Pay now, argue later?

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 looked at whether

  • a pay less notice can incorporate a valuation by reference [Spoiler – yes]
  • the employer can adjudicate the true value of the payment application [Also yes]
  • payment applications and payment/pay less notices had different standards for content [No]
  • interim or final payments should be treated differently [No]

In the High Court, 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.’ His aside was recently confirmed in the Court of Appeal so the employer has the right to adjudicate the true value of the payment application. The ‘sum due’ i.e. the amount determined objectively under the contract was not the same as the ‘notified sum’ i.e. the amount one party believed (subjectively) was due.

In summary

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).

It may mean the end of windfall claims, or a return to summary judgment on interim applications, or that adjudications focus instead on value.

What should you do?

The decision does mean that the payer can no longer refuse to pay based on bare assertion about true value: ‘pay now argue later’.

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 [2018] EWHC 123 (TCC); S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448

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