This article has been updated following the recent Court of Appeal decision in Grove Developments Limited v S&T (UK) Limited  EWCA Civ 2448.
Decision at first instance
Grove Developments Ltd v S&T (UK) Ltd  EWHC123 (TCC) dealt with “Smash and Grab” adjudications.
A JCT D&B 2011 contract was entered into between Grove Developments Ltd (“the Employer”) and S&T (UK) Ltd (“the Contractor”) in relation to the design and build of a hotel. The contract sum was in the region of £26 million. Contractual completion was due to take place on 10 October 2016, however, following significant delays, practical completion took place on 24 March 2017.
Following previous adjudications, the Employer issued a Payment Notice in relation to Payment Application 22, however, the Payment Notice was issued out of time. Subsequently the Employer issued a Pay Less Notice, which was issued in time, but rather than attaching the detail of the calculation simply referred to the earlier Payment Notice.
At the adjudication, it was held that the Pay Less Notice was invalid and the Employer was required to make payment of the sum of £14 million to the Contractor.
The Employer subsequently issued proceedings at Court for a determination that the Pay Less Notice was valid and further that, in any event, the Employer was entitled to adjudicate on the true value of the Payment Application.
The Court agreed the Employer could raise the dispute on the basis of the “true” value of the interim application number 22 and the Employer could bring a further adjudication on this basis, whether or not the Pay Less Notice was deemed to be valid.
Decision of the Court of Appeal
S&T (UK) Ltd sought and were granted permission to appeal.
Following consideration of the arguments, Coulsden J gave judgment in favour of Grove Developments Ltd, upholding the decision of the lower court confirming that the Employer was entitled to commence a further adjudication on the value of the payment application, notwithstanding it failed to serve a valid Payment Notice or Pay Less Notice.
The Court’s reasoning centred on the fact that it was within an adjudicator’s power to determine the “true value” of a Payment Application and that there is a distinction to be drawn between the sums in the Payment Application, which are, essentially, a provisional figure for immediate payment for cashflow purposes, and the true value following a complex valuation process. Adjudication as to the latter is, and ought to be, permitted.
However, the Court confirmed that an adjudication on the true value of a payment application can only take place if an employer has made payment of the sum demanded by the payment application.
This is an important case for contractors who seek to use the “smash and grab” adjudications on a regular basis. Contractors may find that they are now likely to face adjudications as to the true value of payment applications from employers on a more regular basis.
However, it is not necessarily all doom and gloom for contractors who may find that “smash and grab” adjudications are still a strategic step to take, particularly where there is no dispute between the parties as to whether the adjudication is in respect of the true value, or that point is not taken by an employer. The fact that the Court of Appeal held that the sum demanded by the Payment Application must be paid prior to an adjudication on the true value can be commenced will provide some comfort to contractors.