The end of smash and grab adjudication?

The recent case of Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) has potentially put a large hole in the practice of “smash and grab” adjudications, whereby the payee under a construction contract is able to obtain the entire amount of their application as a result of the paying party’s failure to issue payment or pay less notices, irrespective of whether the claim is “right or wrong”.

In what is likely to be Mr Justice Coulson’s final substantive judgment as a TCC judge he has reversed a line of authority set by cases including ISG Construction Limited v Seevic College [2015] 2 All ER Comm. 545 and Galliford Try Building Limited v Estura Limited [2015] BLR 321 which established the principal that the failure to serve a payment notice or pay less notice amounted to “deemed agreement” of the value stated in the application, therefore preventing the paying party from launching a counter adjudication to establish the “true value” of the account.

Mr Justice Coulson found six separate justifications for his conclusion that there is a “powerful reason” not to follow the authority in ISG v Seevic and Galliford Try v Estura, which can be broadly summarised as follows:

1. The court has the power to decide the “true value” of a certificate and an adjudicator should have the same wide powers as the court.
2. The Construction Act contains no limitation to the nature, scope and extent of the dispute which either side can refer to an adjudicator.
3. The dispute that the paying party would seek to refer in the second adjudication is a different dispute to that which was determined in the first.
4. The contract in question distinguished between the “sum due” and “the sum stated as due” and to prevent the payer from commencing adjudication to determine the “sum due” would be to ignore this careful drafting.
5. Considerations of “equality and fairness” mean that the payer and payee should not be subject to the “radical different treatment” or “one-way street” that the authorities had created.
6. There is nothing in the Act or the Scheme which distinguishes between interim and final payments, as ISG v Seevic sought to do.

Comment

This judgment is likely to be welcomed by paying parties who previously faced the prospect of having to wait until the final account to establish the “true value” of the account and recover sums paid on a “smash and grab” basis.

Critics may argue that that the judgment strikes at the heart of the Construction Act mantra of ensuring proper cash flow, however I do not believe that is the case. A payee will still be able to commence a “smash and grab” adjudication to obtain a quick (and relatively cheap) decision which the payer will have to comply with until the conclusion of any “true value” dispute, which will not always be capable of being commenced immediately, particularly where the account is complex or high in value.

Accordingly whilst is true that this judgment is likely to have a significant impact on the number of adjudications that payee’s commence on a “smash and grab basis”, it does not render such an approach entirely redundant as it will still be a useful tool in some circumstances.

Payees may still decide to launch a “smash and grab” adjudication in an attempt to hold the money in the short term and boost their chances of being able to successfully negotiate a global settlement with the paying party.  When faced with the prospect of a subsequent expensive, time consuming and ultimately uncertain dispute as to the “true value” of the account this may lead to earlier settlement negotiations than would have previously been the case.

For advice on these or any specific construction related matters, please contact our team for a free initial consultation.