Gosvenor London Ltd v Aygun Aluminium UK Ltd

Introduction

By an order dated 28 March 2018, Fraser J gave judgment in favour of the claimant (“Gosvenor”) in the sum of £553,958.47 (together with VAT and interest) on their application for summary judgment to enforce the decision of an adjudicator ([2018] EWHC 227 (TCC)). However, the judge also imposed a stay of execution. Gosvenor now appeal against the imposition of the stay. The appeal raises issues as to the court’s discretion to stay a judgment enforcing an adjudicator’s decision where there is evidence of a real risk that assets will be dissipated before the substantive dispute is determined; the interplay between adjudication enforcement and allegations of fraud; and the extent, if at all, to which a party can seek a stay by reference to evidence which was or could have been deployed in the adjudication.

The Relevant Principles

Enforcement of Adjudication Decisions

It is trite law that, in accordance with the policy behind the Housing, Grants (Construction and Regeneration) Act 1996, the courts will endeavour to enforce the decisions of construction adjudicators. The relevant principles were explained by Chadwick LJ in Carillion Construction Limited v Devonport Royal Dockyard Limited [2005] EWCA Civ 1358; [2006] BLR 15:

“85.

The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator's decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator. The courts should give no encouragement to the approach adopted by DML in the present case; which (contrary to DML's outline submissions, to which we have referred in paragraph 66 of this judgment) may, indeed, aptly be described as "simply scrabbling around to find some argument, however tenuous, to resist payment".

86.

It is only too easy in a complex case for a party who is dissatisfied with the decision of an adjudicator to comb through the adjudicator's reasons and identify points upon which to present a challenge under the labels "excess of jurisdiction" or "breach of natural justice". It must be kept in mind that the majority of adjudicators are not chosen for their expertise as lawyers. Their skills are as likely (if not more likely) to lie in other disciplines. The task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash-flow requirements of contractors and their subcontractors. The need to have the "right" answer has been subordinated to the need to have an answer quickly. The scheme was not enacted in order to provide definitive answers to complex questions...”

Fraud

In SG South v King’s Head Cirencester LLP [2009] EWHC 2645; [2010] BLR 47, the defendant employer made allegations of fraud in the adjudication but failed to establish a factual basis for them. In the subsequent enforcement proceedings, the employer raised the allegations again in defence of the claim. Akenhead J considered fraud in the context of adjudication enforcement:

“20.

Some basic propositions can properly be formulated in the context albeit only of adjudication decision enforcements:

(a)

Fraud or deceit can be raised as a defence in adjudications provided that it is a real defence to whatever the claims are; obviously, it is open to parties in adjudication to argue that the other party's witnesses are not credible by reason of fraudulent or dishonest behaviour.

(b)

If fraud is to be raised in an effort to avoid enforcement or to support an application to stay execution of the enforcement judgement, it must be supported by clear and unambiguous evidence and argument.

(c)

A distinction has to be made between fraudulent behaviour, acts or omissions which were or could have been raised as a defence in the adjudication and such behaviour, acts or omissions which neither were nor could reasonably have been raised but which emerge afterwards. In the former case, if the behaviour, acts or omissions are in effect adjudicated upon, the decision without more is enforceable. In the latter case, it is possible that it can be raised but generally not in the former.

(d)

Addressing this latter case, one needs to differentiate between fraud which directly impacts on the subject matter of the decision and that which is independent of it... Whilst matters in the first category can be raised, generally those in the second category should not be. The logic of this is that it is the policy of the 1996 Act that decisions are to be enforced but the Court should not permit the enforcement directly or at least indirectly of fraudulent claims or fraudulently induced claims; put another way, enforcement should not be used to facilitate fraud; fraud which does not impact on the claim made upon which the decision was based should not generally be deployed to prevent enforcement.”

It should be noted that when Akenhead J came on to address the stay application, he dealt with it in the conventional way, addressing the points raised about the claimant contractor’s accounts and the underlying cause of their financial difficulties. No issue arose as to any overlap between the allegations of fraud in the adjudication and the matters relied on in support of the stay, because the fraud allegations were not the basis of the stay application.

The approach in SG South was expressly approved by Jackson LJ in Speymill Contracts Ltd v Baskind [2010] EWCA Civ 120; [2010] BLR 257. In that case, the judge at first instance had declined to enforce the adjudicator’s decision because of the alleged theft, by two employees of Speymill, of files belonging to the employer, Mr Baskind. Despite the fact that the adjudicator had expressly addressed (and rejected) that allegation, the judge concluded that the theft/fraud issue gave rise to an arguable defence. This decision was reversed on appeal. At paragraph 44 of his judgment, Jackson LJ said:

“I turn finally to the allegation that the adjudicator's decision should not be enforced because it is tainted by the fraud of Speymill. I reject that allegation. The allegation of theft was raised directly before the adjudicator and taken into account in the course of his decision. This is not a case of fraud coming to light after the adjudicator’s decision. Applying the principles set out SG South, I hold that the allegation of theft forms no basis for refusing to enforce the adjudicator's decision.”

This approach was also followed by Ramsey J in GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] EWHC 283 (TCC); [2010] BLR 377. Until the present case, these have been the three principal authorities as to the treatment of fraud in adjudication and adjudication enforcement.

Stay of Execution

CPR 83.7(4) provides:

“(4)

If the court is satisfied that—

(a)

there are special circumstances which render it inexpedient to enforce the judgment or order; or

(b)

the applicant is unable from any reason to pay the money,

then, notwithstanding anything in paragraph (5) or (6), the court may by order stay the execution of the judgment or order, either absolutely or for such period and subject to such conditions as the court thinks fit.”

The question of whether a stay should be granted in any particular case is always a matter for the court’s discretion. In the context of adjudication enforcement, some general guidance as to the proper approach can be found in Wimbledon Construction Co 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC); [2005] BLR 374 where, at paragraph 26, I said:

“26.

In a number of the authorities which I have cited above the point has been made that each case must turn on its own facts. Whilst I respectfully agree with that, it does seem to me that there are a number of clear principles which should always govern the exercise of the court's discretion when it is considering a stay of execution in adjudication enforcement proceedings. Those principles can be set out as follows:

a)

Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.

b)

In consequence, adjudicators' decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.

c)

In an application to stay the execution of summary judgment arising out of an Adjudicator's decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind (see AWG Construction Services v Rockingham Motor Speedway [2004] EWHC 888).

d)

The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay (see Herschell Engineering Ltd v Breen Property Ltd (unreported) 28 July 2000, TCC).

e)

If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted (see Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 (CA) and Rainford House Ltd v Cadogan Ltd (unreported) 13 February 2001).

f)

Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:

(i)

the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschell); or

(ii)

The claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals v Glencor Enterprises Ltd (unreported) 16 January 2000, TCC).”

Although this summary has been referred to in a number of subsequent cases, it was not intended to be an inflexible list. In Equitix ESI CHP (Wrexham) Ltd v Bestor UK Ltd [2018] EWHC 177 (TCC); [2018] BLR 281, I noted at paragraph 62:

“It was, of course, not my intention that this summary should be set in stone. It was simply a summary of the main points established by the cases up to that time. It does not, for example, deal with the position where allegations of fraud are made, particularly in circumstances where those might affect the financial standing of the referring party (who is almost always the party opposing the stay).”

The Factual Background

I gratefully adopt the judge’s summary of the relevant facts. It will be seen at a glance that they were unusual in a number of respects.

The project involved the installation of a façade at Ocean Village Hotel in Southampton. The main contractors were Bouygues (UK) Limited. Aygun, the respondent to this appeal, was the sub-contractor and they sub-sub-contracted the labour element of the cladding works to Gosvenor. The original sub-sub-contract sum was approximately £440,000. The works were delayed and eventually, on 15 March 2017, the parties reached what was referred to as a completion agreement. Despite this, the delay continued, and on 15 May 2017, the date for completion that had been agreed on 15 March 2017, the works remained incomplete. At that point Aygun contends that the works were 97% complete.

Notwithstanding the May agreement, by September 2017 the parties were in dispute and Gosvenor referred to adjudication a substantial claim for its labour costs since 12 November 2016. Aygun defended the claim on the basis that Gosvenor’s invoices, on which the claim was based, were exaggerated and that there was a huge discrepancy between the value of the work actually performed – the remaining 3% of the work – and the labour costs of well over £500,000 invoiced by Gosvenor. The adjudicator considered all the issues and awarded Gosvenor the sum of £553,958.47 plus VAT.

Gosvenor sought to enforce that decision in the TCC. Proceedings were commenced on 7 December 2017. On the same day, Mr Skelton of Gosvenor’s solicitors served a short witness statement in conventional form, seeking summary judgment. On 19 December directions were given, in accordance with the TCC protocol for adjudication enforcement proceedings. Any evidence from Aygun had to be served by 15 January 2018; any responsive evidence from Gosvenor had to be served by 22 January; and a hearing was set down for two hours on 1 February 2018. The rapid timetable set out in these directions was designed to replicate the speed required by the 1996 Act.

In accordance with that order, on 15 January Aygun served a pleaded defence together with three witness statements. The pleading, settled by counsel and supported by a Statement of Truth, said:

“As a direct result of those enquiries it is now the defendant’s case that a substantial proportion of the claimant’s award of sums fraudulently invoiced to the defendant by the claimant in the period between 15 May 2017 and the end of October 2017.”

The pleaded defence accepted that:

“…The allegations of fraudulent invoicing set out below were not and could not reasonably have been raised during the adjudication process as much of the relevant information was not available to the defendant at the time and/or could not have been obtained in the highly restricted timetable imposed on statutory adjudication under the 1996 Act.”

Twenty paragraphs of the defence were devoted to the allegations of fraud. Amongst other things, it was said that there was “an enormous discrepancy” between the sums invoiced by Gosvenor and the works actually done or labour actually provided. It was alleged that the fraudulent increase was at least five-fold.

There were three witness statements which supported these allegations and raised other matters of concern. Some of the flavour of this evidence was identified by Fraser J at [11]:

“All three of the witness statements broadly supported what was said in the Defence, with some distinct and important differences, which supplemented the allegation of fraudulent invoicing. The role of one Alex Wilkinson was explained in some detail. He had worked for Aygun at the project as the Project Manager. The witnesses explained that Mr Popa was a director of Gosvenor, and Ms Mela said that Mr Wilkinson was very close with Mr Popa. She said that during her time on site she specifically raised with Mr Wilkinson her concern at the progress of the works, the lack of skill on the part of Gosvenor's workers, their inefficient working and the fact that the labour was withdrawn at critical times. When she raised these matters with Mr Wilkinson, he downplayed her concerns, and also offered her a bribe. When her superiors at Aygun requested that she obtain fingerprint records from the main contractor Bouygues UK Ltd to ascertain actual labour attendances of Gosvenor personnel (as that was the modern method of recording site attendances), and she requested these records, Mr Popa immediately found out about this. She said that he contacted her, and challenged her about this. Mr Wilkinson then disappeared, leaving site altogether and taking all the Aygun site labour records away on the site laptop which he took with him. This is not his property and all requests from Aygun's solicitors to him to return this had simply been ignored. He has not been seen since by the Aygun witnesses and the important records that he took with him are not available. Ms Mela also added that in her view, Mr Popa and Mr Wilkinson had planned the action against Aygun, and she was in no doubt that the unlawful taking of the records by Mr Wilkinson was deliberate, and was done to deprive Aygun from having evidence against Gosvenor. She also added that in January 2018 (therefore after the adjudication decision, and during the enforcement proceedings) she had been intimidated on two separate occasions by Gosvenor employees. She stated that they were seeking to obtain her address, and that "I now feel extremely afraid and am quite wary of providing this information as I feel that I will be harassed or bullied by Gosvenor's men. They…. are fearless, and I am worried for my own safety. My employers have reassured me that the police would be notified if I am to receive any threats."”

Despite the nature and extent of this witness evidence, and the detailed pleaded defence, Gosvenor chose not to put in any evidence in response, although the order of 19 December 2017 expressly allowed for it. No explanation has ever been given for this omission. As might have been predicted, it meant that, at the hearing before Fraser J on 1 February, Gosvenor were in a certain amount of difficulty, which was compounded by the wholesale changes to Gosvenor’s published accounts, and the explanations that were given about them, an issue to which I return at Section 6.2 of this judgment. When Gosvenor received the draft judgment (which gave them summary judgment but imposed a full stay) they sought to reopen and reargue the allegations of fraud and the arguments about the accounts. They also sought to adduce new evidence. The judge noted that they were not entitled to rely on new evidence and, although they sought permission to appeal that ruling, permission was refused. This appeal therefore proceeds on the basis of the material that was before Fraser J on 1 February 2017.

The Judgment

In his analysis of Gosvenor’s claim for summary judgment, Fraser J said:

“20.

The factual issues that arise in this case present an unusual picture. What is extraordinary, however, in my judgment is that in the face of what are very clearly serious allegations (whether they are eventually made out or not) Gosvenor chose not to put in a single word of evidence in response for the hearing of 1 February 2018. No evidence was served in response, whether in accordance with the order of Coulson J or otherwise, until after the first draft judgment was distributed. I find this most surprising. The theft of records has been raised in other adjudication cases where fraud is alleged, as has been seen. However, in those cases the opposing party had put its case on such serious matters clearly before the tribunal, and denied it. This case is different. Two applications were before the court, one for enforcement and one for a stay. The fact that reliance was placed upon the fraud allegations in both respects was clear in Mr Sampson's written skeleton served before the hearing. I do not consider that it is to reverse the burden of proof by making the obvious point that where complaints are made of a plan hatched in advance to engage in fraudulent over-charging, collusion with the Aygun Project Manager, theft of the site laptop, attempted bribery, threats and intimidation, one could at least expect some sort of denial in a witness statement. This observation is not diluted by Gosvenor, after reading the first draft judgment that made these observations, then deciding (extremely belatedly) to put in some evidence in response. That approach is, with respect, verging on inexplicable. This is a point to which I will return in the section "Events after distribution of the First Draft Judgment".

21.

However, as stated by Akenhead J, "a distinction has to be made between fraudulent behaviour, acts or omissions which were or could have been raised as a defence in the adjudication and such behaviour, acts or omissions which neither were nor could reasonably have been raised but which emerge afterwards" (emphasis added). This is a major obstacle to the majority of the allegations raised by Aygun. The adjudication commenced on 29 September 2017. Mr Wilkinson is said to have mysteriously disappeared with the entirety of the Aygun site labour records before that. Indeed, his absence and the lack of those records is what is said to have hampered the Aygun defence in the adjudication. I do not accept that the timetable of the adjudication was too tight to permit Aygun to raise such matters at the time. Adjudication timetables are supposed to be tight; it is one of the features of the particular dispute resolution process. Further, the valuation evidence produced before me by Mr Amucer – which I accept shows an enormous disparity - could have been produced in the adjudication. The evidence produced in the adjudication by Aygun itself was rather different. I make no findings in respect of the disparity now alleged, because there is only one side of the story before the court, and no-one has been tested in cross-examination. However, Mr Amucer sensibly accepts that from an administrative point of view the project had run out of Aygun's control, and coupled with this "was the constant and pressing problem of actually completing the contract works". He also says that this left Aygun open to unwarranted demands from Gosvenor. Mr Sahin says that Gosvenor could therefore claim whatever it wanted for its operatives. None of this is sufficient explanation in my judgment to surmount the basic hurdle, that all of this should have been deployed in the adjudication, and could have been deployed, had Aygun organised its defence to the claim properly (which it could have done) and had it chosen to do so. Nor does it suggest that the project itself was properly managed. Parties to construction contracts who do not manage their own projects properly are not granted some sort of immunity in terms of adjudications, or the enforcement of adjudicators' decisions.”

For these reasons, Fraser J granted Gosvenor summary judgment.

Fraser J then moved on to consider the application for a stay of execution. At [26] he identified 5 factors which had been referred to in the witness statements as follows:

“26.

The evidence in respect of this for the hearing of 1 February 2018 was as above, with other stay-specific factors relied upon, which are contained in the witness statement of Mr Amucer. In summary, they are as follows:

1.

All of the points relied upon in respect of what is said to be the fraud by Gosvenor during the works themselves, including the gross disparity in the value of the works which has now been considered and assessed by the Aygun witnesses.

2.

The financial viability of Gosvenor, or to be more accurate, the lack of it.

3.

If paid, the money would be dissipated before the hearing of Aygun's challenge to the substantive dispute dealt with in the adjudicator's decision.

4.

Statements made by Mr Popa himself at the meeting of 15 March 2017 that if Gosvenor were to face a claim from Aygun he would "immediately wind up the company" and Aygun "would never get a penny out of him".

5.

The fact that other companies in which Mr Popa was a director have been liquidated.”

Despite this, the bulk of his judgment granting the stay was concerned with the second and third items on that list, namely the position revealed by Gosvenor’s accounts and the risk of dissipation. Since he regarded the evidence about those matters as particularly important, I must set out the relevant material from Fraser J’s judgment in some detail:

“28.

Mr Sampson drew attention to the following discrepancies. In the 2016 accounts on the Abbreviated Balance Sheet, the figure for Debtors is a negative one and in the sum of £14,650. With the £128 for cash at the bank and in hand, the figure for Current Assets is a negative one of £14,522. That feeds into the figure for Net Assets by being taken against the figure for Creditors within one year of £27,455 to give Net Assets in the sum of £12,933. For what it is worth this compares with Net Assets for the year ending 2015 of £4,386 (shown on the 2016 accounts because the previous year is shown on each year's accounts). However, that was not the point being made.

29.

The point being made was that when a comparison is made with the 2017 accounts, the figures on the balance sheet in those accounts shown for the previous year of 2016 (which should be the same as those figures in the 2016 accounts) are markedly different. Debtors for 2016 is now shown, in the 2017 accounts, as a positive figure of £622,644 (as opposed to minus £14,650). Curiously, the company still had exactly £128 in cash at the bank and in hand, and Creditors falling due within one year is now shown as a negative figure of £581,290. The overall net assets were now £41,482. That two sets of statutory accounts could show such a different picture for the same year end is a puzzle.

30.

Ms White for Gosvenor took instructions during the hearing of 1 February 2018 on these points. I have to say that the explanation that she was given on instructions was wholly unsatisfactory, although no criticism is intended of her. She explained at the hearing that the 2016 figures on the balance sheet that were shown on the 2016 accounts had been changed, because she said the 2016 accounts themselves had been changed. She explained that an updated set of 2016 accounts had been lodged with Companies House with the same figures shown on those accounts, as the 2016 figures now shown on the 2017 accounts. She also explained, in response to one or two questions from the court, that the reason the filing history at Companies House did not show these amended accounts was that they had been sent to Companies House by post, and not electronically, and the filing history only shows online filings and does not show documents lodged by post. These instructions were given to her in court by the company's accountant.

31.

Without in any way criticising Ms White, because these were doubtless the instructions she was actually given in the hearing – indeed the hearing paused so that she could take specific instructions – on the basis of the material available on 1 February 2018, I wholly rejected that explanation in my first draft judgment. Company information is made freely available by Companies House through the website www.gov.uk/government/organisations/companies-house. This permits anyone to access information about a company. This information is accessible online through the page whose web address I have just provided, and if one clicks on "Get information about a company" one is redirected to a service at www.gov.uk/get-information-about-a-company. There is nothing to suggest, on these government service websites, that the title should more accurately be "get-information-about-a-company-but-not-if-that-information-has-been-sent-by-post". I would not readily accept, in the absence of any evidence, that those responsible at Companies House would only provide important information (that is to be publicly available) if it were filed electronically, and would simply ignore other information such as that which Ms White on instruction told me had been sent by post. The Registrar of Companies has a statutory obligation to keep company records. There is nothing to suggest that the Registrar in this case considered that obligation unnecessary because something had been sent by post. Nor was a copy of these supposedly changed 2016 accounts made available to the court. There was ample time to have done so, given notice of this point was given to Gosvenor the day before the hearing. For a company to produce a copy of its own, most recent, statutory accounts is not a difficult task. Nor was any adjournment sought so that they could be provided.

32.

…This means that the supposed updated or different paper accounts for 2016 which Ms White told me about – and no copy of these was produced for the court – must have occurred after the date of the confirmation statement [14 July 2017]. Thus for a period of months following filing of the original 2016 accounts the court is being asked to accept that the figures for both Debtors and Creditors were incorrect to the tune of approximately £636,000 and £608,000 respectively, without the company being aware of it (or if it was aware, without correcting the situation by notifying Companies House). This is stretching credulity.

33.

All of this is very unsatisfactory, to put it at its mildest. Not only that, but on 24 May 2016 the Registrar gave notice to the company Gosvenor that unless cause was shown to the contrary it would be struck off compulsorily at the expiry of 2 months from that date. This action was then discontinued; however, it all adds to the air of suspicion over the financial affairs and probity of this company. Indeed, air of suspicion is putting it mildly as well.

34.

…However, finally on the account discrepancy point I should add this. It was accepted by Ms White in her written skeleton for the further hearing on 21 March 2018 that the account she provided to the court on 1 February 2018 (which came to her directly from the company accountant) about the revised accounts was wrong. Rather bullishly, this was deployed by her as a point in her favour as to why Gosvenor should be permitted to adduce new evidence with yet a further explanation. There are two points I wish to make about that. Gosvenor had specific notice in advance that Aygun would rely upon Gosvenor's own accounts at the hearing on 1 February 2018. There was ample time for a proper explanation to have been given to the court. Further time could have been sought if that was necessary, but it was not, nor was any adjournment of the hearing of 1 February 2018 sought. Secondly, the explanation given at the hearing of 1 February 2018 was so obviously wrong, that had the matter not been so serious, it would have been verging on the comical. A High Court Judge is entitled to rely upon what he or she is told at hearings. This was not an irrelevant sideshow (not that this would justify the court being told obviously wrong matters in any event). This went to the central issue of Gosvenor's financial standing, its very own statutory accounts, and was in the context of serious allegations of fraud. On those grounds alone I would refuse, as a matter of discretion, to permit Gosvenor to adduce fresh evidence on this point, quite apart from the separate issue that arises on finality of litigation.”

At [37] Fraser J said that a stay was justified as a result of the stay specific factors, to which he had previously referred in [26] (set out in paragraph 20 above). He said that these matters fell into three categories:

“1.

Facts relating to the alleged fraudulent acts that should have been deployed before the adjudicator.

2.

Facts relating to the behaviour in January 2018 by Gosvenor's employees towards Ms Mela of threats and intimidation in relation to the enforcement proceedings.

3.

Facts relating to the unsatisfactory and contradictory accounts of Gosvenor, which are exacerbated by the attempts at explaining away the discrepancies on the face of the accounts before me at the hearing of 1 February 2018, an explanation which I reject.”

Because the judge thought that these factors did not fit easily into any of the categories identified in Wimbledon v Vago, he said that he thought there was a further principle to be added to the list in that case, which he identified at [39] as follows:

“(g)

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”.

This was referred to on appeal as “addition (g)”.

At [43] Fraser J set out his conclusion:

“In my judgment, on the evidence before me on 1 February 2018, and without hearing any cross-examination, the clear inference (which I consider to be an inevitable one) was that Gosvenor (or those who control it) would specifically organise its financial affairs, other than in the ordinary course of business, to ensure that the adjudication sum paid to it would be dissipated or disposed of so that any future judgment against it would go unsatisfied. That, in my judgment, justifies the grant of a stay of execution.”

I should add that thereafter, in the final version of the judgment, Fraser J was then obliged to set out a lengthy further section, dealing with Gosvenor’s attempts to reargue the case and adduce new evidence. None of those subsequent matters caused him to alter the view expressed in the original draft which he had circulated.

The Two Grounds of Appeal

Permission was given to Gosvenor to argue two grounds of appeal. They are:

In essence, therefore, ground 1 was concerned with principle, and whether addition (g), identified by the judge at [39], was contrary to the approach outlined by Akenhead J in SG South, as approved by this court in Speymill. Ground 2 was concerned with the application of that principle (if it is accepted) to the facts of this case.

As I have noted, Gosvenor also sought permission to appeal against Fraser J’s refusal to allow them to rely on additional evidence and his refusal to make the stay of execution conditional. Permission to appeal on both of those grounds was refused. As to the former, it would be completely contrary to the speed required by the 1996 Act (and as provided by the TCC in its timetabling of adjudication enforcement applications) if one party could avoid the rough and ready nature of adjudication and adjudication enforcement by seeking more time to do that which it should have done originally. The latter ground was hopeless because the imposition of conditions was always a matter within the judge’s discretion.

Ground 1: Principle: Addition (g)

The Issue

The issue which arises as to principle is a narrow one. Mr Walker QC, on behalf of Gosvenor, accepted that the principle encapsulated by Fraser J as addition (g) to the list in Wimbledon v Vago was, of itself, “indisputable”. His complaint was that the judge erred in failing to qualify addition (g) by stating that it could not be based on evidence that was or could have been deployed in the adjudication. To that extent, therefore, he said that the judge’s formulation of the principle was contrary to paragraph 20 of Akenhead J’s judgment in SG South. He said that that paragraph was a binding statement of hard-edged principle to the effect that, if a matter had been or could have been raised in the adjudication, it could not be relied on in support of an application for a stay.

Dr Sampson disagreed. He said that there was no hard-edged principle, first because the jurisdiction to grant a stay was always a matter of discretion which could not be fettered; and secondly because Akenhead J had himself acknowledged the width of that discretion in SG South by his use of the word “generally” in the last line of his paragraph 20(c).

Analysis

For the reasons noted below, I prefer Dr Sampson’s submissions.

On an application to stay the execution of a judgment based on an adjudicator’s decision, the court may be asked to weigh up the evidence and decide whether or not it demonstrates a real risk of dissipation. If the court concludes that there is a real risk that any future judgment in favour of the paying party would go unsatisfied, by reason of the dissipation of the judgment sum in the meantime, the court may grant the stay, regardless of what happened (or what could have happened) in the adjudication.

That is because the assessment of the risk of dissipation will not have been undertaken before; such a risk will not have been an issue in the adjudication, which will have been concerned solely with whether or to what extent the payer was liable to the payee. It may be that, in some cases, some of the evidence subsequently said to show a real risk of dissipation may also have been relevant to the issues in the adjudication, and may have been either expressly referred to in that adjudication, or comprise evidence that could have been raised in the adjudication. But the adjudication itself will not have been designed to test whether or not there was a real risk of dissipation of assets so as to justify a stay.

A court considering that question subsequently is therefore undertaking the exercise for the first time, and when doing so, must consider all the relevant evidence, regardless of whether or not it was or could have been raised in the adjudication. I do not read paragraph 20(c) of Akenhead J’s judgment in SG South as concluding otherwise. The use of the evidence to support an application for a stay is for a different purpose and does not amount to a collateral attack on the adjudicator’s decision.

Of course, if a particular part of the evidence had been rejected by the adjudicator, and that same evidence was said to be relevant to the risk of dissipation, the adjudicator’s rejection may well be a material consideration in the exercise of the court’s discretion, but it will not necessarily be decisive. The same must apply, a fortiori, to evidence which was not even raised in the adjudication, even if it could have been. These will be matters for the judge to consider in the exercise of his or her discretion.

Accordingly, whilst I consider that Akenhead J was right to maintain, for adjudication enforcement purposes, the difference between an issue that was or could have been decided in the adjudication and an issue raised for the first time on enforcement, I consider that an application for a stay of execution, which the paying party seeks to justify on the grounds that there is a real risk of dissipation, calls for a more nuanced approach. I consider that the need for this flexibility was anticipated by Akenhead J in his use of the word “generally” in paragraph 20(c) of his judgment in SG South.

I should add that I agree with Fraser J that the cases where addition (g) will be relevant to the granting of a stay of execution are likely to be small, and the number of those where there may be an overlap between the evidence that was or could have been deployed in the adjudication, and the evidence justifying a stay on the grounds of risk of dissipation, will be fewer still.

For these reasons, I endorse the principle identified by Fraser J at his addition (g). It is for the judge in each case to assess the extent (if at all) to which there is a material overlap between the evidence that was or could have been deployed in the adjudication and the evidence deployed in support of the stay, and to determine the consequences (if any) of that overlap. None of that diminishes the conclusion that addition (g) is a correct statement of principle.

Ground 2: The Application of the Principle

The Specific Disputes on Appeal

During the appeal hearing, it became apparent that the dispute between the parties as to whether or not Fraser J properly applied addition (g) to the facts of this case fell into three discrete areas. They were: i) the applicable test to be applied in such circumstances (Section 7.2 below); ii) whether or not the judge reversed the ordinary burden of proof (Section 7.3 below); and iii) the proper exercise of the judge’s discretion (Section 7.4 below). There was no dispute, either before Fraser J or before this court, that it was at least reasonably arguable that, in any subsequent proceedings, Aygun would be able to show that Gosvenor’s claims had been significantly over-valued by the adjudicator, and that there would in such circumstances be a substantial judgment in favour of Aygun for the return of some or all of the summary judgment sum.

The Relevant Test

As noted above, the judge was exercising his discretion under r.83.7(4) (“special circumstances”). But at [40.3] and again at [61.2], Fraser J expressly said that a party who wished to establish a stay on the basis of addition (g) had to meet the same test as is applicable for the grant of a Freezing Order. Thus at [61.2] he said:

“…

2.

A high test will be applied as to whether the evidence does indeed reach the standard necessary for this principle to apply. I consider that in order to fall into this category the standard is broadly the same as the level of evidence necessary to justify the grant of a Freezing Order (what used to be called Mareva relief). Mere assertions will not be sufficient. Isolated discrepancies on statutory accounts will not be sufficient either.”

I consider that the judge was right to draw this analogy. The risk of dissipation is a test familiar to courts dealing with Freezing Orders, and there is no reason in principle why the same approach should not be required of a court asked to stay the execution of a judgment on the same grounds in an adjudication enforcement case. Neither counsel indicated any disagreement with that basic proposition.

What then is the proper approach to that test? In my view, this was encapsulated in the judgment of Gloster LJ in Holyoake & Another v Candy & Others [2017] EWCA Civ 92. She said:

“34.

It was common ground that the only relevant legislation was section 37(1) of the Senior Courts Act 1981, which provides:

"The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so."

It was also common ground that the ultimate question the court must ask, in determining whether to grant a conventional freezing order, was whether it is just and convenient to do so. Nor was it in dispute that an applicant for a conventional freezing order or a notification injunction must show a good arguable case on the underlying merits. There was some debate as to what was the correct test to establish that there was a risk of dissipation such as to make it just and convenient to grant a conventional freezing injunction. However, the threshold in relation to conventional freezing orders is well established. There must be a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets. But it is not every risk of a judgment being unsatisfied which can justify freezing order relief. Solid evidence will be required to support a conclusion that relief is justified, although precisely what this entails in any given case will necessarily vary according to the individual circumstances: see e.g Gee on Commercial Injunctions (6th edition) in particular at 12–032 – 34 and 12–042 and the cases there cited.”

At one point in his submissions, Mr Walker QC suggested that the judge had sought to apply a different (and less onerous) test. I disagree. Fraser J said on two occasions that the necessary test was high, and that mere assertions and isolated discrepancies in the accounts were not sufficient. I consider, therefore, that the judge had the correct test in mind when considering the application for a stay.

Burden of Proof

Mr Walker QC also complained that the judge had wrongly reversed the burden of proof, because he emphasised (at [12], [20], [23] and [38]) his concern and surprise that Gosvenor had failed to address the evidence adduced on behalf of Aygun. Thus, he submitted that the judge had put the onus on Gosvenor and over-emphasised the absence of any response from them, rather than focusing on what he described as the “thin evidence” concerning the risk of dissipation actually put forward by Aygun.

Again, I do not accept that criticism. I think that Fraser J was entitled to express his surprise that, notwithstanding the nature of the allegations made by Aygun in their Defence, and the content of their witness statements, Gosvenor had deliberately chosen not to put in any evidence in response. I do not think that the judge reversed the ordinary burden of proof: on the contrary, his clear exposition at [20] (see paragraph 18 above) made it clear that this was precisely what he was not doing.

The judgment of Gloster LJ in Holyoake, already noted above, is of assistance on this issue too. She said:

“50.

There are three points which inform this analysis. First, it is critical to remember that the burden is on the applicant to satisfy the threshold. The court will of course decide on the basis of all the evidence before it. However, in practice, if an applicant has not adduced sufficient evidence, the application will fail. The respondent's evidence will be immaterial – unless, unusually, it lent support to the application.

51.

Second, it follows that, unless an applicant has raised a prima facie case to support a freezing order, the respondent is not obliged to provide any explanation or answer any questions posed – and nor can a purported failure to do so be held against the respondent. It is only if the applicant has raised material from which a real risk of dissipation can be inferred, that the respondent will be expected to provide an explanation. Then, in appropriate circumstances, the lack of a satisfactory explanation may give rise to an adverse inference.”

In my view, this is what Fraser J did. He concluded that Aygun had raised material from which a real risk of dissipation could be inferred and that, in those circumstances, the lack of a satisfactory (or indeed any) explanation from Gosvenor gave rise to an adverse inference. That was therefore in accordance with the correct approach outlined by Gloster LJ.

Thus the only remaining issue is whether, in the exercise of his discretion, Fraser J had been wrong to conclude that Aygun had raised material from which a real risk of dissipation could be inferred.

Exercise of Discretion

Of course, it is not for this court to exercise its own discretion. It is only if Fraser J reached a conclusion which, on the evidence, was not open to him that this court should intervene.

I accept that, in the section of his judgment dealing with the stay of execution, it is not always apparent to which particular factors Fraser J gave particular weight. The consequences of the overlap with the findings in the adjudication, and the judge’s treatment of some of the more peripheral evidence, are also unclear. However, for the reasons noted below, I have concluded that this court should not interfere with the exercise of the judge’s discretion when he granted the stay.

The principal reason for the judge’s conclusion was the evidence about Gosvenor’s accounts; the belated changes to them; the untrue explanation that was given for the radically altered figures; and Gosvenor’s increasingly desperate attempt to put in evidence, long after the event, to provide yet another explanation for the discrepancies (see the passages from the judgment cited at paragraph 21 above). Fraser J concluded that this amounted to clear evidence of a real risk of dissipation.

In particular, Fraser J regarded the fact that the amount in respect of creditors in the 2016 accounts had changed so significantly (from a positive figure of £27,455 to a negative figure of £581,290) as solid evidence that Gosvenor were setting themselves up to dissipate the judgment sum. They had suddenly discovered that a sum almost exactly the equivalent of the judgment sum was, contrary to their original accounts, now said to be owed to other creditors. As Dr Sampson put it, “there was nothing to stop Gosvenor taking the £550,000. By inflating the figure for creditors, they have given themselves the ability to make it disappear. And once the money has gone, it cannot be recovered later”.

In my view, the judge was entitled to reach the conclusion that the evidence about the accounts (both as to their contents, and the late changes and the explanations proffered) cleared the required hurdle. It was the sort of evidence which falls fair and square within the Freezing Order jurisdiction, as summarised in the 6^th edition of Commercial Injunctions by Steven Gee QC, at paragraph 12-033.

I acknowledge that other judges may have formed a different view, and I consider that Fraser J over-stated the position when he remarked that, on the evidence, a stay was ‘inevitable’: in my view, the issue was rather more balanced than that. But his exercise of discretion cannot be said to have been unreasonable or unlawful: it was a decision open to him on the evidence. I therefore reject Gosvenor’s complaints on that point. That in turn means that the appeal must fail, because it is quite clear that it was the evidence in respect of the accounts which was the crucial reason for the judge’s imposition of a stay.

Although the judge was not clear as to the weight that he gives it, I consider that he was also entitled to conclude that the discrepancy argument, and the resulting allegations of fraudulent invoicing, was also solid evidence of a real risk of dissipation. The original contract sum was £440,000. By 15 May 2016, Aygun’s position is that 97% of the work had been completed. And yet, in carrying out the remaining 3% of the work, Gosvenor purported to charge £500,000.

Of course, it must be acknowledged that this was material which was considered in the adjudication. But, for the reasons explained under Ground 1, that does not mean that the judge should have concluded that this evidence was irrelevant or inadmissible when considering the application for a stay. It clearly went to the real risk of dissipation (which was not an issue that had been considered in the adjudication), and was material to which the judge was entitled to attach significance.

Other matters which the judge was entitled to take into account when considering the stay related to the evidence of Miss Mela (both as to the bribe that she was offered and her subsequent concerns about Gosvenor’s attempts to contact her); the threats made by Mr Popa of Gosvenor that he would put Gosvenor into liquidation, and the fact that others of his companies had also gone into liquidation. These are not, in my view, matters of any great substance but they could be said broadly to confirm the evidence of risk represented by the accounts and the alleged fraudulent invoicing.

For completeness, I should say that I agree with Mr Walker QC that Fraser J overstated the position when he said that Miss Mela had given evidence that she had been threatened; I do not read paragraphs 10 and 11 of her witness statement as going that far. But on any view, this was not a matter which lay either at the forefront of the application for a stay of execution or in the judge’s consideration of that application.

For these reasons, I consider that Fraser J was entitled to come to the view that he did and, in the exercise of his discretion, to grant a stay of execution. I would therefore dismiss the appeal.

I agree.

I also agree.