Smashing 'Smash and Grab' – Coulson J delivers significant blow to smash and grab tactic
Over recent years a body of case law has developed supporting the principle that in the absence of a valid pay less notice an employer is exposed to a 'smash and grab' adjudications for payment of the sum stated as due in a contractor's interim application even if that application is overstated. On Tuesday this week, in what is likely to be his final judgment before moving to the Court of Appeal, Coulson J delivered clarification on the matter in Grove Developments Ltd v S&T (UK) Ltd, holding that even in the absence of a valid pay less notice it is open to an employer to commence adjudication proceedings for determination of the 'true' value of an interim application thus potentially blunting the tactical 'smash and grab' adjudication threat.
Grove Developments concerned the construction of a new 613 bedroom Premier Inn hotel at Heathrow Terminal 4, in which the claimant employer, Grove Developments Limited (Grove), entered into an amended 2011 JCT Design and Build Contract. contract with the defendant contractor, S&T (UK) Limited (S&T). The project suffered from significant delay and was subject to three separate adjudications, the third deciding that Grove's pay less notice was invalid. As a result S&T claimed to be entitled to be paid in excess of £14 million under the relevant interim application, No. 22.
CPR Part 8 proceedings followed to address a number of issues arising from the adjudication. Of relevance to 'smash and grab' tactics was Issue C, being "whether in principle, at this stage, Grove is entitled to commence a second adjudication seeking a decision as to the 'true' value of interim application 22".
'Smash and Grab' under Seevic
The seminal case underpinning 'smash and grab' is (or at least was) the decision of Edwards-Stuart J in ISG Construction Ltd v Seevic College . Though Fraser J had noted in Imperial Chemical Industries Limited v Merit Merrell Technology Limited  that recent authorities cast "real doubt" on the logic underpinning Seevic, it continued to provide authority for the proliferation of 'smash and grab' adjudications, which had become an important tactic for contractors and sub-contractors.
In Seevic Edwards-Stuart J held that an adjudicator could not determine the value of an interim application which had previously been found to be payable in a prior adjudication, as a result of the employer's failure to serve a pay less notice:
"…if the employer fails to serve any notices in time it must be taken to be agreeing the value stated in the application, right or wrong. In my judgment, therefore, in that situation the first adjudicator must be in principle taken to have decided the question of the value of the work carried out by the contractor for the purposes of the interim application in question."
Edwards-Stuart J saw a "fundamental difference" between the payment obligations arising on interim applications and those arising at the final account stage where the valuation could be contested in the absence of a pay less notice.
Justice Coulson's Decision
Coulson J's approach applied 'first principles' to the case law at hand, keeping in mind the simplicity of the underlying issue, which he determined to be as follows:
"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?"
Coulson J determined there to be six separate reasons why the answer is to the question is 'Yes':
Firstly, Coulson J invoked the Court of Appeal case of Henry Boot Construction Limited v Alstom Combined Cycles Limited , holding it to be:
"authority for the proposition that the court can decide the 'true' value of any certificate, notice or application and that, as part of that process, it has inherent power to open up, review and revise any existing certificates, notices or applications."
Secondly, Coulson J drew support from the statutory regime governing payments in the construction industry, noting that under s.108 of the 1996 'Construction' Act and paragraph 20 of the 'Scheme' there is no limitation on the nature, scope and extent of the dispute which either side can refer to an adjudicator.
Thirdly, in view of what Coulson J determined to be the underlying issue, he noted that the dispute which the employer would wish to raise in the second adjudication is a different dispute to that which was determined in the first.
Fourthly, Coulson J looked to the words of the contract, which expressly differentiate between "the sum due" (the result of the contractual mechanism designed to calculate the contractor's precise entitlement, the 'true valuation') and "the sum stated as due" (the sum due in the absence of a payment or payless notice).
Fifthly, Coulson J determined that a second adjudication to assess the true value of an application should be permitted on the basis of equality and fairness. If a contractor can launch an immediate adjudication on the value of a particular application, why should an employer be precluded from doing so, in the absence of any contrary wording in the 'Construction' Act, the Scheme or the contract at hand.
Finally, Coulson J took issue with the "fundamental difference" in payment obligations noted in Seevic, assessing them against the statutory payment scheme and the provisions under the JCT and concluding that "there is no difference between the payment rights and obligations of the parties in respect of interim payments, and those arising in respect of the final payment".
Coulson J's TCC swansong is likely to have significant ramifications for the construction industry and, in particular, that he disagrees with reasoning of Edwards-Stuart J in Seevic on the basis of his interpretation of Henry Boot and other CoA authorities carries substantial weight. As a consequence, the tactical benefits for contractors in pursuing 'smash and grab' adjudications would appear to have been substantially undermined by Coulson J's judgment that employers are not prohibited from commencing counter adjudications for determination of the value of interim applications even where there has been no valid pay less notice.
It is important to note that the contract in Grove Developments was an amended 2011 JCT Design and Build Contract. For interim applications, unamended JCT contracts do not generally incorporate a mechanism for payments from the contractor to the employer in the event of a negative valuation. Therefore, in circumstances where a payment has been made to a contractor pursuant to an interim application which amounts to an overpayment in excess of the 'true' value of the works, a right to commence adjudication proceedings for the determination of the true value may not provide the practical benefit if a repayment sought by the employer.