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“ADJUDICATE LATER, PAY LATER” - ARE SMASH AND GRAB ADJUDICATIONS STILL EFFECTIVE? [May 2019]

We previously considered the Court of Appeal’s decision in Grove Developments v S&T (our article “Grab the cash, adjudicate later”), in particular whether Sir Rupert Jackson’s obiter comments (as to the timing of an employer’s right to have the true valuation of an interim application for payment determined in an adjudication where it has failed to issue a valid payment and/or pay less notice) raised further questions; did the contractor have a jurisdictional challenge if the employer started an adjudication before paying the ‘notified sum’?

We also questioned whether the decision in Grove was a fetter on a party’s right to adjudicate at any time in accordance with section 108 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Act”). The decision in Davenport v Greer appears to alleviate that concern, while throwing up a number of other questions, not least of which: is it now worth pursuing a ‘smash and grab’ adjudication?
Rather than “pay first, adjudicate later”, Davenport appears to suggest that a paying party can commence a ‘true value’ adjudication without first paying the sum pursuant to a ‘smash and grab’ adjudication, but that it must make payment of the ‘smash and grab’ sum in order to rely on the ‘true value’ decision - “adjudicate later, pay later”.
The facts
The Defendants failed to issue a payment and/or pay less notice in response to the Claimant’s application for payment, and the Claimant succeeded in a default payment adjudication. Six days after the decision in that adjudication awarding the Claimant the full amount of its application for payment, the Defendants commenced its own adjudication as to the true value of the account and the second adjudicator decided that no sum was payable.
The Defendants did not make a payment in respect of the first adjudication and the Claimant commenced court proceedings for the amount awarded to them. The Defendants relied upon the decision in the second adjudication by way of set-off or counterclaim, arguing that they were not obliged to pay the award in the first adjudication before obtaining and relying on the second adjudicator’s decision.
The decision
In finding in favour of the Claimant, Mr Justice Stuart-Smith decided:
  1. A defendant who has discharged his immediate obligation to pay the ‘notified sum’ should generally be entitled to rely upon a subsequent true value adjudication.
  2. A defendant who has not discharged his immediate obligation to pay the ‘notified sum’ should not be entitled to rely upon a later true value decision by way of set-off or counterclaim in order to resist the enforcement of his immediate obligation since that would enable a defendant who has failed to implement the payment or pay less notice provisions to string the claimant along while he goes about getting the true value adjudication decision.
  3. Accordingly, an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a payment or pay less notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication. That applies equally to interim and final applications for payment.
  4. The court will not always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation to pay the ‘notified sum’.
Conclusion
The Court of Appeal’s decision in Grove seemed clear and unequivocal in stating that the employer, in failing to issue the required notices on time, must make payment before commencing the ‘true value’ adjudication. While it may appear that Grove was applied in Davenport, on closer analysis it is apparent that Mr Justice Stuart-Smith has taken a wider view than that of Sir Rupert Jackson in concluding that the employer must pay first before relying on a subsequent ‘true value’ adjudication.
Following Grove, we asked whether commencing a ‘true value’ adjudication before paying the ‘notified sum’ gave rise to a new species of jurisdictional challenges. The answer from Davenport is ‘maybe’. It appears that, while the adjudicator’s jurisdiction is open to challenge in this way, the ‘true value’ adjudicator does not necessarily lack jurisdiction. Indeed, Mr Justice Stuart-Smith comments seem to suggest that there would be circumstances in which an employer could commence a ‘true value’ adjudication before paying the ‘notified sum’ pursuant to the ‘smash and grab’ adjudication. Mr Justice Stuart-Smith thought that it would be “positively unhelpful” for him to suggest any examples on when this would be the case.
So are ‘smash and grab’ adjudications still effective? Yes they are, however, following Davenport, there appear to be circumstances in which a paying party could immediately commence a ‘true value’ adjudication without first paying the ‘smash and grab’ sum and, in doing so, deprive the ‘smasher and grabber’ of any windfall payment. Once the decision as to the true value has been made, the paying party can then make payment in accordance with the ‘smash and grab’ adjudication before immediately recovering the overpayment. We will have to await yet another decision from the courts to find out what those circumstances are.
Despite the twists and turns as to the interplay between ‘smash and grab’ and ‘true value’ adjudications, the moral of the story remains the same for the paying party: ensure all payment notices or pay less notices are valid and issued at the right time and avoid this issue altogether.
Case: M Davenport Builders Limited v Mr Colin Greer, Mrs Julia Greer
Reference: [2019] EWHC 318 (TCC)

This article and/or any information contained herein is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking, or refraining from, any action as a result of the contents of this article.

20/05

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