The End of ‘Smash and Grab’ Adjudications

Introduction

In the recent case of Grove Developments Ltd v S&T(UK) Ltd. [2018 EWHC 123 (TCC), Coulson J, giving one of his last judgements before departing the Technology and Construction Court (TCC) for the Court of Appeal, has effectively overturned ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) and the cases that followed it.

This will bring to an end the era of ‘smash and grab’ adjudications, much to the relief of employers and contract administrators (and their insurers).  Contractors can take some solace from the fact that they will no longer be the victims of ‘smash and grab’ adjudications brought by sub-contractors.

Background to the case

S&T was the main contractor employed by Grove Developments to construct a new Premier Inn Hotel and Terminal 4, Heathrow Airport.  The contract was in the form of the JCT Design and Build Contract 2011.

Shortly before practical completion was certified S&T submitted an application for payment for £14,009,906.  Grove Developments served a payment notice stating that the sum due was £1, 407,748; but the notice was not served in time.  Grove Developments then served a pay less notice in time, which was cross referred to the £1,407,748 stated as due in the late payment notice, and then deducted from this sum liquidated damages of £2,506,857.

S&T argued that the pay less notice was invalid, because the basis on which the sum due had been calculated was not specified in the notice itself.  Instead the notice simply stated that the basis on which the £1,407,748 had been calculated was set out in the earlier payment notice.

S&T referred its claim to adjudication, and the Adjudicator, Philip Eyre, decided that the pay less notice was indeed invalid, and he ordered Grove to pay S&T £14,009,906.  Grove commenced Part 8 proceedings to have this issue reviewed bny the TCC, seeking a declaration that the pay less notice was valid.

As part of these proceedings Grove also sought a declaration as to whether in the event that the pay less notice was invalid, it could commence an adjudication to establish the sum actually due and payable to S&T.  In ISG, it had been decided that an employer could not do this: it was Edwards-Stuart J’s view that the amount applied for by the contractor was deemed to be the value of the work, in the absence of a valid payment notice or pay less notice; if the employer failed to serv a valid payment or pay less notice, it must be taken to have agreed the valuation contained in the contractor’s application; and this could not be the subject of a second adjudication.

Judgement

Coulson J decided, firstly, that Grove Developments’ pay less notice was valid, since “there can be no possible objection in principle to a notice referring to a detailed calculation set out in another, clearly identified document”, as “that is how these things are commonly done”.

In relation to the ISG Construction Ltd v Seevic College point, Coulson J came to a different conclusion to Edwards-Stuart J in that case, deciding that Grove could have commenced a second adjudication to establish the true value of the interim payment due to S&T.  Coulson J gave the following reasons for his decision:

• it is well established that a court can “open up” and decide the true value of a certificate notice or application; and if the court has this power, so should an Adjudicator.  In fact, paragraph 20(a) of the Scheme expressly states that an Adjudicator can do this;
•  a second adjudication to determine the true value of the payment due, is a different dispute to whether a valid payment or pay less notice has been served.  The language used in the contract, where this is a distinction between “the sum due” and “the sum stated as due”, supports this view;
• since a contractor can commence an adjudication to challenge a payment or pay less notice to establish the true value of the payment due, it would be wrong to prohibit an employer from being able to do this; and
• there is no justification for treating interim and final payments differently (ISG only applie to interim payments).

In respect of ISG, Coulson J said that Edwards-Stuart J’s reasoning that in the absence of serving a payment or pay less notice, the employer has agreed or should be deemed to have agreed that the sum applied for is due, was “not only unjustified, but it is also an unnecessary complication”.

Effect of Judgement

The judgement effectively turns back the clock to prior to Edwards-Stuart J’s 2014 judgement in ISG Construction Ltd v Seevic College.  A contracto can still commence a ‘smash and grab’ adjudication, but an employer can now counter this by commencing an adjudication to establish the true value of the payment due to the contractor, which will negate the decision in the ‘smash and grab’ adjudication (to the extent that the contractor’s valuation is overstated).

Although Coulson J’s and Edward-Stuart J’s judgements are of equal status, Coulson J is much more likely to be followed in future, his analysis is compelling, and also consistent with decisions of higher courts.