Which came first – the smash and grab, or the true value adjudication?

If you’re an avid construction law fan, or really just someone involved in construction, you’ll know that the ‘smash and grab’ is one of the most common types of adjudication.

A smash and grab is one in which, where there is the absence of a valid and timely payment notice and/or pay less notice, the payee claims payment of the entire sum claimed in the relevant payment application. In these kinds of adjudications, the adjudicator isn’t invited to decide whether the sums applied for within the payee’s application are accurate, just whether or not the paying party has issued a valid notice in response. If they haven’t, it’s a ‘smash and grab’ win for the unpaid party.

On the other hand, a ‘true value’ adjudication is one in which the adjudicator does have jurisdiction to undertake a valuation of the relevant application for payment. The adjudicator will establish the true value of the relevant application and payment notice and as such, whether or the sum claimed by the payee is accurate. If the payee has been underpaid they will usually be entitled to the difference.

Timing of the essence?

A true value adjudication frequently follows the decision made in a smash and grab – a payee will go after the latter because it is quicker and cheaper, but faced with a loss on a technicality, the payer will often want to redress the balance by determining the true value of the interim payment.

The Court of Appeal’s judgment in S&T (UK) Limited v. Grove Developments Limited[2018] held that a paying party is permitted to adjudicate on the true value of a payee’s interim application, despite the fact that a payment notice or pay less notice was not given and the payee has been awarded the sum claimed in a smash and grab adjudication, so long as the payment was made. This all seems reasonable, giving an employer a chance to disprove a sum if there is no merit behind it. However, the waters have since been muddied in circumstances where a party issues a true value adjudication whilst a smash and grab adjudication is ongoing…

A new consideration

In the recent case of Henry Construction Projects Ltd v. Alu-Fix (UK) Ltd [2023], the Court held that a true value adjudication could not be started while a smash and grab adjudication was ongoing, despite the fact that the earlier awards had been paid.

Alu-Fix commenced a smash and grab adjudication claiming that sums were due to have been paid on or before 13 December 2022, which Henry disputed on a genuine basis maintaining that it had issued valid pay less notices. In the meantime it had started its own true value adjudication (with another adjudicator) as a protective measure claiming that it has previously overpaid by c.£235k, but notably this was after 13 December 2022.

The smash and grab decision found in favour of Alu-Fix, finding that the pay less notices were not valid and therefore the sum claimed should have been paid by the final date for payment of 13 December 2022. Upon receiving this decision, the true value adjudication was stayed until Henry made payment of the smash and grab award, which it did, and the true value adjudication continued.

The true value adjudicator subsequently found in favour of Henry. However, Alu-Fix disputed that the second adjudicator had jurisdiction since the true value adjudication was commenced prior to payment of the smash and grab award, and therefore refused to pay. As such, Henry launched enforcement proceedings against Alu-Fix, arguing that it had made payment of the smash and grab award and that at such time it launched the true value adjudication, there was a ‘genuine dispute’ in regard to the validity of the pay less notices.

The Court’s decision

The Court applied the principles of Grove, specifically that a party could not commence a true-value adjudication until it had discharged its immediate payment obligation. The key issue here was that although Henry had made payment following the adjudicator’s decision, the payment had not been made when the immediate payment obligation arose.

Henry maintained that while the smash and grab adjudication was ongoing, there was a genuine dispute as to whether there was an immediate payment obligation, so therefore there should be no limitation as to when the true value adjudication could have commenced.

The Court found that the final date for payment of the smash and grab fell on 13 December 2022, and therefore the immediate payment obligation was not discharged at the time that Henry commenced the true value adjudication. The argument put forward by Henry that there was a ‘genuine dispute’ at the time the true value adjudication was commenced was considered by the Court but it said this posed a risk of influencing the right of the payee to be paid. Therefore, it was found that the second adjudicator did not have jurisdiction and Alu-Fix were not required to pay the sum awarded to Henry.

It was added by the Court that had the smash and grab decision been such that the pay less notice issued by Henry was valid, it would have removed the immediate payment obligation. In such circumstances, the true value adjudication decision would have been enforceable.

Comments

This is one of the points that has been debated since the decision in Grove and effectively indicates that a true value adjudication cannot be commenced while there is uncertainty about a smash and grab. For the time being, if a smash and grab adjudication is commenced it will probably mean that a true value adjudication cannot be commenced even if the smash and grab is disputed on genuine grounds, because an adjudicator asked to consider the true value adjudication will likely decide they have no jurisdiction until the smash and grab is resolved.

Although the court suggested that jurisdiction would have been in place for the true value adjudicator in this case if the smash and grab had been resolved in Henry’s favour, this effectively introduces a type of contingent jurisdiction which adds considerable uncertainty to all parties. It remains to be seen whether a higher court would agree with the court’s analysis in this case, and we think it is likely that at some point the question is likely to arise again. For example, could a party faced with a true value adjudication raise a deliberately unmeritorious smash and grab adjudication as a time-buying tactic?

Normally we say that the way to resolve these issues is to make sure that any payment or pay less notice is validly issued to avoid the dispute in the first place – although whether that’s the case if completely unmeritorious smash and grabs are allowed to frustrate a true value adjudication remains to be seen…

This article originally featured in September 2023’s edition of our Aggregate newsletter: to read the complete edition, click here.