Adjudication Part 5: How To Stop A Smash And Grab Adjudication

BL
Barton Legal

Contributor

Barton Legal Limited are specialists in construction and commercial property law, with a strong international presence. We have extensive experience and expertise in the full range of standard form contracts such as JCT, NEC, ICE, FIDIC and IChemE, and we act variously for employers, contractors and sub-contractors.
Smash and Grab is a description applied to certain types of claims in adjudication, with a sole focus of recovering monies for unpaid payment applications and certifications.
United Kingdom Real Estate and Construction

What is "Smash and Grab"?

Smash and Grab is a description applied to certain types of claims in adjudication, with a sole focus of recovering monies for unpaid payment applications and certifications. This is usually where a contractor issues a payment application, and the employer does not issue a pay-less notice; the contractor may then refer the matter to adjudication. Informally known as "Smash and Grab", there are very few defences to these applications. However, there are steps a party can take to minimise the risk of a Smash and Grab claim, as well as dealing with the aftermath.

Have the correct administrative procedures in place, to issue a Pay-less Notice (PLN) on time, or before, the deadline.

A PLN details the payer's intention to challenge (and pay less than) the amount requested in a payment application. For example, if a contractor issues a payment notice for £1,000,000, and the employer believes this figure is too high, the employer may issue a PLN. This must be issued within a specific time, as per the contract. If the PLN is not issued in time, and the employer refuses to pay the full amount stated in the payment application, the contractor may refer the employer to a Smash and Grab type adjudication, where they are highly like to be awarded the full £1,000,000.

Although it may seem obvious, having the correct administrative procedures in place would prevent parties missing the PLN deadline. Admin is a key area of all businesses. However, all too often, organisation who neglect this have been caught by "Smash and Grab", simply because they forgot to send a PLN.

Raising a jurisdictional challenge during the adjudication

If a claim has been referred to adjudication, it is possible to raise jurisdictional challenges; namely, that the adjudicator does not have jurisdiction, and therefore cannot decide on the outcome of the dispute. To raise a jurisdictional challenge, the reasoning must fall within a specific category relating to (inter alia) either the dispute itself, the referral notice, or a contractual issue.

It is important to understand that the adjudicator can investigate their own jurisdiction, ultimately deciding whether they can or can't make a temporarily binding decision on the matter.

If they decide that they clearly do not have jurisdiction, the adjudicator will resign and the adjudication will end.

To ensure a jurisdictional challenge is submitted correctly, and prevent any ambiguity as to the reasons why a jurisdictional challenge is being raised, you need to understand and carefully apply the contract terms and the manner in which and by which the adjudicator was appointed.

For further information on jurisdiction, please review our article titled 'Adjudication Part 3 – What Is Jurisdiction, and How to Challenge It'?

True Value adjudication – post adjudication

It is arguably less difficult to challenge an adjudication based on the true value of works, in comparison to a Smash and Grab adjudication. This is mainly because the employer (in our example above) originally had an opportunity to challenge the payment notice, and did not. However, a True Value adjudication would give the employer an opportunity to prove, through quantum/financial reports and witness statements, that the value of the works were less than that claimed in the payment application.

Whilst a Smash and Grab claim allows the adjudicator to award a sum without carrying out any investigation on whether that sum is correct, a True Value adjudication requires the adjudicator to carry out a determination, and probably calculations, as to the correct value of the works. In their decision, the adjudicator will award a party what they deem to be the 'true value' of the works, and set out how much that party should be paid.

For example, following the employer's failure to issue a PLN, if the contractor claims for £1,000,000 in a Smash and Grab adjudication, the adjudicator is likely to award the full amount to the contractor. Once the employer has paid the £1,000,000 in full, only then can they refer the dispute to a True Value adjudication. This would allow the adjudicator to determine whether or not the true value of the works indeed equated to £1,000,000. If the adjudicator deems the value to be £800,000, the contractor will need to return £200,000 to the employer.

In S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448, it was held that before commencing a True Value adjudication, a party must fulfil its obligation to pay any sums deemed payable. For example, if an adjudicator to a Smash and Grab claim decides that a party must pay the full amount detailed in a payment notice, then that party is obligated to pay the full amount before beginning a True Value adjudication.

In the recent case of Henry Construction Projects Ltd v Alu-Fix (UK) Ltd [2023] EWHC 2010 (TCC), it was ruled that a True Value adjudication cannot begin whilst a Smash and Grab adjudication is taking place on the same issue. In this case, Henry Boot could not commence a True Value adjudication, as they had not and could not fulfil their payment obligations under the Smash and Grab adjudication, due to the fact that this was ongoing.

Both cases make it clear that, before commencing a True Value adjudication, payment resulting from the Smash and Grab claim must be made in full.

Whilst a True Value adjudication can potentially help you to pay less than the payment application upon which the Smash and Grab claim was based; the legal, expert, and adjudicator costs of two adjudications can add up considerably.

Final thought:

From a commercial perspective, the additional time required to respond with submissions across both Smash and Grab and True Value adjudications, can be prevented by having the correct administrative procedures in place. This should ensure that PLNs are issued correctly as to form and context, and on time.

Adjudication was discussed in our webinar 'Model Law on Statutory Adjudication with Karen Gough and Alternative Expedited Processes with Dr Franco Mastrandrea', in March 2024. Click hereto view the webinar and presentation.

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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