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When can a ‘true value’ adjudication be commenced when a ‘smash and grab’ adjudication is already up

Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC) has answered that question; the ‘true value’ adjudicator will not have jurisdiction to decide that dispute if, at the time the adjudication was commenced, there was a ‘notified sum’ which had not been paid by the final date for payment.


Background


The parties entered into a subcontract based upon a JCT Standard Building Subcontract (the “Subcontract”), whereby the defendant was engaged as the subcontractor on the development of a hotel.


The defendant terminated the Subcontract, following which, on 15 November 2022, it submitted an application for payment. The claimant did not make payment and, on 15 December 2022, the defendant commenced a ‘smash and grab’ adjudication, in which the claimant argued that it had issued a valid pay less notice. While that adjudication was running, the claimant commenced on 18 January 2023 a ‘true value’ adjudication in which the claimant argued that the defendant had been overpaid and that money was due back to it.


The adjudicator deciding the ‘smash and grab’ dispute decided that the defendant was entitled to the full amount claimed. The adjudicator deciding the ‘true value’ dispute stayed the adjudication pending payment of the amount decided in the ‘smash and grab’ adjudication. Payment was made by the claimant to the defendant in accordance with the ‘smash and grab’ adjudicator’s decision, following which the ‘true value’ adjudicator decided that the defendant had been overpaid.


Technology and construction court proceedings


The parties’ respective positions


The matter proceeded to the Technology and Construction court (“TCC”) where the defendant argued that the ‘true value’ adjudicator did not have jurisdiction to decide the ‘true value’ dispute as the claimant had not paid the notified sum before it commenced that adjudication.


The claimant argued that, at the time the ‘true value’ adjudication was commenced, there was no “immediate payment obligation” as there was a “genuine dispute” as to the validity of the pay less notice. The claimant contended that the adjudicator deciding the ‘true value’ dispute did have jurisdiction at the time that adjudication was commenced since the immediate obligation to make payment only arose following the ‘smash and grab’ adjudicator’s decision finding that the pay less notice was invalid.


Decision of the TCC


Date upon which an “immediate payment obligation” arises


The court held that an “immediate payment obligation” was created by section 111(1) of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “1996 Act”) which requires the ‘notified sum’ to be paid by the final date for payment, whatever that may be.


The final date for payment was decided by the ‘smash and grab’ adjudicator as being 13 December 2022. The court, therefore, held that the claimant was not entitled to commence a ‘true value’ adjudication at any time after that date without first having paid the ‘notified sum’, thereby discharging its ‘immediate payment obligation’. That meant that the ‘true value’ adjudicator did not have jurisdiction.


The claimant’s contention that there was a genuine dispute


The court said that, albeit that the claimant’s submission was, at first sight, attractive, it could tip the balance unfairly towards the claimant and prejudice the defendant’s right to be paid. That would have the effect of undermining the purpose of the 1996 Act to improve cashflow in the construction industry. The claimant had the opportunity to protect its position by issuing a valid pay less notice if there was, in fact, a genuine dispute as to the true value of the works.


Conclusion


The court confirmed that there would be no ‘notified sum’ and, therefore, no ‘immediate payment obligation’ where a ‘smash and grab’ adjudicator had decided that there was a valid pay less notice in play or that the payment application was not valid. In those circumstances, the commencement of a ‘true value’ adjudication would not be rendered premature.


It follows that, while the court’s decision in Henry Construction v Alu-Fix would not have the effect of “closing the door” to parties commencing ‘true value’ adjudications prior to receiving an adjudicator’s decision concerning a ‘smash and grab’ dispute and relying upon the decision as to the true value of the works, such course of action should be discouraged where there is a lack of confidence in the defence to a claim for a ‘smash and grab’ payment. The simple point is that, if such lack of confidence existed, any ‘true value’ adjudication commenced prior to the outcome of the ‘smash and grab’ adjudication could result in an unenforceable decision as to the true value of the works, thereby rendering wasted costs and time for both parties.



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