In February 2018, we reported on the important judgment in Grove Developments Limited v S&T (UK) Limited . As set out in our review of the judgment, the judgment confirmed that a party does have the right to adjudicate on the "true" value of an interim application where there is either no Payment / Pay Less Notice or the relevant notice is deficient in some way.
As anticipated, the first instance judgment was appealed by the contractor, S&T, and the Court of Appeal judgment has been handed down today.
In February, Coulson J (as he then was) left a significant legacy in this, his last judgment in the Technology and Construction Court (TCC) before his elevation to the Court of Appeal. The judgment confirmed that a party does have the right to adjudicate on the "true" value of an interim application where there is either no Payment /Pay Less Notice, or the relevant notice is deficient in some way.
In reaching this judgment, Lord Justice Coulson (as he is now) finally turned the tide against the "smash and grab" adjudications that have peppered the construction industry for the last 20 years since the Housing Grants, Construction and Regeneration Act 1996 (now amended) (the Construction Act) first came into effect in 1998. He was clear in his intention in the Grove judgment stating: " [these] conclusions….. will reduce the number of 'smash and grab' claims which, in my view, have brought adjudication into a certain amount of disrepute".
This opinion is challenged in some quarters with the argument that the ability to claim effectively against a "crystallised" notice in such circumstances frees up the cash flow on a project, exactly as intended by the Construction Act.
The Court of Appeal judgment today has been much anticipated, and as expected, the appeal has been dismissed, leaving "smash and grab" adjudications in the dust, although interestingly, the Court of Appeal did not mention this phrase at all in their judgment, perhaps condoning the view that the phrase had unwarranted negative connotations.
The Court of Appeal upheld the first instance judgment, considering the six reasons why Grove was entitled to bring a separate adjudication to determine the correct value of interim application 22, even if (contrary to the judge's view) there was no valid Pay Less Notice. Those six reasons were:
- Henry Boot is authority for the proposition that the court can determine the true value of any certificate, notice or application. That included a power to open up and revise a sum notified in an interim application. The adjudicator has the same powers as the court.
- The wide powers of an adjudicator under section 108(1) of the Amended Act and paragraph 20 of the Scheme meant that there was no limit on the nature of disputes which either party could refer to adjudication.
- The adjudicator ordered payment of £14,009,906 on the ground that there was no timeous Pay Less Notice. Therefore, there had not yet been any adjudication about the true value of interim application 22.
- The "sum due" under clause 4.7 is different from "the sum stated as due" in clause 4.9. The mechanism of section 4 of the contract is designed, in the end, to achieve payment of the true sum which is due under clause 4.7.
- If a contractor objects to the employer's Payment Notice or Pay Less Notice, it can start an adjudication to ascertain the correct figure, even though the Act does not say this expressly. As a matter of fairness, the employer should have a similar right to adjudication if he considers that the sum notified by the contractor is too high.
- There is no justification for treating interim and final applications differently.
This point is crucial for contractors to ensure cashflow, pending any later adjudication and adjustment. No great loss then in the departing "smash and grab" - pay now but adjudicate later is the message.