UK: A Further Jab To The "Smash And Grab" Adjudication?

Last Updated: 4 February 2019
Article by Tim Richards

S&T (UK) Limited v Grove Developments Limited [2018] EWCA Civ 2448

Background:

In our edition of the HTML last April we reported on the decision in the Technology and Construction Court, which signified the ability for employers to bring separate (counter) adjudications to decide the true value of an amount due where there is either no Payment/Pay Less Notice, which in turn signified a potential reduction in the amount of "smash and grab" adjudications.

The matter was heard on appeal in November and the original decision of the TCC was upheld in respect of each of the three issues raised by way of S&T's appeal. Dealing now with these three issues:

Court Judgment:

Pay Less Notices:

The Court ratified Coulson J's (as he then was) reasoning. In doing so it confirmed that the test to be applied to the proper construction of such notices under the Construction Act 1996 (as amended) is how a reasonable recipient would have understood the notice. Thus, if a reasonable recipient of a notice (which only complied because it referred back to documents previously sent but were not reattached) would have understood what was in actual fact being referred to, the notice would be deemed to be valid Pay Less Notice.

"True value" adjudications:

The Court of Appeal upheld the first instance judgment, considering the six reasons why Grove was entitled to bring a separate adjudication to determine the correct value of their interim application, even if it was being argued there was no valid Pay Less Notice. The six reasons provided were:

  1. Courts and adjudicators have the power to open up, review and revise sums shown as due in interim applications in any case where the interim application determines what is payable
  2. Under section 108(1) of the Construction Act (as amended) and paragraph 20 of the Scheme (as amended) there is no limit on the nature of disputes which either party may refer to adjudication.
  3. A distinction is made between a dispute about the sum which must be paid ("notified sum") and the true valuation of the work done. These raise different disputes.
  4. The "sum due" (clause 4.7) is different from the "sum stated as due" (clause 4.9). Section 4 of the contract in its entirety is designed to achieve payment of the true sum which is due under clause 4.7.
  5. The idea that an employer has the right to adjudicate over the true value of an interim payment is fair because the contractor in the same way has the right to adjudicate when seeking payment of a higher sum than that notified.
  6. There is no real justification for treating interim and final applications for payment differently.

Timing:

Coulson J had emphasised that a true value adjudication could not be commenced until payment by the employer had first been made of any "smash and grab" adjudication award. The Court of Appeal confirmed this as the correct approach by construing the Act so that the mandatory payment provisions in s.111 should be seen as having priority over the statutory right to adjudicate, as per s.108. In essence, an employer MUST pay first and adjudicate after.

Liquidated Damages (LDs):

The Court of Appeal agreed with Coulson J regarding the notices required by the contract for the deduction of LDs namely that there has first to be a notice warning about the intention to deduct LDs and then a second notice confirming that the deduction has been made, however no particular period of time must elapse between receipt of the two.

Comments:

This case confirms that any employer is entitled to seek adjudication for a true value of a claim, even if no Payment or Pay Less Notices have been served and in turn dilutes the concept of "smash and grab" adjudications because it signifies that any over payments can be returned to the employer in a subsequent adjudication.

That being said, the employer can only exercise such a right after it has made the required payment under the adjudication which fundamentally prevents it from being used as an instrument to withhold an adjudication award and reinforces the cash flow intention of the Construction Act.

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.

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