Court of Appeal upholds exception to “pay now, argue later” principle in adjudication enforcement15 April 2020

PBS commenced adjudication, obtaining a liability award in its favour and, subsequently, a quantum award for just over £1.7m. PBS sought to enforce that award through summary judgment, but in a landmark decision its application was refused on the basis that Bester had a reasonably arguable case that the award had been procured by fraud. Evidence had emerged in parallel proceedings before the TCC which indicated that, contrary to PBS’ position before the adjudicator, certain items of plant would not be available to Bester upon payment of the sums the adjudicator had found to be due.

Mr Justice Pepperall considered that it was properly arguable that PBS had made false representations to the adjudicator knowing them to be false, and that those representations were intended to – and did – influence the adjudicator when making his decision. He therefore considered that it was inappropriate to grant summary judgment. This was the first occasion on which enforcement had been refused in such circumstances, and our article on the decision can be read here. PBS appealed.

The appeal

PBS sought permission to appeal on four grounds:

1. The judge erred in concluding that the allegations of fraud were relevant to the adjudicator’s decision;
2. The allegations of fraud could/should have been raised in the adjudication;
3. 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; and
4. 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.

However, permission was only granted in respect of the third and fourth grounds of appeal.

When enforcement of an adjudication award can be resisted on the grounds of fraud

This meant it was not strictly necessary for the Court of Appeal to comment on Mr Justice Pepperall’s conclusions regarding the allegations of fraud and their effect on the application for enforcement. Nevertheless, in a helpful commentary on the law in this area, Lord Justice Coulson set out the following principles:

• If allegations of fraud were made in the adjudication, then they were considered (or will have been deemed to have been considered) by the adjudicator in reaching their decision and cannot subsequently amount to a reason not to enforce the decision;
• Equally, if the allegations of fraud were not made in the adjudication but could and should have been at that time, they cannot subsequently amount to a reason not to enforce; and
• However, if an adjudicator’s decision was arguably procured by fraud, or where the evidence on which the adjudicator relied is shown to be both material and arguably fraudulent 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.

The Court of Appeal has thus confirmed that the “pay now, argue later” principle on which the process of adjudication rests is not absolute, though it remains the norm. If a reasonably arguable case of fraud can be demonstrated that was not available at the adjudication, then an application to enforce an award by way of summary judgment may well face difficulties. This confirmation will no doubt be welcomed throughout the construction industry, reinforcing as it does the importance of good behaviour in the adjudication process, notwithstanding the abridged timeframes involved.