UK: Restoring Fairness To The Process: Another Episode In The Smash And Grab Adjudication Saga

Last Updated: 2 May 2018
Article by Gurbinder Grewal, Akin Akinbode and Tracey Summerell

In his final case in the Technology and Construction Court (TCC) before taking up his new position as a Court of Appeal judge, Coulson J has tipped the balance away from contractors in smash and grab adjudications.

The harsh 2011 changes to the payment terms under the Construction Act mean that employers who disagree with a contractor's valuation towards the end of the project (but who do not serve a valid pay less notice) must pay the sum stated as due in the contractor's payment application. If they do not, contractors can refer the non-payment to adjudication where they are very likely to obtain a decision in their favour ordering the employer to pay – a decision that the TCC will enforce.

An adjudication decision in these circumstances gives the contractor a distinct advantage ahead of the final account valuation process – it places the (potentially large) pot of disputed money in the contractor's hands.

In Grove, the employer (Grove) had served a pay less notice but the defendant (S&T) had claimed it was invalid. An adjudicator had agreed with S&T. Both parties had started proceedings in the TCC: S&T to enforce the adjudicator's decision; Grove to obtain declarations that the pay less notice was valid and that it could go to an adjudication to ascertain the true value of the sum payable.

The facts

Grove had engaged S&T to design and build a hotel at Heathrow Terminal 4 using the JCT Design and Build Contract 2011. Grove disagreed with S&T's interim application no. 22 (IA22) (which was approximately £14 million higher than Grove's previous valuation) and served a pay less notice. That notice referred to calculations Grove had set out in an earlier email.

S&T argued the pay less notice was invalid because it should have specified the calculations within the notice itself. An adjudicator agreed (meaning Grove would have to pay up) but, in the meantime, Grove had issued TCC proceedings for declarations that the pay less notice was valid and, if it was found invalid, that it could adjudicate the true value of IA22.

Here's a snapshot of each of the main issues considered by Coulson J.

Can a pay less notice be valid if it refers to and relies on calculations set out in other documents?

In short, yes, provided the reference is clear and the document referred to is clearly identified. Coulson J took a practical approach – S&T could fully understand from the reference how Grove's valuation was calculated and, as a matter of principle, there could be no objection to this method.

When an employer disputes a sum applied for but fails to serve a valid pay less notice, thereby triggering the requirement to pay up on the contractor's payment application, can it refer the question of the true value of that payment to adjudication?

Again, Coulson J's answer to this question was yes based on six reasons. In summary:

  1. Just as a court has an inherent power to decide on the true value of certificates/notices/applications (including opening up, reviewing or revising them), so does an adjudicator.
  2. Neither the Construction Act* nor the Scheme** limit the nature, scope or extent of disputes referable to adjudication.
  3. Disputes on the validity of a pay less notice and its true value involve separate issues. Where the former is dealt with by an adjudicator, the second is a separate issue and can be referred to adjudication separately.
  4. There is a contractual and fundamental difference between "the sum due" and "the sum stated as due". If, having failed to serve a valid pay less notice, the employer is obliged to pay "the sum stated as due" (by the contractor), it can still refer to adjudication the true value of the contractor's application (i.e. "the sum due" under the contract).
  5. It would be wrong in principle, unjustifiable, unfair and unequal to stop an employer from challenging "the sum stated as due" when a contractor can make such a challenge as soon as the employer serves the pay less notice.
  6. The contract treats – and the parties, adjudicators and courts should also treat  interim and final applications and payments in the same way. Whether what is in dispute is an interim payment or a final payment, the employer has the right in principle to refer to adjudication the dispute about the true valuation (provided it first pays the sums stated as due).

Coulson J found support for his conclusion in various Court of Appeal judgments, but did not agree with the TCC's reasoning in ISG Construction Ltd v. Seevic College (2014) and Galliford Try Building Limited v. Estura Limited (2015). In these cases, the judge had held that the employer's failure to serve the pay less notice amounted to its deemed agreement to "the sum stated as due" in the contractor's payment application. Having thus "agreed" the sum, its true value under the contract was not in dispute and the employer could not, therefore, refer that issue to adjudication until after a final determination. In the meantime, the employer had to pay up.

Coulson J found there was no factual basis for the employer's deemed agreement; the approach in ISG and Galliford was an unjustified and unnecessary complication; and the TCC's conclusion was contrary to the Court of Appeal authorities.

Practical points

  • Employers can, when drafting a pay less notice, refer to and rely on calculations set out in other documents. Those who choose to take this approach rather than setting out the calculations within the payment notice take a risk that their references may be inadequate or misunderstood. Ensure both the references and the calculations referred to are clear.
  • An employer who disagrees with the contractor's valuation must serve a pay less notice if it thinks less is payable than stated as due on the payment application.
  • If no or an invalid pay less notice is served, the employer must pay to the contractor the sum stated as due in the contractor's payment application.
  • If the employer disagrees with the contractor's valuation but does not serve the pay less notice, it can start a fresh adjudication to determine the true value payable to the contractor. However, the employer must first pay the whole of the sum stated as due – it cannot set off what it believes to be an overvalue. A failure to pay up before referring the issue of the true value owed to adjudication might mean that the second adjudicator does not have jurisdiction to decide. (This requirement to wait until after making payment before referring the issue to adjudication does not, however, seem to fit comfortably with an employer's right to adjudicate "at any time".)
  • Where the employer has disputed the valuation[s], the contractor should think twice before starting a smash and grab adjudication. The money might have to be repaid in a relatively short space of time following a second , "true value" adjudication. The fact that there is no contractual provision to repay any overpayment is irrelevant – the second adjudicator has power to order that repayment.

S&T has been given leave to appeal: expect more judicial direction on smash and grab adjudications in the near future.

A full version of our case report on Grove is due to appear in Construction Law shortly.

A further issue in Grove (unrelated to smash and grab adjudications) – on the timing of liquidated damages notices

Coulson J dealt with another issue in Grove which is worth mentioning.

The project had been delayed, Grove had served liquidated damages notices on S&T, but S&T had taken issue with the timing of those notices.

Grove argued they had complied with the contract by serving two notices in the correct sequence: the first warning it might apply liquidated damages and the second giving notice of its intention to deduct liquidated damages. S&T took issue with the latter being served within seconds of the first.

Coulson J decided Grove's notices were compliant with the contract. The contract did not specify a period between the warning and deduction notices. Grove was not giving notice of a time period needed to remedy a default (such as is required if a termination notice is served). By the time the warning notice was served, S&T was already in culpable delay – there was no scope to rectify the delay that had already occurred. All that mattered was that Grove served the notices in the right sequence (warning then deduction notice) – which it had.

* Housing Grants, Construction and Regeneration Act 1996 (as amended in 2011)

** The Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended)

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions