In one of the most hotly anticipated decisions for the construction sector this year, the Court of Appeal has now handed down its decision in the case of S&T (UK) Limited v Grove Developments Limited. The key issue to be considered was whether an employer, who had failed to serve a payment or pay less notice, was entitled to pursue a claim in adjudication to determine the correct value of works as at the date of the interim application.
At first instance Mr Justice Coulson had found that the previous case law on this point had been incorrectly decided. He concluded that in these circumstances an employer was entitled to start an adjudication as to the true value of the works.
Just over 6 months later the Court of Appeal has grappled with this issue again. Sir Rupert Jackson described the task as trying to “hack out a pathway through a dense thicket of amended legislation, burgeoning case law and ever-changing standard form contracts.” Sir Rupert Jackson agreed with the judge that in these circumstances the employer had to make payment of the amount set out in the interim application but was then free to commence a “true value” adjudication. Responding to the suggestion that an employer may be prejudiced in this situation if a contractor is veering towards insolvency, he emphasised that a scrupulous employer should protect itself by serving payment or pay less notices on time.
So where does this leave us?
We can still have smash and grab adjudications but they are likely to be swiftly followed by another adjudication to work out what the correct interim valuation should have been. There has been much commentary that the need to pay the disputed interim valuation first is contrary to the right under the Construction Act to refer a dispute to adjudication at any time. It remains to be seen whether further case law elaborates on this point or if there is a further appeal to the Supreme Court.
In the meantime, the Court of Appeal has affirmed Coulson J’s potential escape route for employers that wasn’t available under the previous case law – the contractor can smash and grab but the employer can then grab back if the contractor’s valuation is wrong. However, this is still a situation best avoided. Making sure that payment provisions are followed carefully and the relevant notices served on time is still the best way forward.
To find out more about how this change in decision could impact upon your business please contact Rowan Turrall at [email protected].
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