudicator, no summary judgment could be granted.

Court of Appeal

Bester was granted leave to appeal on two grounds, neither of which were persuasive to Coulson LJ on his judgment.

On the first point, the rules which govern summary judgment procedure expressly do not require a defence to be filed before the hearing. The summary procedure has been devised to reach a conclusion quickly in line with the intention of the 1996 Act. Therefore there is no requirement for a detailed submission in defence of an application for summary judgment, and in fact the rules of the TCC explicitly state that this is the case.

The second point concerned whether the TCC should have granted judgment in line with the principles of the 1996 Act but “stayed” enforcement if there was a concern over fraud. It was concluded that since the Procedural Ground had failed, this must also fail.

The Court of Appeal therefore upheld the decision of the TCC.

Comment

The refusal to grant a summary judgment of an adjudicator’s decision runs contrary to the general position regarding the 1996 Act, and summarised in Carillion v Devonport that:

It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator[2]

There is already a strong body precedence that outlines various exceptions to the general rule that a court will summarily enforce the decisions of adjudicators. This judgment notes, as previous judgments have also discussed, that there is a balance to be struck between speedy enforcement of adjudicators’ decisions and other important matters of policy, in this case not allowing the process under the 1996 Act to be facilitated by fraud.

The question is whether this expands the previous limits through which allegations of fraud can stop summary judgment, or whether this merely reinforces the current position in the exceptional circumstances a particular case?

Coulson LJ provides useful guidance on the current position by distilling the law in this area into the following principles:

“a) If the allegations of fraud were made in the adjudication then they were considered (or will be deemed to have been considered) by the adjudicator in reaching his decision, and cannot subsequently amount to a reason not to enforce the decision: see S G South, GPS Marine, and Speymill.

  1. b) The same principle applies if the allegations of fraud were not made in the adjudication but could and should have been made there: see Gosvenor.
  2. c) If the adjudicator’s decision was arguably procured by fraud (such as in Eurocom) or where the evidence on which the adjudicator relied is shown to be both material and arguably fraudulent (as here) then, on the assumption that the allegations of fraud could not have been raised in the adjudication itself, such allegations can be a proper ground for resisting enforcement.”

Point c) may be significant, as the phrase “arguably fraudulent” seems to leave the door wider than had previously been the case. In Gosvener v Aygun the position was taken that any allegation of fraud must be “must be supported by clear and unambiguous evidence and argument” if the allegation is made to avoid the enforcement of a decision. This high bar seems to have been lowered by PBS v Bester.

The judgment also reinforces that point that a court is unlikely to draw distinction between part of a judgment impacted by fraud and those that are not – fraud that is also material to the adjudicator’s decision will render the whole decision unenforceable. Parties to adjudication should consider carefully witness statements and any other documents which may give rise to allegations of fraud during the proceedings.

The judgment also emphasises the existing position that where a party wants to advance fraud as a defence, this should be done in the adjudication proceedings. While there is a risk that, if unsuccessful, the fraud defence will fall away by virtue of having been considered by the adjudicator, there is an equal risk that the defence will not be considered at all if “saved” for court proceedings and it is subsequently revealed that it should have been disclosed earlier.

Whilst Tudor Rose has made every effort to ensure that the information contained within this article is correct at the date of publication, this article has been prepared as guidance only and does not constitute legal advice.

[1] [2020] EWCA Civ 404

[2] [2005] EWCA Civ 1358