Notice requirements

Until recently, courts had been ruling that the paying party could not bring an adjudication for true value

Author:

Charles Blamire-Brown
David Greenwood

31 May 2019

Building surveying

Legal

Q: I am the main contractor on a large infrastructure project, and we subcontracted the work to a small firm. Towards the end of the project, this subcontractor issued an interim payment application that suddenly included an extra £3m, vastly overvaluing its works. I didnt send any payment notice or pay-less notice, but simply paid a fair amount at the end of the month omitting the £3m.

The subcontractor is threatening to adjudicate for the full sum it sought. If we have to pay its inflated figure, there wont be sufficient time left on the project to recover the £3m by deducting it from subsequent interim payments. Can I start an adjudication for a decision on the true value of the subcontractor's works and simply pay that sum?

A: This is a useful reminder that the paying party should always adhere to contractual notice requirements. The action threatened by the subcontractor is colloquially known as a smash-and-grab adjudication.

Until recently, the courts had been ruling that the sum applied for would be payable in these circumstances, and that the paying party could not then bring an adjudication for the true value of those works. Last November, the Court of Appeal confirmed in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448 that a paying party that has failed to serve both a payment notice and a pay-less notice is still entitled to commence an adjudication to have the true value of the application assessed and to reclaim any overpaid sum.

The judge gave six reasons for this decision as follows.

The first two centred on the fact that the courts and adjudicators have the power to open up, review and revise any sums shown as due in interim applications.
The third and fourth centred on the judge's finding that disputes on the notified sum are distinct from those on the true value of the works, so a decision on the former did not preclude an adjudication on the latter.
The fifth reason was fairness: the contractor can challenge the value of the notified sum when seeking payment of a higher amount, so it is only fair the employer can do likewise to reduce the notified sum.
In the sixth reason, the judge drew a comparison with the position at the final account stage, when a true-value adjudication is allowed, suggesting interim payments should be treated in a similar way.

In Grove, the Court of Appeal also considered the question of timing. The judge found a true-value adjudication could not start until after payment had been made, and that the mandatory payment provisions in the Housing Grants Construction and Regeneration Act 1996 (as amended) must take priority over the statutory right to adjudicate: thus the paying party must pay first and adjudicate later. This position was followed in February 2019 in M Davenport Builders Ltd v Greer and another [2019] EWHC 318 (TCC).

It remains unclear whether a party can adjudicate for the true value if it commences this process either before the smash-and-grab adjudication, or after but before a decision on the notified sum. How a party seeking to run a smash-and-grab adjudication would stop the true-value adjudication if the paying party started one also needs clarifying – would it have to challenge the adjudicator's jurisdiction or seek a court injunction?

Applying the judgments in Grove and Davenport, the main contractor may be best served by:

starting an adjudication for the true value before the subcontractor starts its smash-and-grab adjudication, to convince the adjudicator of its jurisdiction regardless of the dispute on the notified sum
seeking an expedited timetable so the notified-sum adjudication, if commenced subsequently, is not decided before the true-value adjudication.

Charles Blamire-Brown is partner and David Greenwood senior associate at Pinsent Masons charles.blamire-brown@pinsentmasons.com david.greenwood@pinsentmasons.com

Related competencies include: Contract practice