“Smash and grab” and “true value” adjudications: the debate continues

United Kingdom

A TCC decision last month has considered the circumstances in which “true value” adjudications can be used to overcome “smash and grab” adjudication decisions. The case confirms that “true value” decisions cannot be relied upon until the “smash and grab” decision has been paid, but stops short of finding that “true value” adjudications commenced without such payment will be invalid. The decision follows recent Court of Appeal’s decisions in this area and is likely to continue debate as to the use of “true value” adjudications.

“Smash and grab” and “true value” adjudications: a recap

A “smash and grab” adjudication is one where payment is sought in the absence of a valid payment or pay-less notice. The sum claimed in any undisputed payment application becomes the “notified sum” under section 111 of the Housing Grants Construction and Regeneration Act 1996 (as amended) (the “Construction Act”). The payer is then obliged to pay that sum regardless of any actual dispute about the true value of that payment application. No valuation of the payment application is carried out by the adjudicator in these circumstances. As such, payers often follow up quickly with a “true value” adjudication, hoping to obtain a decision which can be used to set off against the decision in the “smash and grab” adjudication.

The ability of parties to challenge a “smash and grab” decision with a “true value” adjudication has been upheld by the Court of Appeal in Harding v Paice (in relation to final payments) and more recently in S&T (UK) Ltd v Grove Developments Ltd (in relation to interim payments). See our previous Law-Nows on those decisions here and here. In the S&T decision the Court of Appeal approved of the TCC’s finding that this practice does not, however, allow a payer to avoid paying the “smash and grab” decision altogether: “the second adjudication cannot act as some sort of Trojan horse to avoid paying the sum stated as due.”

M Davenport Builders v Greer

Davenport sought to enforce an adjudicator’s decision arising from a “smash and grab” adjudication in respect of its final account (the “Sutcliffe Decision”). In their defence, the Greers wished to rely upon a decision in a separate “true value” adjudication in their favour (the “Sliwinski Decision”) which they had commenced 6 days after the Sutcliff Decision. Davenport argued that the Greers were not entitled to do so because they had commenced the Sliwinski adjudication without first having made payment of the Sutcliff Decision.

In reviewing the authorities, legislation and general policy, the court set out the following principles:

  • The “notified sum” in a payment application creates an “immediate” payment obligation. It matters not if parties are dealing with an interim or final applications for payment.
  • The absence of a valid pay less notice has limited consequences and does not prevent an employer from subsequently challenging the underlying valuation.
  • The existence of a decision in a “smash and grab” adjudication does not necessarily preclude a further “true value” adjudication to consider the valuation exercise not undertaken by the first adjudicator.
  • Only when a party has discharged its immediate payment obligation arising from a “smash and grab” adjudication can it rely upon a subsequent “true value” adjudication. This applies equally to interim and final applications for payment.

As such, the Court granted Davenport’s summary judgement to enforce the Sutcliffe Decision.

Conclusions and implications

The result of this decision is unsurprising in light of the Court of Appeal’s decision in the S&T case and the fact that the Greers had still not paid the Sutcliffe Decision by the time of the enforcement hearing. However, the court left a question mark over the extent to which a failure to pay a “smash and grab” decision might affect the standing of a subsequent “true value” adjudication. Although noting the clear statement by the Court of Appeal in S&T that a payer must satisfy a “smash and grab” decision “before it can commence a “true value” adjudication”, the court explained that this, “does not mean that the Court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation”.

By way of explanation, the court noted that the “true value” adjudication in Harding v Paice had been commenced prior to payment of the “smash and grab” decision. It may therefore be the case that commencement of a “true value” adjudication in such circumstances does not render it invalid, but merely liable to be restrained by injunction at the discretion of the court. The judge in the present case was quick to add that it was “not necessary for me to decide whether or in what circumstances the Court may restrain the subsequent true value adjudication and, in these circumstances, it would be positively unhelpful for me to suggest examples or criteria and I do not do so”.

Separately, the “true value” adjudications considered in all of the above cases were subsequent to decisions in their respective “smash and grab” adjudications. As such, whilst the court in S&T stated that adjudications would be dealt with “in strict sequence”, it remains unclear how parallel adjudications are to be treated (i.e. where a “true value” adjudication is commenced prior to the decision in a “smash and grab” adjudication”).

The court’s attempt to distinguish between the commencement of a “true value” adjudication and reliance on the result in such an adjudication may provide a solution to some of the difficulties arising from the strict position which many had thought to apply after S&T. If any “true value” adjudication commenced without payment of a “smash and grab” decision were to be invalid, a number of complex jurisdictional issues arise. Also, parties who are unable to pay what could be an artificially inflated “smash and grab” decision, could be shut out from pursuing a “true value” adjudication entirely (and court proceedings might be too costly, too untimely or precluded without an initial “true value” adjudication decision). Further cases as to the proper role of “true value” adjudications now seem inevitable, but the present case may signify an attempt to steer a path away from too inflexible a position.

References:

M Davenport Builders Ltd v Greer [2019] EWHC 318 (TCC).

S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448.

Harding v Paice [2015] EWCA Civ 1231.