The classic smash and grab adjudication is where the employer fails to serve a payment or pay less notice against a contractors application for payment.
It relies on s111(1) of the Construction Act 1996:
Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before final date for payment.
Under s111(3), the payer may give notice of its intention to pay less than the notified sum. If so, what must be paid is the sum stated in the pay less notice (s111(6)). This provision was referred to as ‘pay now, argue later’ but the question was whether there was any real right to do that. The Act does not say ‘unless and until revised by next payment cycle or final account’. It does not say ‘until determined by adjudicator’.
Various cases (Harding v Paice, ISG v Seevic and Galliford Try v Estura) considered whether the employer can challenge the amount of the contractor’s application as a way to ‘pay now, argue – in an adjudication – later’. The reality – and standard advice for parties – is that those:
“who wish to avail themselves of the notice procedure, must follow the contractual mechanisms strictly…” (see Henia v Beck Interiors)
Grove v S&T
This decision focused on whether a pay less notice can incorporate a valuation by reference. [Spoiler alert – yes].
The decision came with a stinging rebuke. The judge (Mr Justice Coulson) was ‘unimpressed by nice points of textual analysis, or arguments which seek to condemn the notice on an artificial or contrived basis.’ He rejected the idea that there are two standards for content – one for payment applications and one for payment/pay less notices.
As an aside he said that, even without a payment or pay less notice, the employer has the right to adjudicate the true value of the payment application. The basis for that comment is that the ‘sum due’ i.e. the amount determined under and in accordance with the contract (objectively) and the ‘notified sum’ i.e. the amount the parties believe are due (subjectively) are different amounts. In his view the contract valuation mechanism is displaced by payment mechanism, but not overturned.
He also said there was no express restriction on reviewing the value under either the Construction Acts or the Scheme for Construction Contracts, nor was there anything which justifies treating interim or final payments differently.
The decision in Grove v S&T does not eliminate ‘smash and grab’ as the contractor can still apply for payment based on absence of payment or pay less notice, although such a decision might be short-lived (and indeed overtaken by the next payment cycle).
Some of the possible consequences of this decision include:
- It may mean the end of windfall claims.
- It may result in a return to summary judgment on interim applications.
- It may mean that adjudications focus instead on value, even though they take longer to prepare and therefore can be overtaken by events (where there is a monthly payment cycle).
Definite consequences include that the payer can no longer refuse to pay based on bare assertion about true value. The true effect of the decision is ‘pay now argue later’ as Grove ensures that the parties can argue about value in an adjudication.
The options for an employer are now to
- sort out the value in next payment cycle,
- bring an adjudication on true value,
- use part 8 to challenge validity of pay less notice/enforcement.
But the real impact of this decision is that the parties need to follow the terms of the payment procedure to the letter and on time!
Case:Grove Developments Ltd v S&T (UK) Ltd  EWHC 123 (TCC). This case is being appealed at the time of writing.