Importance of Smash and Grab Adjudications in Construction Payment Disputes
Problem: ‘Smash and grab’ adjudications in UK construction disputes can occur because of non-compliance with strict payless notice requirements, leading to forced payments of the full amounts claimed based on procedural errors such as a failure to serve a payless notice or inadequate payless notice.
These situations impose unexpected financial burdens on construction businesses as paying parties will need to pay the ‘smash and grab’ adjudication award when it may not represent ‘true value’ for the work claimed. Given the tight margins for construction businesses in today’s economic climate, efficiently managing, and understanding payment processes is crucial to prevent these disruptive and costly construction disputes.
Outcome: ‘Smash and grab’ adjudications typically conclude with an adjudicator award for the full sum claimed in the payment application. However, this legal remedy, while immediate and binding, often does not reflect the actual value of work performed but rather capitalises on procedural lapses. Smash and grab adjudications serve as a reminder of the critical importance of complying with contractual timelines and technicalities of payment notices.
If you have a construction payment dispute, please do not hesitate to contact our expert construction dispute lawyers for a Free Consultation on 0207 459 4037 today.
What is a Smash and Grab Adjudication?
Under Section 111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009), if a party that is obligated to pay under a construction contract fails to issue a valid payment notice or pay less notice within the time required by the contract (or the Act), the amount set out in the payment application becomes the notified sum in default, payable by the final date for payment.
In practice, if a paying party fails to serve a valid and timely payment notice or pay less notice, the receiving party can refer the dispute to adjudication, seeking the full amount stated in their application. This is often termed a “smash and grab” because the claimant can obtain the full amount claimed based primarily on a procedural failure, rather than any detailed assessment of the work’s actual value.
This mechanism underscores the importance of adhering strictly to the notice requirements specified in the contract and the Act, as failure to do so can lead to substantial and immediate financial liabilities.
What is the process to start a Smash and Grab Adjudication?
The mechanics of “smash and grab” adjudications are governed by the procedural and legal framework established under the Housing Grants, Construction and Regeneration Act 1996 (as amended) and typically include:
- Payment Application Submitted: The claimant submits a payment application, stating the amount they believe to be due for work completed under the construction contract.
- Failure to Issue Notice: The respondent (party responsible for payment) fails to issue a valid payment notice or pay less notice within the contractual or statutory timeframe. This is the critical procedural failure that those relying on the ‘smash and grab’ procedure to take advantage of when seeking payment.
- Claimant starts ‘Smash and Grab’ Adjudication: The claimant refers the dispute to adjudication, asserting that due to the lack of proper notice, the full amount claimed in the application is payable. They rely on the statutory provision that the amount applied for becomes the notified sum due to the absence of a proper notice.
- ‘Smash and Grab’ Adjudication Process: An adjudicator is appointed to review the case on the papers. In ‘smash and grab’ cases, the adjudicator primarily focuses on the procedural aspects — specifically, whether the payment application or payless notices were served correctly and on time. The merits of the work done or the actual value of the claim are generally not within the scope of these adjudications.
- Adjudicator’s Decision: Adjudications are designed to provide a rapid resolution to construction disputes, often within 28 days of referral. In ‘smash and grab’ adjudications, if the adjudicator finds that the respondent failed to issue the required notices, they will typically order payment of the full notified sum.
- Enforcement of Adjudicator’s Decision: The decision of an adjudicator is binding until finally determined by legal proceedings, arbitration, or agreement. Parties are expected to comply promptly with the decision, and failure to do so can lead to enforcement actions in the High Court which will only increase the costs liability.
Key Case Law on Smash and Grab Adjudications
Several key cases have shaped the landscape of “smash and grab” adjudications, clarifying the laws and setting precedents for how these rules are applied. We will look at some of these further below.
ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC)
The dispute concerned two adjudications:
- Adjudication No. 1 (‘Smash and Grab’): It was claimed that Seevic had failed to provide a payment notice or pay less notice in response to ISG’s Application No. 13. Consequently, the adjudicator, Mr. Robert Juniper, awarded ISG the full amount claimed in their application of £1,097,696.29 due to the procedural default of Seevic College
- Adjudication No. 2 (‘True Value’): Initiated by Seevic, this adjudication sought to assess the true value of ISG’s work up to the date of Application No. 13. The adjudicator accepted ISG’s valuation of its measured works but significantly reduced the total value claimed for loss and expense, leading to a direction for ISG to repay some of the amount awarded in the first adjudication.
The Court held that Seevic, by failing to serve the necessary notices, was deemed to have agreed by default to the value stated by ISG in its payment application. Therefore, the value of the works for the relevant period was conclusively determined by the smash and grab adjudication.
Consequently, the second adjudication that attempted to reassess the value was deemed to lack jurisdiction. The court emphasised that a party cannot commence a ‘true value’ adjudication on the same interim application until the outcome of the ‘smash and grab’ adjudication is satisfied in full.
Grove Developments Ltd v S&T (UK) Ltd [2018] EWCA Civ 2448
Grove Developments Ltd (Grove) engaged S&T (UK) Limited (S&T) to design and construct a hotel at Heathrow Airport under a JCT Design and Build Contract. The contract sum was approximately £26 million. Issues arose when S&T submitted its 22nd interim application, claiming an additional £14 million, which Grove disputed. Grove’s purported Pay Less Notice and right to adjudicate the ‘true’ value of the works became central to the dispute.
The Court of Appeal held:
- Pay Less Notice Validity: The court concluded that Grove’s Pay Less Notice was valid and effective. It specified the sum Grove considered due (£0) and referenced a detailed calculation in another document. The referencing was deemed sufficient for the specificity required.
- Adjudication on True Value: The Court of Appeal clarified that even if a Pay Less Notice was valid, an employer could still adjudicate to determine the ‘true’ value of the works. This was a significant clarification in the industry, providing a path for employers to rectify potential overpayments even after a ‘smash and grab’ adjudication.
Grove was entitled to adjudicate to determine the ‘true’ value, and its Pay Less Notice was held to be valid.
Bresco Electrical Services Ltd v Michael J Lonsdale [2020] UKSC 25
In Bresco Electrical Services Ltd v Michael J Lonsdale, the UK Supreme Court addressed whether an insolvent company, Bresco, could refer disputes for adjudication when mutual claims and insolvency set-off applied.
The court ruled that insolvency set-off does not preclude an insolvent company from seeking an adjudication in construction disputes. It dismissed the argument of futility, emphasising that adjudication remains a valuable dispute resolution tool, even in insolvency. The ruling further clarified that adjudication rights are preserved during insolvency and that any issues as to whether the adjudication can be enforced would need to be considered separately.
Davenport Builders Ltd v Greer [2019] EWHC 318 (TCC)
The claimant, M Davenport Builders, sought to enforce a smash and grab adjudication award of £106,160.84 plus interest for completed construction work. The defendants acknowledged the validity of the award but, instead of paying it, sought to set it off against a separate “true value” adjudication decision.
The core issue in this case was: whether the defendants could commence or rely upon a “true value” adjudication without first meeting the immediate payment obligation from the initial adjudication.
The court held that the employer must discharge the immediate obligation from the smash and grab adjudicator before relying on a subsequent true value adjudication decision.
Can you start a ‘True Value’ Adjudication alongside a ‘Smash and Grab’ Adjudication?
Our expert construction lawyers have written a separate article on this issue titled “Can You Commence a ‘True Value’ Adjudication Alongside a ‘Smash and Grab’ Adjudication?“. The possibility of commencing a ‘true value’ adjudication alongside a ‘smash and grab’ adjudication is a nuanced issue.
As established in Grove Developments Ltd v S&T (UK) Ltd and reinforced in M. Davenport Builders v Greer and another above, the paying party must first satisfy the immediate payment obligation from a ‘smash and grab’ adjudication before commencing a ‘true value’ adjudication. This means the disputed sum must be paid following the ‘smash and grab’ decision, after which the paying party can challenge the substantive valuation.
The decision to pursue both adjudications should be strategic, considering legal costs, potential outcomes, and relationship impacts. It is a path often taken to rectify what might be seen as an unfair or inflated payment awarded due to procedural oversights.
Advantages and Disadvantages of Smash and Grab Adjudications
“Smash and grab” adjudications, while a recognised legal tactic in the UK construction industry, come with their set of advantages and disadvantages. Understanding these can help parties make informed decisions about engaging in or defending against such claims.
Advantages of Smash and Grab Adjudications
There are several benefits of smash and grab adjudications such as:
- Method for obtaining quick payment
- Enforces contractual terms
- Effective remedy for obtaining payment
- Cheaper as it may potentially avoid unnecessary legal costs and arguments
Disadvantages of Smash and Grab Adjudications
The disadvantages of smash and grab adjudications for construction disputes include:
- The process focuses on the failure to follow procedure rather than true value for works
- Could lead to unfair outcomes
- Process could damage business relationships
- Possibility of further disputes as it may be an interim remedy only i.e. True Value Adjudication could follow
- Could result in a more expensive legal process
- May cause cash flow issues for the paying party and strain on finances
5 Tips to Avoid Smash and Grab Adjudication Disputes
Clients in the construction industry can proactively mitigate the risk of ‘smash and grab’ adjudications by taking informed and strategic actions such as:
- Understanding your contractual payment terms, notice requirements, and deadlines in your contract.
- Keep comprehensive records of all transactions, communications, and documentation related to the project.
- Ensure that all payment notices and payless notices are issued accurately and well within the contractual time frame. Consider using automated systems or calendar reminders to track these important deadlines, our expert lawyers can help set these processes up for you.
- Engage in clear, continuous communication with all parties involved.
- Consult with our expert construction lawyers. Our lawyers are experts in construction disputes and have successfully removed many disputes for clients. Contact us for a Free Consultation today.
For more information, our lawyers have written a Free Guide: “Resolving Payment Disputes: A Legal Guide for the UK Construction Sector.“
Case Example – £1.2m Recovered for Sub-Contractor plus costs
Client A approached our expert construction dispute lawyers after receiving a contentious Pay Less Notice which the client assessed at zero.
Our dedicated construction dispute lawyers swiftly analysed the situation, and evidence (including an expert valuation report), identified key areas of contention, and helped Client A successfully challenge and mitigate the financial implications of the notice.
Our construction dispute lawyers were able to recover a significant multi-million-pound sum of over £1.2m for the subcontractor.
Winning Approach to Smash and Grab Adjudications
Our lawyers’ extensive industry-specific knowledge and our commitment to justice make us the preferred choice for many businesses in the construction industry. Our construction dispute lawyers are passionate about this industry and are members of the Society of Construction Law and the Adjudication Society.
Our lawyers are recognised among the best lawyers in England & Wales, and have regularly been asked and featured to write authoritative articles in the Financial Times, the Law Society and LexisNexis and have been quoted in City AM, the New Law Journal, Law Society Gazette and Litigation Futures.
Our unique approach to smash and grab adjudications means that we will:
- Arrange a Free Consultation with you & a qualified lawyer to discuss your construction dispute
- Free Asset Tracer & Due Diligence Report
- Arrange a WhatsApp group with you & your legal team in case you have any questions
- Investigate the merits of your issue & create a strategy for success
- Send us your case documents easily through our secure client portal, Go Transfer
- Advise on any judgments & tactics that have proved successful in construction disputes
- Consult with independent surveyors & experts to strengthen your position
- Free sign-up to our Insolvency Tracker & Claims Protection service (worth £1k pa)
- Fixed fees & “no win no fee” arrangements so that you have peace of mind throughout
- Work hard to achieve the best outcome in your construction dispute
Our construction lawyers offer regulated, independent & confidential legal advice and are also dedicated members of the Professional Negligence Lawyers Association, the London Solicitors’ Litigation Association, the Association of Cost Lawyers, the Insolvency Lawyers Association and the Commercial Litigation Association.
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