Adjudications: smashed but not grabbed

The first reported case to apply the principles of last November’s landmark case, S&T (UK) Ltd vs Grove Developments Ltd, on so-called “smash-and-grab” adjudications – where full payment of all payment notices is sought on the grounds that an employer failed to issue a valid payment or pay less notice – seems to have confirmed fears over its practical application.

In M Davenport Builders Ltd vs Greer & Another, the parties had entered into a contract for construction operations to be carried out at a building in Stockport. The contract made no reference to adjudication or the amount or date of payments, which meant the relevant provisions of the Scheme for Construction Contracts, and so the Construction Act applied. 

Davenport made its final account application for £106,160.84 on 22 June 2018 and Mr and Mrs Greer failed to issue a payment or pay less notice. Davenport referred the matter to adjudication, whereupon Mr Sutcliffe, the adjudicator, awarded Davenport the full sum claimed in its application because the Greers had failed to issue either a payment or pay less notice. 

This ruling seems to be tempering the judgment in S&T while potentially creating new problems

Six days after the decision, and without making payment, the Greers started a true-value adjudication. This second adjudicator, Mr Sliwinski, while expressing doubt over whether he had jurisdiction, held that on his assessment of the final account no payment should be made by the Greers to Davenport.

Davenport sought to enforce Mr Sutcliffe’s award and in turn the Greers tried to enforce the Sliwinkski decision. Judge Stuart Smith held that the Greers were obliged to pay the sum awarded by Mr Sutcliffe in full, despite the result of the second adjudication. The reason was that, as a result of the first adjudication, there was an immediate payment obligation that had to be met before the second adjudication could be relied on. 

Conflict with S&T?

However, there is an apparent conflict here with the judgment in S&T, which made plain that the payment obligation had to be met before the second adjudication could be commenced – so this should have deprived Mr Sliwinski of jurisdiction, rather than meaning his decision was on pause until payment was made. 

The justification from Judge Stuart Smith was that the Court of Appeal in S&T was proceeding on factual inaccuracy when relying on the appeal court judgment in Harding vs Paice, in that it wrongly found Paice had made payment before seeking the correct valuation of the final account, and that the policy-based approach directs that it is a matter of whether a party can rely on the adjudicator’s decision, not necessarily whether that adjudication can be commenced. 

In Davenport, the fact that the Sliwinksi decision was on pause and could not be relied on immediately meant that the question of whether the court would restrain value adjudications did not need to be addressed. However, the very point of whether parties can be restrained and made to comply with the Court of Appeal judgment in S&T must be key to these kinds of disputes. 

The concern raised before on these pages (16 November 2018) after the S&T decision was that parties might habitually become embroiled in smash- and-grab adjudications – seeking full payment on the grounds that an employer failed to issue a valid payment or pay less notice – and subsequently also in true-value adjudications. This was because the judgment in S&T seemed to mean that employers would have to pay the sum awarded first then commence a true-value adjudication to try to recoup their money. 

Following the S&T judgment, there was also much speculation on the apparent finding that there was a hierarchy of the provisions of the Construction Act such that the payment obligations trumped the right to adjudicate at any time, and on where that hierarchy actually arises from. It was debated whether employers, as in the Davenport case, faced with a smash-and-grab decision against them, would just counter-adjudicate on value without paying first and whether the courts would restrain those second adjudications until payment of the notified sum was made. 

It was believed that the obvious argument open to the contractor would be to dispute the jurisdiction of the adjudicator in the true-value adjudication as soon as it was commenced and to make an application to court seeking to restrain the adjudication on the basis that S&T had not been followed. However, following Davenport this may not necessarily be an option. 

Further, the immediate problem of applying S&T in this way is that it seems to be tempering the judgment of the Court of Appeal but, with that, potentially creating new problems. For example, employers now appear to be able to commence true-value adjudications before paying the notified sum, but not rely on them to set off against a smash-and-grab adjudication. This results in an unattractive commercial position of employers being compelled to pay sums that the parties and the court know are not actually due. 

Theresa Mohammed is a partner in Trowers & Hamlins