THWARTING THE ENFORCEMENT OF THE ADJUDICATOR’S DECISION
The TCC decision of Gosvenor -v- Aygun Aluminium UK Limited [2018] EWHC 227 has enlarged the circumstances in which the court will stay the enforcement of an adjudication. This is where the winning party to the adjudication organises its financial affairs with the purpose of dissipating or disposing of the adjudication sum, so that it will not be repaid on a final determination of the dispute by the courts in later successful proceeding brought by the losing party.
The case also considered whether allegations of fraud were enough to persuade the court not to enforce the adjudicator’s decision.
When will the court order a stay?
The underlying principle of adjudication is that the decision of the adjudicator is temporarily binding until the dispute leading to the adjudication is finally determined by the courts. This has led the TCC to ordering a stay of enforcement in only limited circumstances, where the losing party to the adjudication is impecunious and unable to repay the adjudication sum in the event that the dispute is finally determined by the courts, in favour of the losing party in the adjudication.
The law has been settled for many years that if the Claimant that seeks enforcement of the adjudicator’s decision is impecunious rather than insolvent the court will ask itself the question is the claimant able to repay the judgment if the courts later decides that the adjudicator’s decision was wrong? In considering this question the Judge Coulson in the decision of Wimbledon Construction -v- Vago [2005] BLR 374 set out the following test:
1. Adjudicator’s decisions are intended to be enforced summarily and the Claimant who wins the adjudication should not be kept out of his money.
2. However, if the impecunious Claimant will probably not be able repay the judgment sum awarded by the adjudicator, if the adjudicator is later found to have been wrong to make the decision, this may lead the court to decide that there are special circumstances justifying the grant of a stay of the Claimant’s application of summary judgment to enforce the adjudicator’s decision.
3. If it is admitted that the company is insolvent, even though not subject to insolvency proceedings, then the court will usually grant a stay of proceedings.
4. However, even if the Claimant’s financial position is such that it is probable it will be unable to repay the judgment when it falls due, that would not usually justify the grant of a stay if:
• the Claimant’s financial position is the same or similar to its financial position as at the time that the contract giving rise to the dispute was entered into.
• the Claimant’s impecuniosity is due either wholly or in significant part to the Defendant’s failure to pay the sums which were awarded by the Adjudicator.
The Gosvenor decision has added a new paragraph to this list of grounds for a stay as follows:-
If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then it would justify the grant of a stay.
The test of whether there is a risk that that there will be a dissipation or disposal of the adjudication sum is the same as that applied to freezing injunctions. In order to obtain a freezing injunction, to freeze the assets of a Defendant, it is necessary to show a good arguable case for the amount claimed and there must be a real risk of the disposal or dissipation of the assets of the Defendant. There must be solid evidence to show that there is a risk of dissipation. Among other things, the court would consider any failure of the company to file accounts, the company’s past and present credit record, the way in which they have responded to the claim and any indication of an intention to dispose of assets.
In the Gosvenor case the court found that there were grounds to order a stay because there had been discrepancies in the accounts filed by Gosvenor that “all adds to the air of suspicion over the financial affairs and probity of this company”.
Allegations of fraud
Aygun was unsuccessful in its attempts to prevent the enforcement of the Adjudicator’s decision because of allegations of fraud that they made after the adjudicator made his decision. The reason for this failure was because they should have made the allegations of fraud during the adjudication. If a party defending an adjudication has allegations of fraud to make, the Grosvenor case is authority establishing that they must be made during the adjudication and cannot be raised after the adjudicator has made his decision, unless of course they could not have been known about until afterwards.
This was a major obstacle to the allegations of fraud made by Aygun and the court dismissed their complaint that the timetable in adjudication is tight and it decided that the allegation of fraud could and should have been made during the adjudication. The compliant that they had not produced this evidence during the adjudication because of threats and intimidation of witnesses was also dismissed because this evidence should and could have been included by Aygun in witness statements that they produced in the adjudication.
Making allegations fraud in civil proceedings is serious matter for lawyers and should not be made without specific instructions from the client. Allegations of fraud must be adequately pleaded in that they must set out the cause of action. (CPR 16 -Practice Direction 16 paragraph 8.2 – Bullen and Leake Precedents and Pleadings paragraph 57-02 page 37).
Having been successful in establishing that the adjudication should be enforced Gosvenor nevertheless achieved only a pyrrhic victory because the court found that the adjudicator’s decision should be stayed. This was for the reason that there was a risk they would dispose or dissipate the adjudication sum and would not be able to repay it if the court ordered that they should do so in a final determination of the dispute.
Anthony Philpott
12 Old Square Chambers
