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09 April 2018

Smash, grab but then return

It had been well understood that a party who failed to issue a valid payment notice or pay less notice was required to pay the amount applied for and could only rectify that situation in the next application or the final account.  The paying party could not seek to recover any overpayment on the basis of the “true” valuation of that application.  That is until the recent decision in Grove Developments v S&T.

Facts

Grove engaged S&T to design and build a new hotel at Heathrow.  A payment dispute arose and an adjudicator decided that Grove was required to pay S&T £14m because its purported payless notice (which stated that no sum was due) was invalid.

Grove sought a number of declarations from the Court, including that it was entitled to challenge the “true” value of S&T’s interim application via a further adjudication.

In contrast to previous authorities, the Court granted this declaration.  Amongst the reasons given by the Court was that:

  • The Court has an inherent power to open up, review and revise any existing certificates and, if the Court had the power to do something, then so too did an adjudicator.
  • There should be no distinction in principle between interim and final payments (where it has been previously accepted that a further adjudication could be launched on the “true” value).

Comment

The Construction Act was intended to limit the risk of contractors and sub-contractors having their cash flow illegitimately cut off.  However, ‘smash and grab’ adjudications have been criticised as little more than taking advantage of a procedural failure.

The Court’s view was its finding should not prejudice contractors or sub-contractors as, in the absence of a valid payment or pay less notice, they would remain entitled to payment of the full amount for which they applied.  The Court sought to emphasise that any further adjudications on the “true” value would be dealt with in strict sequence.

It will therefore be interesting to see how the Court approaches a paying party who refuses to comply with the first adjudicator’s decision without justification but, by the time the enforcement application comes before the Court, has obtained its own adjudicator’s decision on the “true” value of the application.  Notwithstanding the Court’s unwillingness to allow the second adjudication to “act as some sort of Trojan Horse to avoid paying the sum stated as due”, it seems unlikely that the Court would not set-off the two adjudicator’s decisions against each other in such circumstances.

Any ‘smash and grab’ adjudication is therefore now likely to face an immediate (and more expensive) cross-adjudication on the “true” value.  


This article was written by Kyle Sethi. For more information please get in touch via  kyle.sethi@crsblaw.com or +44 (0)20 7438 2240.


This article first appeared in Construction News.

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