Fri 02 Feb 2024

‘Smash and grab’ and ‘true value’ in the same adjudication?

One of the features of the contentious construction world is that only one crystallised dispute can be referred to adjudication at any one time. While that is easily stated, what it actually means is the subject of a large and complex body of case law from the courts. Against that background, we discuss one of the first court decisions of 2024, Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 10 TCC.

Bellway Homes Ltd. v Surgo Construction Ltd

[2024] EWHC 10 TCC

One of the features of the contentious construction world is that only one crystallised dispute can be referred to adjudication at any one time. While that is easily stated, what it actually means is the subject of a large and complex body of case law from the courts.

Against that background, it is perhaps surprising that one of the first court decisions of 2024, Bellway Homes Ltd v Surgo Construction Ltd, has been heralded by some as breaking new ground in this area. In that case, the court considered whether the adjudicator was correct in reaching the conclusion that not only did he have jurisdiction to decide a so-called ‘smash and grab’ adjudication – essentially, one in which it is contended that the sum notified by the payee has to be paid in the absence of an appropriate payment or pay less notice from the payer – he also had jurisdiction to reach a decision on what is generally referred to as ‘a true value’ basis. In the particular circumstances of the case, the judge decided that the adjudicator was right to do so.

The background

Roundel Manufacturing Ltd (‘Roundel’) and Surgo Construction Ltd (‘Surgo’) entered into a contract under which Roundel would supply and install kitchens for Surgo. Roundel commenced an adjudication seeking payment of the sum of £152,225 which it had applied for in its payment application for December 2022 (‘the notified sum’). Surgo failed to send any payment or pay less notice to Roundel. Surgo then failed to pay Roundel the notified sum.

Roundel commenced an adjudication seeking payment. It purported to do so on a ‘smash and grab’ basis because of the lack of any notice from Surgo. Importantly, Roundel also argued in the notice of adjudication that ‘Further or in the alternative…’ that it was due the sum claimed ‘calculated on a substantive basis’. In the Referral, Roundel indicated that this ‘substantive basis’ meant a ‘true value’ basis.

In essence, Surgo argued that the adjudicator did not have jurisdiction to deal with the two bases of the claim as they were different disputes. The first was based upon statutory provisions which meant that payment had to be made of the notified sum in the absence of a valid payment or pay less notice. That did not involve consideration of the ‘true value’ of the work done.

The position of Roundel was that there was only one dispute ‘concerning the sums due on the application for payment … which was requested to be determined by one of two routes’. The two routes were (a) the ‘smash and grab’ or (b) a ‘true value’.

The Adjudicator decided that Roundel’s Application for payment ‘… cannot be considered as an Application in relation to the 22 December 2022, or any other, payment due date. It comprises no more than a number of accountancy summaries that do not seem to correlate with each other. It was not and cannot readily be demonstrated to be an Application stating the sum that the Contractor considers would become due to it. Certainly, it is not in substance, form and intent, an Application, and it is not free from contradiction and ambiguity … It follows that Roundel’s Application does not meet the tests under the Act, of being valid for the purposes of facilitating a default ‘smash and grab’ payment’.

The Adjudicator proceeded to reach a decision on a true value basis and awarded Roundel £146,118.82 with interest.

Roundel assigned to Bellway all rights in the sums due under the Adjudicator’s decision, which explains why Bellway was the Claimant in the enforcement proceedings, not Roundel.

The decision

After considering certain authorities, the District Judge framed the question he had to answer as ‘Taking into account the nature of the dispute and the manner in which it was presented to the Adjudicator, can it fairly be described as a single disputed claim for a sum due or a referral of a number of disputes which, on analysis, are independent of one another?’.

The judge’s view was that it was the former, not the latter. The notice of adjudication had ‘clearly characterised the dispute as a failure to pay any sum due to the Claimant by the final date for payment whether by way of notified sum or by way of a substantive amount due up to the end of December 2022’. He went on to say that to ‘… characterise these as separate disputes would be to adopt too legalistic an approach….’.

The court also rejected the argument that the Adjudicator had exceeded any jurisdiction that did exist. Surgo contended that the adjudicator had acted outwith his jurisdiction by considering the true value after deciding that the ‘smash and grab’ failed because the application for payment did not meet the relevant requirements. The judge considered that the fact that the Adjudicator had expressed the view that the application did not meet the requirements for a ‘smash and grab’ did not mean that the adjudicator was ‘rejecting the Application as being capable of being an application for payment in any circumstances’. That view, he said, proceeded upon the ‘… conclusions and the ultimate decision’ of the adjudicator.

The important points for parties to construction contracts and those involved in adjudication

Make sure you give notice

As always in cases of this nature, the starting point must be that payers should respond to payment applications and should ensure that they give their own payment or pay less notices. By doing so, they can avoid disputes of the kind in this case including having to pay the notified sum which, as in this case, may be higher than the ‘true value’ decided upon by an Adjudicator. Experience shows that doesn’t always happen, which leads to many cases like this one. The difference between the notified sum and a ‘true value’ could be considerable, particularly towards the end of a big construction project.

Deciding to combine ‘smash and grab’ and ‘fair value’ in one adjudication still requires careful thought

The decision in this case is likely to encourage referrals to adjudication which seek to combine a ‘smash and grab’ with a ‘true value’ in the alternative. In the past, many claimants and their advisers will have opted to refer a ‘smash and grab’ alone, rather than trying to couple it with a ‘true value’. That may have been, at least in part, because of concerns about potential arguments like those in this case. In any event, the ‘smash and grab’ argument should be easier and cheaper to make thus avoiding the need to go to the time, trouble and expense of doing all the additional work that would necessarily be involved in most ‘true value’ claims.

It is an interesting feature of this case, as indicated above, that the adjudicator was scathing about the nature of the purported payment application when considering it in the context of a ‘smash and grab’ but it was apparently sufficient as the basis for a decision on a ‘true value’. Another factor is that not all true values will be capable of being determined quite as easily as the true value appears to have been in this case.

Many will consider that the judge took a practical and non-legalistic approach which can reduce the number of adjudications. Some may argue that the decision does not properly reflect the different nature of what is due under a ‘smash and grab’ and the basis upon which it becomes due when compared with a ‘true value’. There were also certain particular circumstances in this case that may not apply in others and might affect the outcome.

Watch out for further developments

It will be interesting to see if the decision in this case is appealed or considered in other cases. It may not be the last we hear of it!

This article was co-written by Lachlan Tait, Trainee Solicitor.

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