Projects & Construction Law Update - March 2018

Please find below Clyde & Co's latest projects and construction law update

CASES

Grove Developments Limited v S&T(UK) Limited [2018] EWHC 123 (TCC)

The end of the 'smash and grab' adjudication?

'Smash & grab' adjudications have been the bane of employers' existence for a number of years now, particularly since the case of ISG Construction Limited v Seevic College seemed to cement the practice in the industry. However, Coulson J, in his last TCC judgment before moving to the Court of Appeal, has re-opened the issue, going against prior decisions to hold that employers do have the right to adjudicate the 'true' value of an interim claim which was the subject of a smash & grab adjudication.

The 'smash & grab' adjudication was first really accepted as an option for contractors in the case of ISG Construction Limited v Seevic College [2014] EWHC 4007 (TCC). The term 'smash & grab' describes a scenario whereby the contractor makes a payment application for a specific sum and the employer fails to issue valid payment and pay less notices in respect of that application. As a result, the amount claimed by the contractor becomes the 'notified sum', which, by default, the employer is obliged to pay (and which the contractor may claim through adjudication) without the true value of the claim being assessed. The rationale behind this was stated by Justice Edwards-Stuart, who held that:

'...if the employer fails to serve the relevant notices...it must be deemed to have agreed the valuation stated in the relevant interim application, right or wrong.' (emphasis added)

This position was affirmed in the case of Galliford Try v Estura [2015] BLR 321, however, Justice Edwards-Stuart went on to clarify that, while

"This means...the employer cannot bring a second adjudication to determine that value of the work at the valuation date of the interim application in question...it does not mean any more. There is nothing to prevent the employer challenging the value of the work on the next application..." (emphasis added)

In the present case, the TCC was asked to determine whether, in principle, the claimant was entitled to commence an adjudication to assess the true value of the sum due to the defendant, in the context of a smash & grab scenario. Ultimately, Coulson J held that, provided the employer pays the contractor the sum stated as due in its interim application, the employer may then seek, in a second adjudication, to dispute that the sum paid was the 'true' value of the works.

Coulson J, going back to first principles, set out six separate reasons for this:

Per Henry Boot Construction Limited v Alstom Combined Cycles Limited [2005] 1 WLR 3850, the court can decide the 'true' value of any certificate, notice or application and that, as part of that process, it has an inherent power to open up review and revise any existing certificates, notices or application - and an adjudicator has the same wide powers as the court; Similarly, the Housing Grants (Construction and Regeneration) Act 1996 (as amended) (the Act), imposes no limitation on the nature, scope and extent of the dispute which either side can refer to adjudication. The dispute the employer would seek to raise in the second adjudication is a different dispute to the first.The first dispute being to determine whether the relevant notices were deficient or out of time, entitling the contractor to payment of the sum claimed.The second being to determine the 'true' value of the amount paid.Such dispute must...