What next for 'smash and grab' adjudications?

At the end of 2018 the Court of Appeal handed down the hotly anticipated decision in the case of S&T (UK) Limited v Grove Developments Limited which seemed to answer a number of unresolved questions.

The Technology and Construction Court has now given the first decision applying Grove and the twists and turns in the use of “smash and grab” adjudications continue.

In M Davenport Builders Ltd v Greer [2019] Mr Justice Stuart-Smith addressed the question of whether a defendant, who had obtained a “true value” adjudication decision, could rely on it by way of set off or counterclaim to thwart the contractor’s earlier “smash and grab” adjudicator’s decision. 

The facts

The claimant carried out construction work for the defendants. There were no provisions in the contract for adjudication or the amount or date of payments and so the provisions of the Scheme for Construction Contracts applied.

In June 2018 Davenport made a final application for payment in the sum of £106,160.84. The Greers failed to serve a payment or pay less notice. Davenport therefore issued a payee’s notice in default.  Again the Greers failed to issue a pay less notice and also did not pay the sum demanded by the final date for payment, or at any point thereafter.

Davenport commenced a “smash and grab” adjudication based on the failure of the Greers to serve the requisite notices and was awarded the sum demanded in its final account.

Six days after the first adjudicator’s decision, the Greers started a second adjudication seeking a valuation of the final account. Although the adjudicator expressed doubts about his jurisdiction he gave his decision finding that no sum was payable by the Greers to Davenport.

Davenport sought summary judgment to enforce its decision and the Greers wished to rely on the second decision by way of set off or counterclaim.

Davenport argued that the Greers were not entitled to rely on the second adjudication because they did not pay the amount awarded by the first adjudicator before commencing the second adjudication. The Greers argued that they were not obliged to pay the first decision before obtaining the second. These were the central issues that the court had to decide.

The decision 

It was common ground that a party on the wrong end of a “smash and grab” decision for failing to serve the relevant payment or pay less notice can commence a “true value” adjudication if they have made the payment required by the first decision. The question in this case was whether that party could commence and/or rely on the true value adjudication before they had made the payment required by the first adjudication.

Stuart-Smith J reviewed the Court of Appeal decisions in both Harding v Paice and Grove and then handed down a decision which seems yet again to have muddied the waters on this topic.

He found that:

“an employer who is subject to an immediate obligation to discharge the order of an adjudicator based up on the failure of the employer to serve either a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication.” [our emphasis]

As the Greers had not paid the first adjudication, he found that they were not entitled to rely on the subsequent decision. Davenport was therefore awarded summary judgment to enforce their decision.

Where the future uncertainty arises is in the judge’s subsequent comments. He recognised that Grove was clear and unequivocal in saying that an employer had to make payment before it can commence a true value adjudication. He went on to say:

“that does not mean that the Court will always restrain the commencement or progress of a true valuation commenced before the employer has discharged his immediate obligation…It is not necessary for me to decide whether or in what circumstances the Court may restrain the subsequent true value adjudication and, in these circumstances, it would be positively unhelpful for me to suggest examples or criteria and I do not do so.”

Commentary

We are therefore left with yet another uncertain position over the circumstances in which a true value adjudication can be started before payment of a previous “smash and grab” decision. Without this clarity we will have to await further court guidance on the circumstances in which the court will refuse to grant injunctive relief to prevent a true value adjudication from continuing before the earlier decision has been paid. The smash and grab saga therefore continues.