‘Smash and grab’ adjudications, is the picture any clearer? – M Davenport Builders Limited v Greer and another [2019] EWHC 318 (TCC)

Background

The claimant, M Davenport Builders Limited, and the defendants Colin and Julia Greer had entered into a construction contract to which the Scheme for Construction Contracts applied, under the 1996 Construction Act, as amended (the “Amended Act”). The claim was brought against the defendants for summary judgement to enforce an adjudication decision awarding the claimant £106,160.84 plus interest.

The claimant had made a payment application, with no payment notice or pay less notice having been issued by the defendants within the requisite timescales. As such, the claimant then issued a payee’s notice in default in accordance with s.110B of the Amended Act. The claimant then commenced a ‘smash and grab’ adjudication to require payment in full, of the amount set out in the claimant’s payee’s notice. The claimant was successful in this adjudication being awarded the sum demanded on its final account plus interest; the defendant refused to pay. Instead, the defendant commenced a second, ‘true value’ adjudication to establish the correct value of the final account. This was with the intention of relying on the ‘true value’ adjudication decision by way of a counterclaim or set-off. This second ‘true value’ adjudication found that no sum was payable by the defendants to the claimant.

With the Court of Appeal having confirmed in S&T(UK) Limited v Grove Developments Limited [2018] EWCA Civ 2448 (“Grove”) that ‘true value’ adjudications following ‘smash and grab’ adjudications are permitted (see our previous case report here), the question in the present case was whether a ‘true value’ adjudication can be commenced and/or relied upon without immediate payment having been made in respect of a prior ‘smash and grab’ adjudication.

Decision

Given the clear (albeit technically obiter) judgement of Sir Rupert Jackson in Grove stating that an employer must comply with its immediate payment obligation before “embarking upon an adjudication to obtain a re-valuation of the work”, it is unsurprising that Stuart-Smith J presiding over this case, felt compelled to concur. The court held that the defendants were obliged to pay the sum specified in the first adjudication award, despite the result of the second adjudication.

Stuart-Smith J reconfirmed the principle that before commencing a ‘true value’ adjudication “the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended Act.” It was held that it should now be deemed established that an employer must discharge an order of an adjudicator for immediate payment, based upon its failure to serve either a payment notice or a pay less notice, before they will be able to rely upon a subsequent decision in a true value adjudication. Moreover, it was concluded that this principle clearly applied to both interim and final applications for payment.

Implications

This was the first reported decision to apply the decision in Grove, and will be a welcome judgement for employers confirming their right to launch a ‘true value’ adjudication following a ‘smash and grab adjudication. Furthermore, the decision helpfully clarifies that this right applies to both interim and final payment applications.

However, there remains confusion about the timing of the ‘true value’ adjudication. While reaffirming that Grove was “clear and unequivocal” that the employer must make payment before it can commence a ‘true value’ adjudication, by applying Harding v Paice [2015] EWCA Civ 1231, Stuart Smith J held “that does not mean that the court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation”. Unfortunately, it is by no means clear when and in what circumstances the court would restrain a subsequent ‘true value’ adjudication.

As such, the question still remains whether an adjudicator has jurisdiction to decide a ‘true value’ adjudication where payment from a previous ‘smash and grab’ adjudication has not been made. The decision leaves parties to a construction contract with a lack of clarity as to when the right to adjudicate to determine the true value of an interim or final account arises.

Practical Tips

  • Employers (or payers) should always prioritise issuing payment notices and pay less notices on time and ensure they are valid – check that the amounts are accurate, allocated to specific parts of the work done, and the grounds for any deductions are clearly explained and quantified. This will avoid the need for the payer to be at the mercy of a ‘true value’ adjudication, but more importantly will avoid the payer being obliged to pay an amount (even if subsequently adjusted) which it wholly contests.
  • Where immediate payment is required following a ‘smash and grab’ adjudication, employers (payers) are advised to make the payment promptly before launching their own ‘true value’ adjudication. Despite the decision in the present case, in order to avoid potential issues regarding the jurisdiction of the ‘true value’ adjudication, employers should err on the side of caution by paying first and adjudicating later.
  • Contractors (or payees) should also be encouraged to submit at the outset, accurate payment applications which they are confident would stand up to an adjudicator’s valuation, so as to avoid significant adjustments of payments due to them.

Justin Mendelle is a Partner and Head of Construction who along with Juli Lau, and others in Sharpe Pritchard’s Infrastructure and Construction Teams, advise on all aspects of construction adjudications. Allan Owen is a Trainee Solicitor, who has worked in both the Infrastructure and Construction Teams.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.