Smash and Grab Adjudication vs True Value Adjudication
Problem: Application made by the contractor to pursue a “true value” adjudication and overpayment on account to sub-contractor but it had failed to pay a payment application (and failed to send a valid payless notice)
Outcome: An adjudicator does not have the jurisdiction to determine a true value adjudication if a paying party fails to meet its immediate payment obligations following a smash-and-grab adjudication. Therefore, the paying party should resolve the smash and grab adjudication and only then can they start a true value adjudication. The recent decision in Henry-Construction v Alu-Fix [2023] EWHC 2010 (TCC) highlights the importance of getting payment notices correct and issued on time.
The ‘disputed’ Payment Application
Alu-Fix was a subcontractor of Henry Construction Projects, the contractor appointed to build a boutique hotel in London. The sub-contract was terminated in November 2022 and an application for payment of approximately £257,000 was made by Alu-Fix. The final date for payment under the sub-contract was 13 December 2022.
However, Henry Construction failed to make payment without any justification. Alu-Fix commenced a ‘smash and grab’ adjudication on 15 December 2022 in relation to an unpaid payment application. In this instance, the adjudicator ruled that:
- The final payment date was 13 December 2022 per the sub-contract;
- No valid payless notice had been served by Henry Construction; and
- Alu-Fix was entitled to payment of the sum of £191,753.88 plus interest from the contractor.
It was claimed by Henry Construction that it had served two potentially valid pay-less notices before 13 December 2022 and stated that Alu-Fix had in fact owed it circa £235,000 because of an overpayment on the account. The contractor therefore commenced a true value adjudication (TVA) against Alu-Fix in January 2023 whilst the ‘smash and grab’ case was pending. The adjudicator made a decision on the true value adjudication wherein it was determined that Alu-Fix is indebted to Henry Construction in the sum of £191,753.88 plus interest per their payment application.
The adjudicator of the true value adjudication stayed the adjudication pending payment and confirmed that payment in accordance with the ‘smash and grab’ decision needed to be made before it could proceed. Henry Construction accordingly made payment in full and thereafter made a summary judgment application to rely on the TVA which determined that Alu-Fix owed Henry Construction over £191,000.
The Parties’ Position
It was Henry Construction’s claim that at the time of the commencement of the TVA there was an ongoing “genuine dispute” as to the validity of the pay to less notices of 25 November 2022. As such, it is contended that unless and until there was an adjudication that there was no valid payless notice, no “immediate payment obligation” arose. The obligation for payment only arose upon finding the payless notice was invalid in the smash-and-grab adjudication and was discharged within the timeframe set down by him.
The sub-contractor asked the Court to find that the authorities are clear on this matter and as such, a true value adjudication cannot be pursued if there is a non-payment of an unsatisfied immediate payment obligation.
Court’s Decision
In the judgment of Henry-Construction v Alu-Fix, the Judge found in favour of Alu-Fix, the sub-contractor, and decided that Henry Construction was prohibited from embarking upon/not entitled to commence a true value adjudication without first having discharged its immediate payment obligation under the payment application and the adjudicator lacked jurisdiction as a result.
The Judge further ruled that:
“Overall, in my view, the outcome in this case, whilst not closing the door on commencing a [true value adjudication] prior to the outcome of a [smash and grab adjudication] and later relying upon the outcome, ought to discourage such a course in areas of spurious [smash and grab adjudication] dispute, but not deter those who have a sufficient level of confidence that any dispute raised should result in a finding of no immediate payment obligation having been established.”
Free Consultation with Expert Construction Dispute Resolution Lawyers
It is imperative for a party to comply with its immediate payment obligations first particularly when a pay less notice is non-compliant with the rules before commencing any adjudication. The case reiterates the obligation to make payment of a notified sum cannot be retrospectively rectified.
Prior to commencing either of true value or a ‘smash and grab’ adjudication, parties need to consider whether doing so would be premature. It is important to seek specialist construction legal advice prior to referring a matter to adjudication to ensure that all essential pre-requisites have been met.
If you wish to discuss your construction claim with our construction dispute lawyers, please do not hesitate to call us or complete our booking form below to schedule a Free Consultation or alternatively call us on 0207 459 4037.