Because I say so - the near death of the smash and grab adjudication

Picture the scene; you’re facing off against your seven-year-old child, a pile of broccoli florets between you. Your child hasn’t eaten anything other than beige-coloured food in three days and you’re desperate for them to eat at least one of their five-a-day sometime in the next 24 hours.

In such circumstances, and in the absence of Mary Poppins-esque powers, you may be forced to resort to either of these stock lines —

  • If you don’t eat it now, it’s straight to bed and you’ll have the broccoli for your breakfast, or
  • I’m not going to force you to eat it, but if you don’t eat it you don’t get any pudding

The chances are, neither approach is going to produce a child that regularly eats vegetables, fuss-free.

In my experience though, the second approach will usually result in minimal vegetable consumption that once, with Brussels sprouts a possible — and entirely reasonable — exception.

But what if, when threatened with the no pudding scenario, your child asks “Why do I have to eat my vegetables before I can get pudding?”

If the giving of pudding is appropriate at all, why should it be contingent on anything else happening first?

Broccoli and smash and grab — the link

The £26million contract for the construction of a new hotel at Heathrow may well seem a million miles away from the evidence of my lack of parenting skills, but there is a link.

In the case of S&T (UK) Ltd v Grove Developments Ltd, Grove appointed S&T as a contractor under the 2011 JCT Design & Build Contract.

Towards the end of the project, S&T submitted an application for payment of £14,009,906. Grove took the view no sums were due at all and issued correspondence purporting to meet the various notification requirements under the contract, including the obligation to issue a pay less notice. S&T disagreed, and a smash & grab adjudication was raised.

For those who don’t know, a smash and grab adjudication is one where a payee raises an adjudication for immediate payment relying solely on the Construction Act’s notice requirements. In these cases, the true value of the works doesn’t need to be considered.

The resulting case has made it to the English Court of Appeal.

The court held Grove had complied with the requisite notice obligations and that a valid pay less notice had been issued.

The court also, however, answered the now theoretical question of, if there hadn’t been a pay less notice, could Grove immediately raise an adjudication to decide the “true” value of what was due to S&T. That, of course, would largely thwart the impact of the smash and grab adjudication.

The court held, yes, if there had been no pay less notice, Grove could raise an adjudication and didn’t need to wait until the final account stage. The firm would, however, need to pay what was due, absent the pay less notice, first.

In short, Grove could get pudding, but had to eat its broccoli first.

Express wording

The first half of the Court of Appeal’s logic on the hypothetical question is fairly easy to follow: the Construction Act payment regime was simply about ensuring prompt payment.

It wasn’t about ensuring for all time that a contractor got paid the sum they have demanded when it wasn’t properly due.

The right of Grove to seek an adjudication on the “true” value of the account, therefore fits neatly within the express wording of the act.

Where things get a little more complicated is the second bit: where that second, “true valuation,” adjudication could only be raised after payment has been made. There certainly isn’t an express statutory basis for that.

The Court of Appeal justified its decision on the basis that requiring payment first was in keeping with the purpose of the Construction Act. Such justification is not illogical, but without an express term in the act to support it, it’s open to argument.

As a parenting aside, such justification is, I suppose, better than simply shouting “because I said so!!!”

Those who would prefer to see an employer’s hands tied until final account could well argue that the purpose of the Construction Act could equally be interpreted as meaning the payer has to pay the notified sum (or the sum to be deemed as such) so all parties know exactly where they stand at all times. There’s some logic in that argument too.

Given the amount involved and the fact the express statutory terms are silent on this particular question, I suspect this one will almost certainly end up in the Supreme Court.

For those lamenting (or celebrating) the death throes of smash and grab adjudication — where the paying party fails to serve a valid pay less notice in time and the contractor is entitled to the full amount set out in its application, even if it doesn’t reflect the true value of the works — dinner may not be over yet.

Both the broccoli and the pudding may need to be kept on a low heat for now.

Roddy Cormack

Inverness-based senior associate Roddy is a Law Society of Scotland-accredited construction law specialist. He regularly advises clients on a range of construction and procurement issues.

Posted, 03 December 2018 by Roddy Cormack
Categories: Construction

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