"Smash and grab" adjudications - are they effective for a final account?
The default payment provisions in the Construction Act have made so-called 'smash and grab' adjudications common place. Rather than having to prove the merits of his application for payment, all a contractor needs to demonstrate to an adjudicator is that he made an application and that no payment notice and/or pay less notice was served on time.
Attempts to avoid the effects of the Act, by immediately commencing a further adjudication on the 'true value' of a contractor's application, were given short shrift by courts last year in ISG v Seevic. However, the Court of Appeal, in the recent case of Harding v Paice, has cast doubt on this decision in respect of final accounts.
Mr Harding (the contractor), served a final account following termination, seeking payment of almost £400,000. The employers failed to serve a pay less notice in time and in the subsequent adjudication were ordered to pay the sum applied for by Harding. The employers commenced a further adjudication to determine the merits of the final account. Mr Harding sought an injunction to prevent this adjudication which was refused by the High Court. Mr Harding appealed, arguing that the dispute had already been decided and the adjudicator therefore lacked jurisdiction.
The Court of Appeal, seemingly at odds with the decision in ISG v Seevic, refused the appeal. It drew a distinction between interim applications (the subject of the decision in ISG), where an employer can correct any overpayment in the next interim payment, and final accounts, where it cannot.
This decision means that a later adjudicator cannot reverse a smash and grab decision on the same interim certificate but he could reverse such a decision on the merits for a final account.
The potential fairness of this distinction is clear. For interim applications, there is generally another opportunity shortly after any given interim certificate to re-value the works based on a new interim application. However, there is no such opportunity for a final account. This decision therefore prevents contractors potentially obtaining financial windfalls due to administrative errors; with the employer's only route to recover being litigation or arbitration.
Although a fair distinction on the facts, there is no such distinction in the Act between interim applications and final accounts. It is therefore a potentially surprising decision.
One point that is clear is the importance of serving a pay less notice in time; something that cannot be over-emphasised.
News & Insights
London developers embrace the benefits of building up
Our second Building Up event looked at how new techniques and developments in the construction of tall buildings.
Practical Completion – Matter of Fact or what the Contract says?
Practical completion has a number of important consequences under construction contracts. We provide an overview.