The construction industry is well acquainted with the practice of ‘smash and grab’ adjudications, which arise following the failure by an employer to give a valid and timeous Payment Notice or Payless Notice in response to a contractor’s application for payment.
Following the decision in the case of Grove Developments Ltd -v- S&T(UK) Limited , it is likely we will see a considerable reduction in the number of ‘smash and grab’ claims. The Court held that an employer was able to challenge, by way of further adjudication the amount due to a contractor in respect of an interim application, by reference to the true value of the works, even if the employer had not issued a valid Payment or Payless Notice.
The developer, Grove, employed S&T as contractor to design and build a Premier Inn hotel at Heathrow airport. S&T argued that the Payless Notice issued by Grove in response to their Interim Application was invalid and hence the adjudication decision in their favour should be enforced, resulting in a payment of £14 million by Grove to S&T. In response, Grove not only argued that their Payless Notice was valid, but also sought a decision from the court as to whether an employer could in principle raise a second Adjudication, to decide the true value of an Interim Application.
Validity of Pay Less Notice
The court decided that a Payless notice needs to be construed by reference to its background in order to see how a reasonable recipient would have understood it and was unimpressed by finer points of textual analysis. Further, the court held that the Payless Notice could refer to another document previously issued, even if that document was not re-sent as an attachment to the Payless Notice. Therefore, a Payless Notice can incorporate documents by reference, for example, a valuation spreadsheet.
Adjudication of the ‘true’ value
Since the decision in ISG v Seevic, where a paying party under a construction contract failed to give a valid Payment or Payless Notice, it was deemed to have agreed to the amount claimed in the contractor’s interim payment application and could not challenge the ‘true value’ in adjudication. This position led to so called ‘smash & grab’ adjudications, in which, following a failure by an employer to give the required notice, a contractor could obtain an adjudication decision for the amount in its application which the employer was unable to challenge until the next payment cycle or the final account.
The Court in Grove dealt with this issue head on and decided that the previous authorities had been wrongly decided, and that where an employer fails to give a valid Payment or Payless notice, it is still required to pay the amount in the contractor’s application, but is now able to commence an adjudication as the ‘true value’ of the works.
This is good news for employers and the decision will have significant implications for the practice of adjudication in the UK construction industry.
If you would like to discuss the issues raised above, please do not hesitate to contact our construction adjudication specialist, Gary Ashton on 0113 8494018.