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Adjudication Matters – January 2019

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15/01/2019

Should I stay or will the money go? – Fraud, Dissipation of Assets, and Stays of Enforcement

Gosvenor London Limited v Aygun Aluminium UK Limited [2018] EWCA Civ 2695
Summary

The Court of Appeal has confirmed that a stay of enforcement of an adjudicator’s decision may be granted if there is a real risk of dissipation of the money before a final judgment can be obtained.

Introduction

If a party suspects that the other party may have acted fraudulently, these allegations should be raised during the adjudication itself. If the evidence giving rise to the fraud was available during the adjudication, and was not brought to the attention of the adjudicator, then this evidence cannot later be relied upon in order to resist enforcement of the adjudicator’s decision.

However, a risk of dissipation of assets could enable a party to secure a stay of adjudication enforcement even if this risk was known at the time of the adjudication, but was not raised.

Case Details

Gosvenor London Ltd (Gosvenor) carried out cladding works for Aygun Aluminium UK Ltd (Aygun).

A dispute arose in September 2017 in relation to Gosvenor’s labour claims in the sum of £500,000. Aygun considered these claims to be hugely disproportionate to the value of the work that was performed and that the invoices were exaggerated.

The Adjudicator found in favour of Gosvenor and awarded payment of circa £550,000. Gosvenor sought to enforce the decision in the Technology & Construction Court (“TCC“), and made an application for summary judgment.

Aygun sought to resist payment of the adjudicator’s award on the grounds that a substantial part of the award was allegedly derived from fraudulent invoicing by Gosvenor. There were further allegations that Gosvenor personnel had offered bribes and stolen site labour records. Gosvenor did not to put in any evidence to defend these allegations.

Aygun also sought, in the alternative, a stay of enforcement of the adjudicator’s decision on the basis of fraud, alleged witness intimidation and the alleged unsatisfactory nature of Gosvenor’s statutory accounts for 2016/2017.

Aygun claimed there was a real risk that any sums paid to Gosvenor would be dissipated. They claimed that a director of Gosvenor had made statements whereby, if Gosvenor received a claim from Aygun, it would immediately wind up the company so that Aygun would not receive anything.

Additionally, the company accounts submitted in 2017 (in particular the figures shown for the previous year) were considerably different to those actually submitted as the 2016 accounts. The TCC gave summary judgment in favour of Gosvenor because the allegations of fraud were not raised during the adjudication itself.

However, the TCC granted a stay of enforcement on the grounds that there was a real risk of dissipation by Gosvenor.

Gosvenor appealed.

Decision

Coulson LJ in the Court of Appeal agreed that the fraud allegations could have been made during the adjudication and were not and he therefore found that the adjudicator’s decision should be enforced.

Rejecting the appeal, the Court of Appeal also agreed with the TCC’s findings that a stay of execution of the judgment should be granted because (a) there was a disparity in the value of the work done and Gosvenor’s invoices; (b) Gosvenor was not financially viable; and (c) there was a real likelihood of dissipation by Gosvenor if the sum awarded by the adjudicator was paid to it.

Summary

The TCC’s decision here which has now been upheld by the Court of Appeal has established the following additional ground for seeking a stay of enforcing an adjudicator’s award:

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 this would also justify the grant of a stay.”

However, the facts of this case are unusual and extreme given that there had been an express indication from the Director of Gosvenor that they would dissipate funds. The granting of a stay remains a matter within the court’s discretion and as such this additional ground is likely to only apply in exceptional circumstances.

In addition, the evidence needed to satisfy the court of this risk of dissipation will be equivalent to that required to obtain a freezing injunction and is therefore a high and difficult threshold.

This case also confirms that it will be difficult to resist enforcement of an adjudicator’s decision on the grounds of fraud. Here, Aygun had the opportunity to raise a defence of fraud in the adjudication itself, and did not do so. As a result Gosvenor were awarded summary judgment. The risk of dissipation of assets only ensured that the monies did not need to be paid by Aygun immediately.

This highlights the willingness of the TCC to stay enforcement of an adjudicator’s decision, if there is a risk that repayment of the adjudication sum will not be possible.

Contacts