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Has time been called on 'smash & grab' adjudications?

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Posted on 03 July 2018

Until recently, the Technology and Construction Court had made clear, in judgments such as ISG v Seevic  and Galliford Try Building Limited v Estura Limited, that where there has been a “smash and grab” type adjudication in respect of an interim application for payment, there cannot be a subsequent adjudication to determine the merits of that payment application.

The phrase “smash and grab” has been used by the courts to refer to adjudications which concern a claim for payment on the basis that there has been no valid pay less notice against either a payment notice or a default payment notice (usually the latter), and therefore the sum in that notice/application is due by default, regardless of the merits.

Smash & grab: powerful weapon to obtain payment

Such adjudications were, therefore, a very powerful weapon in the armoury of contractors and sub-contractors.  They provided a relatively inexpensive way to obtain payment of the full amount of a payment application in a “smash and grab” type scenario.  The employer/contractor had to wait until the next interim application to seek to, in effect, reverse the position. 

But earlier this year, Mr Justice Coulson in the Technology and Construction Court issued his judgment in Grove Developments Limited v S&T (UK) Limited[1].  The significance of this Decision, other than of course its content which is addressed below, is that Mr Coulson now sits in the Court of Appeal.  This gives his Decision added “weight” when it is considered by both parties and the Courts.

Approach in ISG v Seevic and Galliford wrong

In the Grove case, Mr Justice Coulson held that the approach taken in ISG v Seevic and the Galliford Try cases above was wrong.  In those two cases, the Court had taken the view that the failure to serve a pay less notice in time, or with the proper content, meant that the employer had either agreed, or was “deemed” to have agreed, that the amount applied for was the “true” value of the interim application. Therefore it was not possible to have a subsequent adjudication on the merits of that payment application. 

Mr Justice Coulson held that that approach was wrong.  He gave six reasons for taking that view, the details of which are beyond the scope of this short article. But in essence, he took the view that a dispute over the valuation of a payment application (in other words, on the merits of the application), was different to a dispute simply concerning the sums stated in the particular notice, where no such valuation exercise was involved.  The latter is the smash and grab scenario.  He took the view that the above concept of “deemed agreement” was not in accordance with the Construction Act.  In reaching these views, Coulson J took into account the various authorities from the Court of Appeal. 

Payment and pay less notices should be treated the same

A further matter arising from the Grove judgment was the finding that payment and pay less notices should both be interpreted in the same way. Previously it had been suggested that they should be treated differently. As a result, both types of notices should make clear what the document is, and set out clearly the sum due (and paid less where applicable) and the basis on which that sum has been calculated.  It would be a matter of fact and degree as to whether, in any particular case, a document is a valid payment/pay less notice.

Employers can now cross adjudicate

This is an important judgment.  By reference to the title of this article, it does not however mean that there can no longer be smash and grab adjudications.  Parties have the same right and ability to pursue smash and grab claims as before the judgment.  But what has changed is that, in response to a smash and grab adjudication, the employer/contractor can now cross-adjudicate, whether at the same time or after the first decision, for a decision as to the merits of the interim application in question. This could have the effect of potentially reversing the earlier smash and grab decision.

Smash & grab adjudications weakened

This judgment therefore significantly weakens the potency of a smash and grab adjudication, both in the context of negotiations over payment and when deployed in an adjudication.  Nevertheless, we expect to continue to see smash and grab adjudications being used to obtain payment, though it is likely to be with less frequency than previously. In addition, particularly where significant sums are involved, such adjudications are likely to be followed by a cross adjudication on the merits of the payment application in question, in an attempt to reclaim monies awarded in the smash and grab adjudication.

[i] [2018] EWHC 123 (TCC).

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