Since the amendments to the Housing Grants, Construction and Regeneration Act 1996 in 2011 introduced the requirement for the employer to make payment, or serve a valid pay less notice, the "smash and grab" adjudication has become commonplace in the construction industry.
A further blow was dealt to employers in respect of the "smash and grab" adjudication following the judgement of Edwards-Stuart J in ISG v Seevic in 2014, where a failure to make payment or serve a valid pay less notice was deemed as an acceptance by the employer of the value of the interim application. A second adjudication on the "true value" of the interim application was, therefore, not permitted.
However, the recent judgement of Coulson J in the case of Grove Developments Limited v S&T (UK) Limited, clarifies the position to the contrary of the judgements in and following ISG, and specifically addresses the issue of whether an employer is entitled to commence a second adjudication where it failed to serve a valid pay less notice.
In his detailed judgement, Coulson J reviewed the ISG line of authorities and clearly expressed why they were incorrectly decided. Furthermore, he has given six reasons why the employer may commence a second adjudication to seek the "true value" of the sum due:
1. Referring to the judgement in Henry Boot Construction v Alstom Combined Cycles , Coulson J stated that it had always been open to the court to decide the true value of any certificate, notice or application and has the power to open up, review and revise any existing certificate, notice or application, as part of that process.
2. On interpretation of the Construction Act and the Scheme for Construction Contracts, there was no "limitation on the nature, scope and extent of the dispute which either side can refer to an adjudicator" and as such there is no limit or restriction on the power of an adjudicator to decide this issue.
3. A second adjudication to consider the "true value" of an interim application would be a wholly different dispute to the validity of a pay less notice referred to in the first adjudication as it would address questions of valuation.
4. The JCT contract uses two different forms of words: "the sum due" (Clause 4.7.2) in respect of the interim application, and the "sum stated to be due" (Clause 4.9) in respect of the payment/pay less notice. The "sum stated to be due" does not transform into the "sum due", although the employer would be obligated to make payment of the "sum stated to be due" and then commence an adjudication for the true value of the interim application.
5. A contractor can launch an adjudication in relation to the sum stated to be due at any time, it would therefore be wrong in principle to prohibit the employer from doing the same.
6. There is no justification for treating interim and final account applications differently; there is no such distinction in the JCT contract and no distinction in terms of payment rights.
The judgement represents a significant change in the Technology and Construction Court's approach and Coulson J's comments as quoted "will reduce the number of 'smash and grab' claims which in my view, have brought adjudication into a certain amount of disrepute".
Nonetheless, Coulson gave S&T leave to appeal the decision and so it is likely that the Court of Appeal will soon get to have its say on the issue and provide conclusive clarification as to whether the unforgiving consequences of the 'smash and grab' adjudication will be weakened further.
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