The decline of "smash and grab" adjudication: Seevic and Estura wrongly decided

A TCC decision yesterday has refused to follow previous case law as to so called "smash and grab" adjudications in light of prior and more recent Court Appeal decisions. This is likely to encourage parties to revisit the practice of bringing subsequent or parallel adjudications as to the true value of interim payments to overcome a “smash and grab” adjudications brought due to the absence of payment or pay less notices. This in turn may reverse the recent popularity and usefulness of “smash and grab” adjudications.

“Smash and grab” adjudication explained

The so called “smash and grab” adjudication is one where payment is claimed under a construction contract in the absence of any payment or pay-less notice. In such circumstances, the amount claimed in any application for payment will have become the “notified sum” in accordance with section 111 of the Housing Grants Construction and Regeneration Act 1996 (as amended) (the “Construction Act”). The paying party is obliged to pay that sum regardless of any dispute over the proper valuation of the application.

In response to such adjudications, some paying parties had commenced subsequent or parallel adjudications requesting a determination of the true value of the application in question. If commenced promptly these could effectively “cancel out” any decision in the “smash and grab” adjudication. A number of cases in 2014 and 2015 considered whether such parallel adjudications were permissible:

• In Harding v Paice an Employer failed to serve a payment or pay-less notice in response to a final application for payment from its Contractor following termination for default under the JCT Intermediate form. The Contractor was awarded the full amount of its application in an initial adjudication, but the Employer was held to be able to challenge the proper valuation of the application in a subsequent adjudication despite the absence of notices. This decision was upheld by the Court of Appeal late in 2015. See our Law-Now on the appeal decision here.
• In ISG v Seevic and Galliford Try Building v Estura a different conclusion was reached in relation to the interim payment provisions of the JCT Design and Build 2011 form of contract. Employers who had failed to serve payment or pay-less notices in relation to interim applications for payment, were deemed to have accepted the sums claimed in those applications and could not challenge the true value of the applications through adjudication (although they would be free to argue for a different valuation on subsequent interim applications). See our Law-Nows on these two cases here and here.

In our Law-Now on the Court of Appeal’s decision in Harding v Paice, we noted the apparent tension with the Seevic and Estura decisions. The Court of Appeal noted the “somewhat different line” taken in those cases and expressly left open the question as to whether they were correctly decided. Whilst Seevic and Estura had continued to be followed by the TCC after Harding v Paice (see for example our Law-Now on Kersfield Developments v Bray and Slaughter here), a TCC decision in the middle of last year had noted that there was "real doubt ... whether [ISG v Seevic] would be decided in the same way now.” (see our Law-Now on that case here).

In a judgment published yesterday, Mr Justice Coulson, in his last TCC judgment before being elevated to the Court of Appeal, has concluded that Seevic and Estura were incorrectly decided and should not be followed.

Grove Developments Ltd v S&T (UK) Ltd

Grove engaged S&T under an amended JCT Design and Build 2011 contract to design and build a new Premier Inn Hotel at Heathrow Terminal 4. Just after practical completion had been achieved, S&T submitted an interim payment application claiming an additional £14 million above Grove’s previous valuations. Grove submitted both a payment notice and a pay less notice, but he parties fell into dispute as to the validity of those notices.

S&T commenced a “smash and grab” adjudication and was successful in contending that both of Grove’s notices were invalid. The Adjudicator therefore concluded that the full amount of S&T’s payment application was the “notified sum” for the purpose of section 111 and required Grove to pay this amount to S&T.

Grove commenced Part 8 proceedings seeking declarations from the TCC as to a number of matters, including whether or not it was entitled to commence a fresh adjudication seeking a decision as to the true value of S&T’s interim application. As practical completion had been achieved, Grove was not able to seek to recover the £14 million paid to S&T through subsequent interim payments and would need to wait until the final account procedure could be operated if it was not able to immediately commence a fresh adjudication as to valuation.

In a lengthy and closely reasoned judgment, Mr Justice Coulson concluded that Grove was able to challenge the true value of S&T’s interim application through a separate adjudication. Success in such an adjudication would result in S&T being required to pay back any over payment received through its “smash and grab” adjudication.

Mr Justice Coulson declined to follow the Seevic and Estura cases, as well as Kersfield Developments, which he considered to be wrongly decided and contrary to prior and more recent Court of Appeal authority.

Conclusions and implications

This decision will have large implications for the practice of adjudication in the UK construction industry. The popularity of “smash and grab” adjudications rose considerably after the Seevic and Estura decisions, spawning a flurry of TCC decisions as to the limits of such adjudications and the validity requirements for payment and pay less notices. This decision appears to go a long way to reversing this trend. Mr Justice Coulson is a respected TCC judge, the author of the leading text on construction adjudication, and is shortly to be elevated to the Court of Appeal. Until this matter is addressed directly by the Court of Appeal, his analysis in the present decision is likely to be highly persuasive in future TCC decisions.

One issue not clearly dealt with in the present decision is whether a “smash and grab” adjudication can be immediately countered by a parallel adjudication commenced by the employer. If commenced quickly (and permitted by the relevant adjudication rules), such an adjudication should mean that the true valuation of the contractor’s payment application is determined at around the same time as the “smash and grab” adjudication is decided. This in turn may avoid the employer needing first to pay any amount awarded in the “smash and grab” adjudication before receiving a decision as to the true valuation of the contractor’s application. This tactic would apply equally to contractors on the receiving end of “smash and grab” adjudications from sub-contractors.

In this regard, Coulson J noted that a second adjudication would “still be dealt with, by the adjudicators and by the courts, in strict sequence. The second adjudication cannot act as some sort of Trojan Horse to avoid paying the sum stated as due.” This comment may, however, be directed to the facts in the present case, where Grove had only sought to commence a second adjudication after the result in the “smash and grab" adjudication. Where parallel adjudications are concerned, both adjudication decisions would come before the court on an enforcement hearing at the same time.

References:

Harding (t/a M J Harding Contractors) v Gary George Leslie Paice Kim Springall [2014] EWHC 3824 (TCC).

ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC).

Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC).

Harding (t/a M J Harding Contractors) v Paice & Anor [2015] EWCA Civ 1231.

Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd [2017] EWHC 15 (TCC).

Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2017] EWHC 1763 (TCC).

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