Pay first, argue later – “Smash and Grab” update

In this article, construction law solicitor Sam Bawden discusses "smash and grab" adjudication and significant cases related to this.

Many readers will no doubt be familiar with the principle of the “smash and grab” Adjudication (hopefully because they have heard me talk about it before, and not because they have been on the wrong end of one!).

The term refers to an Adjudication commenced by a contractor/sub-contractor after it has made an application for payment under a construction contract, in circumstances where its employer (which may be a main contractor) has neither issued a valid payment certificate nor a valid pay less notice but has nevertheless withheld payment. In those circumstances, pursuant to the Housing Grants Construction and Regeneration Act 1996, as amended (often referred to as “the Construction Act”), the notified sum as set out in a contractor’s application becomes due for payment by default, regardless of whether or not it reflects the true value of the works (hence why the term “smash and grab” has often been applied to an Adjudication seeking payment of that notified sum).

It is fair to say there has been a lot of case law which has gradually restricted the circumstances in which a contractor could succeed with a smash and grab Adjudication (for example, the Courts have been critical of contractors who do not make it absolutely clear what their interim applications are intended to be). However, until early 2018, it was widely believed that employers were at significant risk if they did not respond to contractors’ applications in a timely manner.

A significant case judgement

Then came the judgment in the case of Grove Developments Ltd v S&T (UK) Ltd which, contrary to previous authority, held that an employer could commence a second Adjudication, to determine the true value of the works as at the relevant valuation date. In other words, it gave the employer an opportunity to correct any overpayment that it might have been required to make by default following a prior smash and grab Adjudication. That decision was upheld on appeal.

This prompted many in the industry to immediately proclaim the end of the smash and grab Adjudication. However, opinion within the legal profession remained divided. One reason for that division was the comments made in the judgment which suggested that a second “true value” Adjudication might only be possible once the employer had first made payment of the sum awarded in the first smash and grab Adjudication. This suggested that there might still be a tactical advantage to be gained by contractors who saw benefit in having the money in their own pocket rather than their employer’s, even if only in the short term.

This question has recently been answered by the Technology and Construction Court in the recent case of M Davenport Builders Ltd v Greer and another. The Claimant had been awarded £106,160.84, plus interest, in a smash and grab Adjudication. The Defendant had commenced a second “true value” Adjudication, which valued the final account at £867,557.54 plus VAT and concluded that nothing further was due to the Claimant.   The Claimant applied to the Court to enforce the smash and grab decision and the Defendant sought to rely on the true value decision by way of set-off or counterclaim. Giving judgment in that case, Stuart-Smith J rejected the Defendant’s case because it had not paid the amount awarded in the first Adjudication. Making reference to the judgment in Grove, he held that “the decisions of Coulson J and the Court of Appeal… are clear and unequivocal in stating that the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended [Construction] Act before it can commence a ‘true value’ adjudication.”

A message to employers

The message to employers therefore remains one of caution: make sure you issue your payment certificates/pay less notices in time (and make sure it is clear what they are!). If you do get caught out in a “smash and grab” scenario, you do have the right to commence a second Adjudication to have the relevant payment application properly valued, but you will have to pay the sum notified in the application before doing so.

If your business could benefit from advice relating to construction disputes, get in touch with Sam Bawden on 01787 275275 and arrange an initial meeting.