Ted Lowery looks at an enforcement application involving an allegation of fraud
PBS Energo AS vs Bester Generacion UK Ltd  EWHC 996
Before the Honourable Mr Justice Pepperall
In the Technology and Construction Court
Judgment delivered 17 April 2019
Under a contract dated May 2016 Bester engaged PBS to engineer, procure, construct and commission a biomass power plant in Wrexham. Disputes occurred and in June 2017 PBS gave notice of termination and claimed £7,711,818.71 in damages. Bester first sought to affirm the contract but then gave notice of termination on 7 August 2017 and counter-claimed £7,467,660.29. In November 2017 PBS commenced court proceedings and the trial was subsequently fixed for July 2019.
During November 2018 PBS commenced an adjudication claiming damages in consequence of termination. Bester contended that PBS was required to give credit for the value of equipment that had not been delivered under the contract and which PBS had retained. The adjudicator decided no credit should be given, relying upon evidence from the chief executive of PBS to the effect that several items of equipment manufactured for the plant remained in storage in the Czech Republic. The adjudicator determined that this equipment would be available to Bester once it had paid over the relevant portion of the contract price. He therefore ordered Bester to pay the sum of £1,701,287.22 without any credit being applied. Bester did not pay, so on 19 December 2018 PBS commenced enforcement proceedings.
Based upon scrutiny of the disclosure given by PBS in the ongoing court proceedings, which had been made available during December 2018, Bester argued that the decision in the adjudication had been procured by fraud. Bester contended that, contrary to the evidence offered in the adjudication, certain items of equipment were not stored in the Czech Republic but had in fact been sold for other projects and/or not completed where PBS had been able to cancel subcontract orders during 2017. In reply, PBS argued that although there had been a mistake this was not a fraud, that the mistake had not influenced the adjudicator and that the court should note that PBS had significant claims against Bester over and above the £1,701,287.22 awarded in the adjudication.
Was PBS entitled to summary enforcement?
The judge found that PBS had represented in the adjudication that the relevant equipment was fully manufactured and available to Bester upon payment. However, he considered it properly arguable that some of the equipment was in fact not available, having been sold to another project during 2018 and/or never completed where PBS had been able to vary in its subcontract orders during 2017/2018.
The judge noted that while PBS had latterly conceded that not all of the equipment was available, this did not amount to the open and full explanation of any discrepancies that was required in a summary judgment application. The judge considered that there was an arguable case of fraud where, at the time the representations were made in the adjudication, PBS should have known that all of the equipment was not available. Furthermore it was properly arguable that the false representations were intended to and did induce the adjudicator to reject Bester’s claim for a credit.
The judge accepted Bester’s submission that the documents revealing the false representations were not provided in the court proceedings until late November 2018 and took some time to review bearing in mind the volume and disordered nature of PBS’ disclosure and the need for translations. The judge was therefore satisfied that Bester could not reasonably have been expected to have raised the fraud allegation in the adjudication.
On PBS’ remaining points, the judge observed that Bester could not be criticised for failing to plead the fraud case in detail given that on a summary application the defence was not yet due. Equally, while PBS may have had other significant money claims against Bester these were not material to the question of enforcement.
Thus it was arguable on credible evidence that the adjudication decision was obtained by fraud and, as severance was not appropriate, PBS’ application for summary enforcement was dismissed.
The usual rule is that fraud is not available as a defence to enforcement if the fraud was raised in the adjudication (and decided upon) or where the defendant failed to raise an allegation of fraud of which it could reasonably be expected to have been aware.
Here, it could not be shown that at the time of the adjudication Bester was or ought reasonably to have been aware of PBS’ misrepresentations concerning the stored equipment. As the judge remarked, this case is therefore one of the rare instances of enforcement being refused where a material fraud came to light only after the completion of the adjudication process.
Ted Lowery is a partner in Fenwick Elliott