Smash and Grab Adjudication – Alive and Well

As most of you will already be aware, a “smash and grab” adjudication occurs where the paying party to a construction contract fails to issue the relevant payment or pay less notice in response to a valid application for payment, meaning that the ‘notified sum’ that must be paid is that contained within the relevant application for payment.

By contrast, a “true value” adjudication occurs where either party seeks a decision from the adjudicator as to the ‘true value’ of the works for the relevant payment period.  As opposed to a “smash and grab” adjudication, which is solely concerned with the technicalities of whether notices have been issued on time, a ‘true value’ adjudication seeks to establish the correct or true value of the works.

Without setting out the potted history of “smash and grab” versus “true value” adjudication in the Courts, the established legal position in relation to the interrelationship between the two is that:

  • having lost a “smash and grab” adjudication, a paying party may subsequently commence a “true value” adjudication to establish the correct value of the application for which it failed to issue the correct notices (S&T (UK) Limited v Grove Developments Limited [2018] EWCA Civ 2448); however
  • the paying party must comply with the “smash and grab” adjudication and make payment of the ‘notified sum’ before it may commence a “true value” adjudication (M Davenport Builders Limited v Greer [2019] EWHC 318 (TCC)).

To put this another way, the right to adjudicate “at any time” to obtain a true valuation of the sum due under section 108 of the Construction Act is subjugated or trumped by the immediate obligation to make payment of a ‘notified sum’ under section 111.

The recent case of Bexheat Limited v Essex Services Group Ltd [2022] EWHC 936 (TCC) has further reiterated the pre-eminence of the payment obligations under section 111.  The relevant facts of which are as follows:

Adjudication 1 – Bexheat secured a decision that on a “true value” basis it was entitled to payment in the sum of £141,646 in respect of its interim application 22.  ESG paid the sums due to Bexheat in full.

Adjudication 2 – ESG failed to serve a pay less notice in time in respect of the Bexheat’s interim application 23 (which had been issued one day before the commencement of Adjudication 1).  Bexheat was awarded £706,029.62 as a result of ESG’s failure to issue a timely pay less notice, on other words a classic “smash and grab” adjudication.

ESG failed to pay the sums awarded in Adjudication 2 and Bexheat sought to enforce the decision.  The following interesting points arise from Mrs Justice O’ Farrell’s judgment to enforce the decision in Adjudication 2:

  1. The Adjudicator in Adjudication 1 had jurisdiction as the disputes were not the same or substantially the same. Not only were they concerned with different payment periods but they were also different disputes in nature; Adjudication 1 expressly dealt with valuation whereas Adjudication 2 was solely concerned with whether ESG had served a valid pay less notice.
  2. In any event ESG had not raised any challenge to the adjudicator’s jurisdiction in Adjudication 2 and/or specifically reserved its rights, therefore it was taken to have waived any such challenge.
  3. ESG could not rely upon a clause in the contract seeking to permit it to set off or make deductions against an adjudicator’s award in respect of any amounts which may be due or have become due from Bexheat to ESG. Such a clause was contrary to section 108 of the Construction Act which provides that an adjudicator’s award is binding upon the parties until finally determined.
  4. ESG could not rely upon a clause in the contract providing it with the unilateral right to elect that the adjudicator shall be entitled to adjudicate on more than one dispute at the same time (the second adjudicator had refused to allow a ‘joinder’ of the true value of interim application 23 with the “smash and grab” Adjudication 2). This clause was contrary to paragraphs 8 and 20 of the Scheme for Construction Contracts which require the consent of both parties to a multiple dispute adjudication. Further, section 111 of the Construction Act precludes ESG from refer the ‘true value’ dispute in respect of interim application 23 prior to paying the “notified sum”.

ESG was also unsuccessful in its application to stay the enforcement, with the Court finding that Bexheat was a going concern and that its financial position was substantially the same as when it entered into the contract.

This judgment reiterates that a paying party must pay under a “smash and grab” adjudication before commencing or relying upon a “true value” adjudication.  Further, an earlier “true value” decision does not preclude the payee from commencing a “smash and grab” adjudication regarding a payer’s failure to issue the correct notices in a subsequent payment cycle, even where the true value of that claim has already been decided.

This is a timely reminder that paying parties and their representatives must ensure that the contractual payment notice provisions are complied with at all times, including following a “true value” adjudication.

For advice on these or any other construction and engineering related issues or support, please contact our team and we will be happy to help.

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