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Smash and Grab? Think Twice

13 April 2018. Published by James Fielden, Legal Director

Following the amendments to the Construction Act which came into force in 2011, the proliferation and scale of so-called "Smash and Grab" adjudications would have made the Pink Panthers proud.

However, the well-publicised judgment in Grove Developments Limited v S&T(UK) Limited [2018] EWHC 123 (TCC) might give potential smash'n'grabbers pause for thought: is it worth adopting that tactic if you might have to give the loot straight back? 

A typical Smash and Grab adjudication goes as follows: the contractor submits an interim application and, for whatever reason, the Employer fails to serve a valid Payment Notice or a valid Pay Less Notice.  The legislation provides that the Contractor is now entitled to the entire sum for which he applied.  If the Employer doesn't pay, the Contractor commences adjudication on this technicality, and he wins: he is entitled to the lot.  In Grove v S&T(UK) Limited, which concerned the final interim application on the project, the sum in question was £14m.

In previous cases, the TCC had found that a further effect of the legislation was that, in the absence of valid notices, the Employer was deemed to have "agreed" that the amount in the application was payable, irrespective of whether it was clear that there was no way he had actually agreed. As a result, the Employer could not commence an adjudication or legal proceedings claiming that the true amount payable was less that he had been required to pay as a result of failing to issue the correct notices: all he could do was correct the position in subsequent interim applications and/or, ultimately, in the Final Account.

That wasn't necessarily great for the Employer, though: as a project is reaching a conclusion, there are not many opportunities to set the position straight.  In addition, many construction contracts do not contain any provision for negative interim payments, and the amount an Employer could simply withhold might be entirely insufficient to recoup the money he has been forced to pay out.  Often, as in Grove, the adjudication concerns the last interim application, meaning that the final account is all that is left, and that might take months to resolve. 

Those problems ought to be a thing of the past.  In good news for paying parties, Mr Justice Coulson decided the question differently in Grove.  He said:

"…the underlying issue: can an employer, whose payment notice or pay less notice is deficient or non-existent, pay the contractor the sum stated as due in the contractor's interim application and then seek, in a second adjudication, to dispute that the sum paid was the 'true' value of the works for which the contractor has claimed? In my view, on the application of first principles, there are six separate reasons why the answer to that question is Yes."

He then went on to explain his reasoning in extensive detail.  The full judgment can be found here.

Grove is understood to be Mr Justice Coulson's last TCC judgment before he moves up to the Court of Appeal.  He said that he found the previous TCC analysis (the deemed agreement described above) to be "erroneous and/or incomplete".

Unless they have reason to believe that the Employer won't have the stomach for a further adjudication, or that, for any reason, a second adjudication will be so delayed as to make it worthwhile having the money in the meantime, Contractors faced with the opportunity to smash and grab might now want to think twice. 

Back to the Construction newsletter, April 2018