Taking the sting out of smash and grab

Grove Developments Ltd v S&T (UK) Ltd Upheld

The cases of ISG Construction v Seevic and Galliford Try Building v Estura determined that where an employer failed to serve a valid Payment Notice and/or Pay Less Notice in respect of a contractor’s interim payment application then the employer was:

• deemed to have accepted the value of the contractor’s interim valuation and was obliged to pay the contractor’s interim valuation in full; and
• not entitled to commence an adjudication to determine the true value of the works as at the date of the interim application.

The landmark judgment of Mr Justice Coulson in Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123 earlier this year, rejected Seevic and Estura and determined, amongst other things, that an employer was entitled to commence an adjudication to assess the true value of the works. S&T subsequently appealed Mr Justice Coulson’s decision.On 7 November 2018, the Court of Appeal handed down its judgment on S&T’s appeal upholding Mr Justice Coulson’s first instance decision. The decision of the Court of Appeal confirms that: 

• an employer is entitled to commence an adjudication to determine the true value of the work covered by an interim application and paying the contractor’s ‘notified sums’ is not considered an affirmation by the employer. In the event that there has been overpayment the employer can either recover any sums that have been overpaid or set such sums off against future interim payments. However, the employer is required to pay any sums due to the contractor as a result of the first adjudication before commencing the second adjudication to determine the true value of the work; 
• the validity of a Pay Less Notice should be construed objectively with reference to the parties background knowledge to assess how the recipient would have understood the notice; and
• provided that notices warning the contractor of the employer’s intention to deduct liquidate damages and notifying the contractor of the deduction are served in the correct order no particular period of time had to elapse between service of the notices.

This decision provides much needed clarity to the construction industry regarding the proper operation of the payment provisions within the amended Construction Act and confirms that Seevic and Estura were incorrect and no longer constitute good law. While it is doubtful that “smash and grab” adjudications will now disappear, it is likely that, as a result of this decision, there will be a diminution in the number of “smash and grab” adjudications commenced by contractors as the employer can now effectively challenge the adjudicator’s decision and recover any overpayment.