Adjudication: no more “smash and grab”
The “smash and grab” Adjudication will be familiar to those working in the construction industry. It goes like this. Contractor makes application for payment. Employer fails to serve valid Pay Less Notice. Contractor calls up an Adjudicator. Adjudicator awards payment to the contractor because there was no valid Pay Less Notice served. It is called a “smash and grab” because there is no assessment by the Adjudicator of the value of the work done. The payment is ordered simply because no Pay Less Notice was served in response to the payment application.
These “smash and grab” Adjudications gained momentum following two High Court decisions of Edwards- Stewart J in the Technology and Construction Court in London in ISG Construction Ltd v Seevic College  and Galliford Try Building Ltd v Estura . In both these cases the Judge decided that by failing to serve a valid Pay Less Notice the employer must be deemed to have agreed that the amount claimed in the payment application was the “true” value of the work. It was not therefore open to the employer to argue about the “true” valuation of that payment application in a second Adjudication. This is because of the rule that the same dispute cannot be referred to Adjudication more than once. This did not mean that the “true” value could never be looked at again. It could. But only at the stage of the next interim application or at the final account stage. In the meantime the employer had to pay up. The practical difficulty however is that very often these “smash and grabs” were being instigated after the penultimate interim application was issued and before the final account stage meaning that the contractor could be holding a substantial sum of money for many months before the employer could have the “true” value of the work assessed.
The recent case of Grove Developments Ltd v S&T (UK) Ltd  has changed that. In this case Coulson J conducted a comprehensive review of the relevant case law in both the High Court and the Court of Appeal and concluded that the decisions in ISG v Seevic and Galliford v Estura were wrong. Coulson J said there was no basis for concluding that because an employer has failed to serve a Pay Less Notice that meant that the value of the work done had been determined. An Adjudicator who awards payment simply because of the absence of a Pay Less Notice has not carried out a valuation of the work. He has simply decided there was no valid Pay Less Notice and that payment should follow for that reason. But that should not preclude the employer from then starting a second Adjudication about the “true” value of the work. The employer will have to pay up on foot of the first Adjudication. But if the second Adjudicator decides the employer overpaid having regard to the “true” value of the work the employer can recoup any overpayment. He said:
“ the Court cannot shy away from the fact that these cases have arisen in circumstances where, if the contractor is entitled to hang on to the money stated to be due, because of an absent or defective notice, it might be months or even years before there is a determination of the “true” value of the application, as part of the final account process.”
“I believe [my decision] will reduce the number of “smash and grab” claims which, in my view, have brought adjudication into a certain amount of disrepute.”
The position following Grove is that an employer should still serve a Pay Less Notice if he wants to dispute a payment application. Otherwise he will have to pay up. But the employer will also now be entitled to immediately commence a second Adjudication about the true value of the work, if that was not decided in the first Adjudication, without having to wait until the next assessment or the final account stage. Always check the precise wording of your contract, however, as cases will be decided according to their own particular facts.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.