In his last Technology and Construction Court ("TCC") decision, Coulson J has left a lasting impression on the practice of Adjudications and construction payment disputes.

Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) ("Grove") is the latest development in a string of cases that have been before the TCC relating to so called "smash and grab" adjudications. A "smash and grab" adjudication is an adjudication where payment is sought on the basis of the purely technical point that the Employer has failed to serve a valid pay less notice. The cases which preceded Grove suggested an Employer is not permitted to start its own adjudication concerning the "true" value of a payment application following a previous successful "smash and grab" adjudication, save where the application was the final application under the contract in question. You can find our article on the previous TCC decisions here.

This article, the first of a two part series relating to the Grove judgment, looks at Coulson J's judgment in relation to the "true" value dispute point. The second will consider the wider discussion points following Grove relating to the requirements for pay less notices.

Background

The case related to sums claimed by S&T for works carried out for Grove in relation to the design and build of a new Premier Inn Hotel at Heathrow, Terminal 4. Various disputes arose between the parties, the third of which related to sums claimed by S&T. S&T successfully established at Adjudication that Grove's purported pay less notice was invalid and as such, was awarded the full sum claimed of circa £14 million (Grove's purported Pay Less Notice considered the sum due to be £0.00). Grove failed to pay and commenced Part 8 Court proceedings seeking, inter alia, a declaration that Grove was entitled to commence a separate adjudication seeking a decision as to the "true" value of the interim application.

In a lengthy judgment regarding the "true" value issue, departing from previous cases on this point, Coulson J decided that the Employer does have the right to bring a second adjudication disputing that the sum awarded under a "smash and grab" adjudication was the "true" value. Coulson J's reasoning included the following:

  • The Court has an inherent power to determine the rights and obligations of the parties. If the court had the power to establish the true value of a payment application, so too did an Adjudicator.
  • The Housing Grants, Construction and Regeneration Act 1996 as amended (the "Construction Act") expressly grants the right to a party to a construction contract to refer a dispute to adjudication. There is no limitation on the nature, scope and extent of the dispute that can be referred. Indeed, the Scheme for Construction Contracts (England and Wales) Regulations 1998 as amended (the "Scheme"), expressly gives an adjudicator the ability to "open up, revise and review any decision taken or any certificate given by any person… unless the contract states that the decision or certificate is final and conclusive".
  • A dispute as to the "true" value is a different dispute to that which had been referred in the "smash and grab" adjudication. This particular justification seems to strike at the heart of the previous "smash and grab" cases. It had previously been held by Edwards-Stuart J that by failing to serve a valid pay less notice, the Employer is taken to have accepted that the value of the application is the sum stated in the Payment Notice. As such, any adjudication as to the "true" value of the application would not be a different dispute. Coulson J has held to the contrary. He did not consider there to be anything in the Construction Act, the Scheme or the words of the JCT contract that indicate there could be such a deemed agreement as suggested by Edwards-Stuart J. Further, in deciding a "smash and grab" adjudication, an adjudicator would not have considered any detailed matters of valuation, unlike an adjudicator deciding the true value. Coulson J did not consider the previous cases on this point to have been decided correctly and as such he advised that the cases of ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) and Galliford Try Building Ltd v Estura Ltd. Citation: [2015] EWHC 412 (TCC) should not be followed.
  • The JCT standard Design and Build contract states at clause 4.9 (which deals with the payment process) that the amount of the Interim Payment to be made by the Employer is the "sum stated as due" in the Payment Notice or, failing service of a valid Payment Notice, the Interim Application. If a pay less notice has been served the JCT contract states that the Interim Payment shall not be less than the amount "stated as due" in the pay less notice. This is to be contrasted with clause 4.7 which sets out the mechanism for calculating the correct "sum due", whereas clause 4.9 deals with the sum "stated as due". Coulson J considered this distinction in terminology results in the sum payable under clause 4.9 only being the sum stated as due, not the true value ascertained in accordance with clause 4.7. Coulson J explains, the sum "stated as due” in an application or notice will almost certainly be different to the sum carefully calculated under Clause 4.7.
  • The previous line of cases on "smash and grab" adjudications made an artificial distinction between interim and final payment applications. Coulson J did not consider there to be any basis for such a distinction. The contract treats the applications in the same way and so too should adjudicators and the Courts.

What does this mean now?

In light of the Grove judgment, it does seem the benefit of successful "smash and grab" adjudications may now only be of limited duration. Where there was a failure to serve the appropriate notices, a "smash and grab" adjudication will still lead to the Employer having to pay the sum stated as due in the application. However, now the Employer can start its own adjudication on the "true" value attempting to recover an alleged overpayment without having to wait until the next payment cycle.

Whether Employers will go to the expense of a second adjudication remains to be seen, however, given the raft of cases this topic has produced in recent years, it appears likely that more adjudications may now result.