Smash and Grab Adjudication

Within the United Kingdom Construction Industry, a process of alternative dispute resolution has been developed over the past 26 years, known as statutory construction adjudication. This Blog will examine what has been colloquially known as smash-and-grab adjudications. Through an analysis of recent developments in case law, this Blog will demonstrate that the possibility of parties protecting cash flow through following adjudications on pay now, argue later basis is a possibility within the UK Construction Industry.

Statutory construction adjudication was introduced in the UK with the Housing Grants, Construction and Regeneration Act 1996. This legislation gave parties to a construction contract the right to refer disputes to adjudication, which had to be resolved within 28 days. This requirement introduced quick temporary dispute resolutions to the construction industry, with the eventual disputes being settled through arbitration or litigation later.

Pay now, argue later approach to construction adjudication is where a contractor, before agreeing on the final account, submits a payment application at the end of the works; the employer does not respond to the payment application within the time allowed in the contract; hence the contractor refers the matter to adjudication. The benefit of this approach is that any disputed valuations are transferred to the contractor before the employer resolves the final account. The employer is duty-bound to pay even if they disagree with the valuations captured within the payment application. Despite recent case law which governs the use of the pay now-argue-later approach, it would appear that with the effects of the Covid 19 pandemic, contractors are increasingly eager to adopt this tactic when considering how the statute had grown to be applied within the industry, allowing smash and grab adjudications to place the power within the contractors. However, crucially only when the employer fails to meet their obligations; therefore, despite the adjudication process being manipulated in some instances, this only occurs with the initial failure of the employer to respond to a payment application.

However, should an employer be on the wrong end of a smash-and-grab adjudication, the ruling in Grove Development Limited v S&T (UK) Limited allows the employer to commence a true value adjudication once the initial value of the smash-and-grab adjudication has been paid. This decision could have had an impact on the volume of smash and grab adjudications, given that the final result of the proper value adjudication could leave the contractor in a worse position than they would have been had the definitive account been settled between the parties, as unproven variations are likely to be obliterated. The case of Grove v S&T gives optimism to the employer on the wrong end of a smash-and-grab adjudication by providing the option to either continue the dispute in arbitration or litigation or commencing a true value adjudication which is likely to be a more cost-effective option. The drawback of this position for the employer is that they must pay the value of the smash-and-grab adjudication before commencing the true value; hence this can significantly damage their cash flow position.

The importance of the employer paying the value ordered in the smash-and-grab adjudication is highlighted in the case of M Davenport Builders Ltd v Greer and Another 2019. Here Greer was on the losing side of a smash-and-grab adjudication and commenced a true value adjudication without paying the initial adjudication value. When the true value adjudication was completed, Greer sought to rely on this decision without paying the value in the first decision. M Davenport subsequently took the matter to court to enforce the first adjudication decision, with the court ruling that the obligation for immediate payment from the first adjudication had not been discharged; hence Greer could not rely on the decision of the proper value adjudication. Consequently, full payment was due, and Greer also had to pay the costs of enforcing the initial adjudication decision.

The case of Broseley London Ltd v Prime Asset Management Ltd 2020 is critical within adjudication law, as Broseley won a pay now argue later adjudication on a payment application in which pay less notice was returned late, then terminated the contract; however, Prime then sought to commence a proper value adjudication for the final account, with the court ruling the final account could not be resolved by adjudication until the original decision on the payment valuation payment had been complied with. This ruling fits the narrative of the Housing Act 1996, where adjudications are intended to be a quick form of dispute resolution. An employer failing to comply with an adjudication decision on one payment application to seek to adjudicate the matter as part of a broader context cannot be allowed until the original decision is complied with. Therefore, to keep their options open, the employer must make decisions quickly if they wish to be a true value adjudication. Above all else, they must comply with the original adjudication decision.

The Timely compliance with an adjudicator's decision was further highlighted in the case of Kew Holdings Limited v Donald Insall Associates Ltd, where Kew was on the wrong side of an adjudicators decision and had failed to make payment despite a court order enforcing the adjudicator's decision, 13 months later Kew commenced a claim for damages. In this case, the court ruled that by failing to oblige with the pay now idea, Kew was giving up the opportunity to argue later; hence Kew's claim for damages could not continue until Kew made payment to Donald. This case expands the requirement as set out in Grove V S&T that a party is not only prevented from seeking further adjudication on a broader issue but is also prevented from litigation until the original decision is complied with; hence it can be suggested that the most important action a party can take post adjudicators decision is to ensure they comply with the said decision before taking other action.

Statutory Adjudication within the UK is a right of parties under a construction contract. However, as has been demonstrated within this Blog, adjudication can be an initial tactic within the overall dispute resolution process. The aspects of pay argued later, have been explored along with a review of recent case law evolutions and critical learnings from each case. As demonstrated, primary education is that employers on the wrong side of a smash-and-grab adjudication must comply with the decision. Likewise, the importance of making decisions and complying promptly has been presented. In addition, the understanding that when complying with a decision, there is no guarantee that money transferred can be returned upon final settlement has been shown; hence another key learning is that to avoid this risk, employers should ensure they avoid smash-and-grab adjudications by meeting obligations on payment or pay less notices.

Suppose you have an issue with getting payment from another party, or have had an adjudication notice served upon you. In that case, Velocity Dispute Management can assist you either with help preparing the evidence to provide an adjudicator or acting as an independent adjudicator. Sometimes it's helpful to set your mind a rest with an independent analysis of your position; Velocity can help with this as well to protect your interests. If you wish to discuss how Velocity Dispute Management can support you or discuss this Blog's content, please get in touch with admin@velocitydisputemanagemet.co.uk or book a strategic review meeting where one of our consultants will review your situation and create an action plan to utilise your rights in law to resolve the problem.

The content of this blog is intended for information only and is not an alternative for legal advice. Velocity Dispute Management accepts no responsibility for the actions of another party as a result of this blog or the content of any third party source which this blog refers.