ALLEGATIONS OF FRAUD IN ENFORCEMENT OF ADJUDICATOR’S DECISION
Among the limited grounds available for setting aside and/or refusing to enforce an adjudication determination, the (arguably) rarest ground to be invoked is fraud. The recent England and Wales Court of Appeal decision of PBS Energo A.S. v Bester Generacion UK Ltd [2020] EWCA Civ 404 (“PBS Energo v Bester”) is one of the rare cases where an appellate court had occasion to consider the issue of how allegations of fraud would affect the enforcement of an adjudicator’s decision.
Background. PBS Energo v Bester is an appeal from the decision by Pepperall J in [2019] EWHC 996 (TCC) where Pepperall J had refused to enforce the adjudicator’s decision (in itself, a rare instance) ([1] PBS Energo v Bester). Pepperall J had refused to enforce the adjudicator’s decision because he found that the “respondent could properly argue that the adjudicator’s decision had been procured by fraud” ([2] PBS Energo v Bester).
General principles. In PBS Energo v Bester, Coulson LJ had out the general law pertaining to the issue of allegations of fraud and the enforcement of adjudicator’s decision at [16] – [23] PBS Energo v Bester.
While the law is (at least in England and Wales) generally uncontroversial, at [23] PBS Energo v Bester, Coulson LJ distilled the authorities dealing with this issue into 3 principles which are set out below:
“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.
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.
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.”
Limited grounds for appeal. Procedurally, it is important to note that leave to appeal was granted only on two limited grounds ([25] PBS Energo v Bester), which did not include the ground that “The judge erred in concluding that the allegations of fraud were relevant to the adjudicator’s decision” nor the ground that “The allegations of fraud could/should have been raised in the adjudication”.
This is important because, as held by Coulson LJ at [27] PBS Energo v Bester, these two grounds were “sufficient to justify the judge’s refusal to enforce the adjudicator’s decision, subject only to Grounds 3 and 4”.
Ground 3. Ground 3 was that “The judge should have found that, because the respondent had not filed a defence alleging fraud, the allegations of fraud were not open to the respondent” ([24] PBS Energo v Bester ).
The appellant had argued that the appellant had not agreed, nor accepted, the absence of a pleaded defence, nor waived its entitlement to have detailed allegations of fraud properly pleaded. This is even though the Civil Procedure Rules provided that in an application for summary judgment (such as in the application to enforce an adjudicator’s decision) no pleaded defence was necessary ([29] – [31] PBS Energo v Bester).
Coulson LJ held “… although a defendant seeking to resist the summary enforcement of an adjudicator's decision by raising an allegation of fraud may be well-advised to plead a defence (as happened in Gosvenor), the pleading and service of such a defence is not a condition precedent which has to be fulfilled…” relying on the nature of the procedure under the Technology and Construction Courts for enforcement of adjudicator’s decision ([34] – [37] PBS Energo v Bester ).
In any event, Coulson LJ held on the facts of the case, the absence of a pleading does not run the risk that fraud allegations would be unclear or unfocussed, especially given that the Solicitors Regulation Authority’s Code of Conduct (version 21) and the paragraph rC9 of the Bar Standards Board’s Code of Conduct (9th edition ) provides that fraud can only be raised if it was supported by reasonable grounds / materials ([38] PBS Energo v Bester).
Ground 4. Ground 4 was that “The judge had failed to distinguish between granting summary judgment and enforcing judgment. He ought to have granted summary judgment, even if he had then stayed some or all of that judgment.” ([24] PBS Energo v Bester). This ground fell away given that Ground 3 failed ([41] PBS Energo v Bester). Coulson LJ also stated that this was not a case where the decision was severable ([41] PBS Energo v Bester).
s.27(6)(h) Building and Construction Industry Security of Payment Act. In Singapore, fraud may constitute a ground for setting aside an adjudication determination (see, e.g., [31] Mansource Interior Pte Ltd v Citiwall Safety Glass Pte Ltd [2014] 3 SLR 264; though note [34] CMC Ravenna Singapore Branch v CGW Construction & Engineering (S) Pte Ltd [2018] 3 SLR 503).
However, it remains to be seen if Singapore courts would adopt the same approach in England and Wales in light of s. 27(6)(h) of the Building and Construction Industry Security of Payment Act (Cap. 30B, 2006 Rev. Ed.), which provides that “The grounds on which a party to an adjudication may commence [setting aside] proceedings under subsection (5) include, but are not limited to, the following … (h) the making of the adjudication determination was induced or affected by fraud or corruption.”
This is because s. 27(6)(h) of the Building and Construction Industry Security of Payment Act (Cap. 30B, 2006 Rev. Ed.) may, arguably, wider than the principles set out by Coulson LJ in PBS Energo v Bester as the phrase “the making of the adjudication determination was induced or affected by fraud” (emphasis added) does not, on its face, differentiate between allegations of fraud that were raised by and determined by an adjudicator, and allegations that were not. It remains to be seen how Singapore courts would interpret this provision.
In addition, it is important to note Coulson LJ’s approach to Ground 3 in PBS Energo v Bester. While this should not be controversial, it bears highlighting that allegations of fraud should not be lightly made, and such allegations should only be made if there are material available to substantiate such allegations.
Tags: Building and Construction Industry Security of Payment Act; Fraud; Allegations of Fraud; Enforcement of Adjudication Determination
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