Reluctance to pay more than is truly due – Construction and Adjudication and the Recent Decision of the TCC

4 August 2020

Adjudication and the Technology and Construction Court (‘TCC’)

Historically, the TCC has been reluctant to resist the enforcement of an adjudicator’s decision.

Adjudication has allowed for certain payment disputes to be resolved in an expedient manner. This avoids a payee enduring a long and costly Court process before being able to receive any monies wrongly withheld by an employer.

 On occasions, a losing party to an adjudicator’s decision will fail to pay a decision. The law allows a successful party to issue enforcement proceedings in the TCC where the claim is immediately accompanied by an application for summary judgment. Depending on the availability of the TCC, this application for summary judgment is to be heard urgently and ideally, within 28 days.

A defendant party may, on occasions, resist enforcement. This is always an uphill battle. Under a “Smash and Grab” adjudicator’s decision, the defendant may ask for a stay of enforcement pending a true determination of amounts that may be due to a contractor. This approach is often taken where there are insolvency concerns on the side of the payee or contractor. When making a request for this stay, generally, the employer will have issued separate proceedings for a true determination of amounts due. Whilst this is something that has been before the TCC and Court of Appeal, the Courts would generally look to allow enforcement to proceed.

Smash and Grab – What if an adjudicator’s decision allows a payee to be paid more than is due?

Smash and Grab is simple.

  1. Payee under a construction contract makes an application for payment/raises a payment notice for sums consider due.
  2. Payor fails to issue a payless notice on time in accordance with the legislation and/or construction terms.
  3. The amount due in the payee’s notice becomes automatically due and owing, even if those amounts are disputed and would lead to an overpayment.

It is important to remember that it is not always the case that contractors are the underpaid or the injured party. A smash and grab could allow the payee to be paid more than it is actually entitled to.

We sometimes forget or fail to digest the financial impact and consequences that such an overpayment can have upon employers. Whilst it is still open for an employer to challenge the amounts paid on an interim determination or alternatively within a final account, the employer is quite often forced to make the overpayment and left to sustain this negative cash flow impact in the meantime.

Following a significant decision in the case known as Grove – v—S&T, the law appeared clearer. An employer can revisit adjudication for a true valuation. However, the negative impact of such a smash and grab would still have a grave financial impact on an employer’s cash flow as that sum must be paid first before the true valuation adjudication can take place. Ie it is likely to be the case for the employer of pay now, argue later. This undoubtedly gives a significant advantage to a payee or contractor.

The law is still slightly uncertain about when, and how, a true valuation can be relied upon.

Broseley (London) Ltd v Prime Asset Management Ltd [2020]

This recent judgment provided further clarity on the basis upon which the TCC may stay the enforcement of an adjudicator’s smash and grab decision. The law relating to construction payments, enforcement and the many arguments pursued in this case would be outside the scope of this article. However, in a nutshell, the facts of the case relating to smash and grab were as follows:

  • The contractor was successful in a smash and grab adjudication.
  • Employer did not pay.
  • Contractor applied to enforce that decision in the TCC.
  • Given the trite law in attempting to defend such an action, the employer agreed they had no defence.
  • The employer requested that the enforcement was stayed to allow a final account valuation (note, this was not for a true determination on the interim valuation but a final account, which is slightly different to the majority of decisions that have been before the TCC).
  • The TCC decided that an adjudicator could not consider the valuations in the final account that were part of the smash and grab decision without them first being paid in the first instance.
  • Stay was refused – Judgment was issued.

Bad news for employers.

Impact of Covid-19

With the downturn in the UK economy, the issues surrounding a true valuation of works undertaken by contractors will undoubtedly be something heavily contested over the up and coming year.

Sadly, with the pandemic, it will undoubtedly be the case that more and more contractors will face insolvency. This in turn will mean that any overpayment made under a smash and grab adjudication could be extremely difficult to recover where a true determination is eventually made.

It remains to be seen if the current consultation on the legislation will revisit this position or if the courts will look to adopt a different approach.

Any party to a construction contract should fully understand what they are required to do, and should definitely ensure they serve any notices on time in accordance with either the current legislation or contract.

For more on our Construction Law service click here

To contact Rhian Davies, Construction Law expert, click here

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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