The term “smash and grab” conjures up images of a masked thief, with brick in hand, smashing a shop window to grab a handful of jewellery before making off into the night, never to be seen again. It is a term describes what is seen by those on the receiving end of an Adjudication claim, as an opportunistic and unjust attempt by unpaid contractors and sub-contractors to claim a windfall payment, when the paying party has failed to serve the appropriate notices required by the “Construction Act”.
The Court of Appeal in S&T (UK) Limited -v- Grove Developments [2018] EWCA Civ 2448 tempered the apparent injustice of “smash and grab” claims that take advantage of this procedural breach by the paying party. The Court of Appeal decided that even if the Employer, Developer or Contractor is compelled to pay the sum awarded by the Adjudicator, this does not prevent the Employer, Developer or Main Contractor from commencing a second adjudication upon the “true value” of the unpaid contractor’s or subcontractor’s final account.
The correction principle and later payment cycles
In J & B Hopkins -v- Trant Engineering [2020] EWHC 1305 (TCC) the Defendant resisted enforcement of the Adjudicator’s decision on the basis that the payment cycle that had moved on and said that it had an ongoing adjudication on the true value of a later payment application, so that they asked the court for a stay of execution of the first Adjudicator’s decision until the outcome of the subsequent true value claim in the subsequent adjudication.
The TCC decided that the existence of later payment cycles does not mean the prior sum in the application that is the subject of the first adjudication is not due. They decided that the paying party cannot withhold a payment decided upon in an adjudicator’s decision of an earlier payment cycle. They rejected the paying party’s argument that the subsequent payment cycles “corrected” the sum claimed in the next application and therefore the sum claimed in the first adjudication was not due for payment.
The Defendant challenged the summary judgment enforcement proceedings of the Adjudicator’s decision in the TCC on the grounds that by the time of the later interim payment cycles, the Claimant was no longer entitled to be paid the sum claimed because of the “correction principle”.
The court rejected the argument that subsequent interim payment applications in the payment cycle had been answered by valid payment notices in these subsequent payment cycles and therefore the sum claimed in the Adjudication was not due. It was argued by the Defendant paying party that it would be “manifestly unjust” to permit the Claimant Sub-Contractor to enforce an Adjudicator’s decision in respect of the claimed amount in the interim application, when that sum had ceased to be due, following later payment cycles which the Claimant Sub-Contractor “went along with” before the adjudication started, and no longer represented the current payment entitlement under the Sub-contract because the payment cycle had moved on.
The earlier dispute does not disappear in the payment cycle
In S&T (UK) Limited v Grove Developments Limited 2018 EWCA Civ 2488 the Court of Appeal approved the “correction principle”, that if an interim application is not answered by the required notices, this leads to the result that the sum applied for becomes due. Any subsequent correction to reflect the true value of the work and the application for payment that relates to it, is permissible on later applications.
The court decided that disputes on earlier applications do not disappear and cease to exist merely because a subsequent application is made to correct the amount due on the earlier application.
The court in J & B Hopkins decision said that if the Defendant was right, it would mean when a subsequent payment application was submitted any dispute on an Interim Payment would be overtaken by events and would cease to be a dispute.
Stay of Enforcement
The Defendant in J & B Hopkins decision relied on what they described as a “manifest injustice” that would arise from the “correction principle”. The court said that where the Claimant has a valid Adjudicator’s Decision a “manifest injustice” argument should not be used for an examination of the supposed “merits” of the dispute because this would frustrate the Construction Act, that governs payless notices and payment notices, and which will allow a Contractor or Sub-Contractor to commence an adjudication that is not based on the merits of the dispute.
It was argued that the Claimant “went along with” later payment cycles but the court said that by participating in the subsequent payment applications, the Claimant did not lose its ability to adjudicate on whether or not the relevant notices were served in respect of Interim Application that was disputed.
Manifest injustice
The Employer will have their work cut out in trying to run an argument of “manifest injustice” because the courts have emphasised that this will be “very rare”.
This was re-emphasised in the J & B Hopkins decision where the Defendant unsuccessfully tried to argue that it would be “manifestly unjust” to uphold an Adjudicator’s decision because of the “correction principle”.
The “correction principle” cannot lead to a result that the amount claimed in the first application was not due at all.
The operation of the payment cycle does not mean that the amount due disappears into the night like the masked jewel thief, never to be seen again
