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Court of Appeal confirms the death of knell of smash and grab adjudications

Earlier this year, I reported on the significant judgment of Grove Developments Limited v. S&T (UK) Limited where Mr Justice Coulson had left a significant legacy in the Technology & Construction Court (TCC) before his elevation to the Court of Appeal.  His judgment confirmed that a party does have the right to adjudicate on the “true” value of an interim application where there is either no payment or payless notice, or the relevant notice is deficient in some way.

In doing so, Coulson J (as he then was) considered that the decisions in ISG v. Seevic and Galliford Try v. Estura, which paved the way for “smash and grab” adjudications, were in fact wrongly decided.

On the 7 November 2018 the Court of Appeal upheld a first instance decision considering the reasons why Grove was entitled to bring a separate adjudication to determine the correct value of the relevant interim application, even if there was no valid payless notice. Those six reasons were:

  1. Henry Boot is authority for the proposition that the Court can determine the true value of any certificate, notice or application. That included a power to open up and revise the sum notified in an interim application. The Adjudicator has the same powers as the Court.
  2. The wide powers of an Adjudicator under section 108(1) of the Housing Grants Construction and Regeneration Act 1996 (as amended) and paragraph 20 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) meant that there was no limit on the nature of disputes which either party could refer to adjudication.
  3. The Adjudicator ordered payment of just over £14 million on the ground that there was no timely payless notice. Therefore, there had not yet been any adjudication about the true value of the relevant interim application.
  4. The “sum due” under the relevant contract is different from the “sum stated as due” identified elsewhere in that contract and the mechanism of the contract is designed to achieve payment of the true sum which is due under the contract.
  5. If the contractor objects to the employer’s payment notice or payless notice it can start an adjudication to ascertain the correct figure even though the Act does not say this expressly. As a matter of fairness and balance the employer should have the similar right to adjudication if he considers that the sum notified by the contractor is too high.
  6. There is no justification in treating interim and final certificates differently.

In reaching its conclusion the Court of Appeal confirmed that the adjudication provisions in the Act are subordinate to the payment provisions and therefore payment must be made in accordance with the notified sum dispute before a true value dispute can be adjudicated.

Therefore it is quite clear that despite Section 108 of the Act providing that a party has the right to refer a dispute to adjudication “at any time” the Court of Appeal has found that there is a fetter on this right, namely that where an employer has not paid the Notified Sum in accordance with Section 111 of the Act that employer is unable to refer a dispute concerning the true value of the Notified Sum until it has paid the sum awarded in the earlier adjudication.

The lessons to be learned from this decision are clear: where an employer does not agree with the Notified Sum in an application for payment it should serve timely payment and payless notices. This avoids a situation whereby an adjudication on the absence of such notices would give rise to a right to payment of the sum applied for – and only after that payment can the employer adjudicate on the true value of the relevant sum.For further help and guidance, please get in touch with Martin Collingwood on 01482 325242 or via email martin.collingwood@andrewjackson.co.uk

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