Following on from our article on notices of adjudication, Construction solicitor Abbie Grimwood continues to look at the case of AM Construction (AMC) v Darul Amaan Trust (DAT) as not only does this case hold significant warnings for getting the service of notices right, but it also provides further clarity on the commencement of true value adjudications.
In summary, AMC brought a claim against DAT following an adjudicator’s decision on the basis that the adjudicator’s decision was unenforceable as it was made without jurisdiction and/or in breach of public policy.
As the previous article covered, AMC firstly argued that the adjudicator’s decision should be set aside because of an invalid notice. This second article focuses on AMC’s further argument which was that DAT could not commence a true value adjudication until it has paid the notified sum under the Contract, applying the judgment of S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448 (“S&T”).
On 18 March 2020, AMC issued an interim payment application to DAT claiming £809,259.97 plus VAT. The Judge found that this notice was not valid as it did not comply with the contract.
On 16 July 2020, AMC issued DAT another interim payment application stating that they had reassessed the value of the claim and it totalled £206,825.33 plus VAT. The judge decided that this notice did comply with the notice provisions under the contract and therefore it was valid. The judge further concluded that as there was no payment made and no Pay Less Notice received, the sum of £206,825.33 was due.
AMT argued that DAT could not commence a true value adjudication until DAT had paid the notified sum (i.e. £206,825.33).
In S&T, the Court of Appeal held that an employer had the right to bring a true valuation adjudication subject to the employer first complying with its obligation to pay a notified sum. S&T, and other cases that have since been considered by the TCC which applied the principles of S&T, have been in relation to an adjudicator’s decision where a notified sum was due and unpaid.
In this case, DAT commenced a true valuation adjudication without paying the notified sum. DAT argued that the principles of S&T only applied where a previous adjudicator’s decision determined that there was a notified sum due, and not where the parties were just in dispute about a notified sum.
The Judge relied on S&T and Bexheat Ltd v Essex Services Group [2022] EWHC 936 (TCC) (“Bexheat”) when considering whether a true value adjudication can be commenced if a notified sum has not been paid.
Bexheat said that an employer who fails to issue a valid payment notice or pay less notice must pay the notified sum in accordance with section 111 of the Act by the final date for payment. If the employer fails to pay the notified sum, the contractor is entitled to seek payment of such sum by adjudication. In Bexheat the Judge is clear on applying the principles of S&T.
The Judge rejected DAT’s arguments and determined that a notified sum being due was an obligation that had to be fulfilled before commencing any true value adjudication, regardless of whether it was decided in an adjudication decision or not. The Judge decided that a party can therefore only embark on a true value adjudication in respect of that sum after it has complied with its immediate payment obligation under section 111 of the Act i.e. payment of the notified sum.
This is a key reminder to firstly, serve a pay less notice in accordance with the contract if you do not agree with the amounts contained in a payment application, and, secondly, to ensure that any payments of notified sums that are due are paid to be able to issue a true value adjudication.
This case leaves some ambiguity on smash and grab adjudications. There are frequently arguments about whether a notified sum is due which is often determined in a smash and grab adjudication. There are quite often defended smash and grab adjudications which decide that the notified sum is not due. If the notified sum is paid and a true value adjudication is issued, there may be a dispute about whether the sum is even due in the first place. We expect that there will be further case law on this ambiguity but in the meantime, make sure you seek expert advice before embarking on a true value adjudication.
If you have any questions relating to Adjudication or the services of notices under your contract, please contact the Construction Team at Holmes & Hills Solicitors who would be more than happy to assist.
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