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Factual Background
VMA Services Limited (“VMA”), entered into a contract with Project One London Limited (“POL”) on or around 16 October 2023 using POL’s sub-contract order (incorporating the JCT Design and Build Sub-Contract Agreement Conditions 2016) for the design and installation of mechanical works at 1 – 4 Munro Terrace & 112 – 114 Cheyne Walk, London SW10 0DJ (the “Contract”).
VMA submitted a payment application on 21 June 2024 which left a payment due of £106,434.88. POL failed to serve a Payment Notice or a Pay Less Notice and on 16 December 2024, POL served a Notice on VMA of its Intention to Refer a dispute to an adjudicator seeking determination of the true value adjudication (“TVA”). The documents files as part of the adjudication debated the question of whether VMA were right as a matter of jurisdiction and/or substance to contend that the TVA could not proceed on the grounds that POL failed to may the sum notified to them by VMA.
In his decision, the adjudicator concluded that VMA had provided a valid application, and POL had not used a valid Payment Notice or Pay Less Notice, therefore the sum notified by VMA under its payment application was due from POL. This amounted to a full defence for VMA to the claim from POL, and the TCA could not be considered.
The adjudicator decided in favour of VMA on 10 February 2025 (the “Decision”) and VMA was awarded the sum it had notified within its payment application. In these proceedings, VMA sought summary judgment to enforce the Decision and the central question for the judge to consider was whether the adjudicator had jurisdiction to make the money award in favour of VMA.
Legal Background
When considering the applicable legal background to the matter, the judge confirmed that the Housing Grants and Construction Regeneration Act 1996 as amended (the “Act”) and the Scheme for Construction Contracts 1998 as amended (the “Scheme”) both applied to the Contract. Further to this, the Act was amended by the Local Democracy, Economic Development and Construction Act 2009, which created additional requirements for notices and for the payer to pay the sum notified. In summary, under the applicable legislation, the payer is obligated to pay the sum notified unless it has served a valid Payment Notice or Pay Less Notice.
The amended provisions of the Act gave rise to a body of case law which is often referred to within “smash and grab” adjudications, the judge in these proceedings provides a summary of the principles which come from this case law as follows:
- O’Farrell, J confirmed in Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC) that where section 111 of the Act creates an immediate obligation to pay the ‘notified sum’, the entitlement to commence a TVA under section 108 of the Act is subject to the immediate payment under section 111 having been made;
- As confirmed within AM Construction v The Darul Amaan Trust [2022] EWHC 1478 (TCC), this principle of subjugation applies whether or not the contractor has first obtained an adjudication award in its favour;
- As O’Farrell, J summarised in Global Switch Estates 1 Limited v Sudlows Limited [2020] EWHC 3314 (TCC), a responding party to an adjudication is entitled to enter a wide range of matters by way of a defence and counterclaim without infringing the general rule that only one dispute can be referred within a single adjudication; and
- As explained by Lord Briggs JSC in Bresco Electrical Services Ltd (in liq) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, (2020) 190 ConLR 1, a Responding Party will not generally be able to make a monetary recovery arising from its defence and counterclaim.
Decision
Counsel for VMA submitted that the adjudicator did have jurisdiction to make a financial award in favour of VMA, relying on paragraph 20 of the Scheme which states the following:
“The adjudicator shall decide the matters in dispute…In particular, he may—
(b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to section 111(4) of the Act, when that payment is due and the final date for payment…”
The judge did not accept the construction of paragraph 20 that Counsel for VMA presented, stating that the emphasised phrase above is directed to the power of the adjudicator to decide that the party is liable to a certain amount, but it does not give the adjudicator the power to order payment to the Responding Party.
Counsel for VMA also relied on the judgment of Mr Singer KC in WRW Construction Limited v Datblygau Davies Developments Limited [2020] EWHC 1965 (TCC) to argue that, although under the ordinary rule in Bresco is that an adjudicator does not have the authority to award a monetary sum to a Responding Party, different considerations apply where an adjudicator determines that a particular sum is immediately due to a Respondent. The judge accepted this reasoning and followed it within these proceedings.
This reasoning was further confirmed by the wording of paragraph 23(2) of the Scheme which states that “the decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined”. The judge accepted that it would be contrary to the Act and the Scheme to require VMA to commence a further adjudication to recover a sum which has already been determined as immediately due to them.
Counsel for POL attempted to submit that something might turn up in a further adjudication which would allow POL to provide a defence to the notified sum, but this was not accepted by the judge who felt this would turn the whole process of adjudication on its head.
This case provides a useful summary of the legal principles applicable to “smash and grab” adjudications and serves as a reminder of the importance of issuing the appropriate notices in a valid form, even where the intention is to pay less than the notified sum.