"Smash and grab" adjudications and the right to adjudicate the "true value" - a significant change in approach by the TCC

Business-friendly Court reforms

Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC)

In what is likely to be his last substantial judgment in the Technology and Construction Court (TCC) before his elevation to the Court of Appeal,  Coulson J handed down a decision yesterday (27 February 2018) which will have wide reaching implications for payment disputes in the construction industry. 

One of the questions before him in Grove Developments Limited v S&T (UK) Limited was whether an employer has the right to adjudicate the “true” value of an interim application, in circumstances where their payment notice and/or payless notice is deficient or non-existent.  In reaching a decision that the employer does have the right, Coulson J considered the application of first principles and relevant authorities and significantly declined to follow what he describes as the “different line” that Edwards-Stuart J took in ISG v Seevic and Galliford Try.

The judgment specifically addresses the “doomsday scenario” which Edwards-Stuart J considered in ISG v Seevic, namely that such a finding would destroy the policy underlying the Construction Act as it undermines the payment notice regime.  This was argued by the contractor, S&T, but not accepted by Coulson J on the basis that one of the underlying purposes of the Act was to ensure that the contractor was entitled to maintain proper cash flow, but that it was not one of the policies that the “the contractor was entitled to hang on for lengthy periods to sums to which, on a proper analysis, he was not entitled”[paragraph 138].   Further, he concluded that a contractor would not be prejudiced in respect of cash flow, as he would be recovering the full amount claimed in the interim application and that amount would have to be paid by the employer.  However, he was clearly of the view that cash flow must not be confused with the contractor retaining monies to which he has no right [paragraphs 136-138].

In practice, the effect of the decision is that following payment of the award in the first adjudication, arising from a failure to serve a valid notice, the losing party could immediately seek to “reverse” the decision in a subsequent adjudication, by asking an adjudicator to properly value the sums due. 

As the judgment itself states, this decision appears to signal the end of so called “smash and grab” adjudications, however Coulson J expresses his view that these have brought adjudication into a certain amount of disrepute.  The rationale is to address what Coulson J also describes as another “doomsday scenario” which is that prior to this decision, a party may have to wait months or even years to correct an over payment because of an absent or defective notice before there is a determination of the “true” value of an application in a final account and he concludes that this is a powerful reason for departing from ISG and Galliford Try.      

S&T have been granted permission to appeal.

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