Discussing the term 'smash and grab' adjudication

In the recent decision of M Davenport Builders Ltd v Greer & Anor [2019] EWHC 318 the Technology and Construction Court considered yet another case concerning ‘smash and grab´ adjudications.

The term “smash and grab” adjudication, as it has been coined by the industry, refers to an adjudication where a contractor argues that a valid payment or pay less notice has not been given either in time or at all against a payment application made by the contractor. This entitles the contractor to immediate payment of the sums due in its application without set-off or counterclaim and regardless of the true value of the works.

As set out in the earlier case of S&T (UK) Limited v Grove Developments [2018] EWCA Civ 2448 immediate payment is a fair solution, because it preserves the builder’s cash flow but does not prevent the client from raising a further adjudication to assess the true value of the works. However, in Grove the Court of Appeal made it clear that an employer may only adjudicate to recover an overpayment; once it has paid the money due under the first adjudication.

Background

In this case, a dispute arose over the contractor’s payment application for the final account which the contractor referred to adjudication. The contractor was successful in its adjudication as the employer had failed to issue either a payment notice or pay less notice to reduce the amount claimed in the contractor’s application. Six days after the decision of the first adjudication, the employer began adjudication proceedings of their own to decide the true value of the works, which found that no sum was owing to the contractor.

The contractor made an application to the court to enforce the first adjudication. The employer, however, argued that it was not under an obligation to make payment as the second adjudicator had decided that no sums were due.

Court Decision

The court held that there was an immediate obligation on the employer to pay the sums set out in the first adjudication.  The employer had not discharged this obligation and so it was unable to rely on the second adjudication to avoid payment. The judge also confirmed that this principle applied equally to interim applications for payment or final account.

While the court held that an employer could not rely on the second adjudication, the court failed to fully expand upon whether or not the second adjudicator had jurisdiction.  The Grove case established that the right to adjudicate on the true value of the application following a smash and grab adjudication only arose once the sums had been paid under that first adjudication. In the Davenport case, the court held that it was sufficient to hold that the employer was unable to rely on the second adjudication because it had not discharged its payment obligation under the earlier smash and grab adjudication.

Mr Justice Stuart-Smith went on to say that Grove is “clear and unequivocal in stating that the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended Act before it can commence a “true value” adjudication… That does not mean that the court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation…” However Mr Justice Stuart-Smith refused to provide any examples when the court may do so.

Comments

This case is the latest which reaffirms the court’s position that the employer can only adjudicate upon the proper valuation of an interim certificate following a smash and grab adjudication, if it has already paid the sums due under the earlier smash and grab.

This case mainly follows the principles set out in Grove and the mantra that cash flow is the lifeblood of the construction industry.  However, by refusing to address the jurisdiction of the second adjudicator and in not providing examples of when the court will restrain the commencement of a true value adjudication, this decision leaves more questions than answers in its wake.