Common Sense 6 – Smash & Grab 0
When the drafting committee of the Local Democracy, Economic Development & Construction Act 2011 saw the fruits of their efforts come into force on 1 October 2011, I very much doubt that they expected the changes they made to the interim payment regime under relevant construction contracts would be interpreted in the way that they have. The approach of the Courts to date, who have in effect sanctioned a “smash and grab” culture which has, until now, infiltrated and damaged so many contracting relationships in our industry, felt very “un-British” to me and at last we now have a decision from the Technology and Construction Court which, I believe, puts our industry back on the right track. The case I am referring to is Grove Developments Ltd v S&T (UK) Ltd  EWHC (TCC) (“Grove -v- S&T”).
What do I mean by “smash and grab”?
Various decisions of the Courts bring us to the start of 2018, pre- Grove -v- S&T, with a number of notions fixed firmly in our minds.
- The lack of response to a valid contractor’s interim application for payment by way of a valid payment or pay less notice meant that the contractor’s application for payment had to be paid in full without any deduction or set off because the contractor's application had become the default payment notice.
- Even if this meant that the contractor was completely overpaid, this interim position could not be challenged and only subsequent valuations or the last payment becoming due could right this wrong.
- In the case of interim payments, there was no right to adjudicate on the true value of the actual work done in order to combat the absence of a valid payment or pay less notice.
- The lack of response to a valid contractor’s final application for payment by way of a valid payment or pay less notice meant that the contractor’s final application for payment had to be paid in full without any deduction or set off because the contractor's application had become the default payment notice.
- The true value of the contractor’s final application could be adjudicated upon.
As a result of the decision of Mr Justice Coulson in Grove -v- S&T things have now changed. The judgement lists 6 reasons why, contrary to the position believed by all to prevail, Mr Justice Coulson decided that an adjudicator does have the power and jurisdiction to decide the “true value” of a contractor’s right to payment at any time:
- Just as a court has the inherent power to open up and decide upon the “true value” of any certificate, notice or application, so too has an adjudicator.
- There is no limitation on the nature, scope and extent of a dispute that can be referred to adjudication. Section 108(1) of The Housing Grants, Construction and Regeneration Act 1996 and paragraph 20 of the Scheme for Construction Contracts are expressed in the widest language. An adjudicator would therefore have the power and jurisdiction to determine the “true value”.
- A dispute concerning the “true value” of a contractor’s application is a different dispute to one which addresses whether a valid payment notice or pay less notice has been issued in time and/or is valid.
- JCT contracts differentiate between “the sum due” and the “the sum stated as due”. The former refers to the mechanism designed to determine a contractor’s precise entitlement and the latter the amount included in the contractor’s application which will be payable in the absence of a valid payment and/or pay less notice. These two things are not the same.
- Just as an Employer might serve a payment notice or pay less notice at a value less than an amount applied for by the contactor, resulting in an adjudication to determine the true value, it would be unfair to deny an Employer the same right where a late or invalid payment notice or pay less notice had been served by him or on his behalf.
- There was no contractual basis for differentiating between the position concerning an interim application for payment and the final payment.
For me this judgement returns us to an equitable position where any short-lived advantage gained from a successful unjust “smash and grab” adjudication can be rectified by a subsequent adjudication to determine the true value of a contractor’s entitlement. This very clear judgement is a "must read". It contains a thorough and comprehensive review of all relevant case law and can be found at: http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/TCC/2018/123.html&query=(grove)+AND+(developments)
Peter Vinden is a practising Arbitrator, Adjudicator, Mediator and Expert. He is Managing Director of Gateley Vinden and can be contacted by email at firstname.lastname@example.org. For similar articles please visit www.gateleyvinden.com.