Trojan horse a “non-runner”: the TCC confirms an Employer must pay amount awarded in “Smash and Grab” Adjudication before it commences “True Value” Adjudication
In M Davenport Builders Ltd v Greer & another, the TCC recently held that an Employer could not use a true value adjudication decision as a defence or set-off to enforcement proceedings for an earlier smash and grab adjudication decision in favour of the Contractor. This was because the employer had not made payment of the earlier smash and grab adjudication award before commencing its true value adjudication.
Davenport follows hot in the footsteps of the Court of Appeal’s decision in S&T v Grove (as reported in a previous blog post), where it was held that an Employer can commence an adjudication to determine the true value of the works, even if it has lost a previous smash and grab adjudication based on the lack of a payment or pay less notice in response to a payment application. The Court of Appeal said in Grove that the Employer could only do so once he had paid the sum awarded in the smash and grab adjudication. Davenportis one of the first reported cases to apply the approach set out by the Court of Appeal in Grove.
The Claimant Contractor, Davenport, carried out construction works for the Defendant Employer, the Greers, pursuant to a contract which incorporated the payment terms of the Scheme for Construction Contracts. Davenport issued a final account application for payment in the sum of £106,160.84. The Greers failed to pay or issue a payment or pay less notice by the relevant deadline or at all. Davenport therefore commenced a successful smash and grab adjudication.
However, rather than pay the award, only six days later the Greers commenced a second adjudication seeking a declaration on the true value of the works. In the second true value adjudication, the Adjudicator determined that no sum was due to Davenport. When Davenport sought to enforce the award in the first smash and grab adjudication, the Greers tried to resist the enforcement proceedings using the second true value award as a set-off as it had confirmed nothing was due to Davenport.
Mr Justice Stuart-Smith in the TCC held that the Employer was not entitled to use the true value decision to resist the enforcement of the smash and grab decision by way of defence, set-off or counterclaim as the Employer had not first made payment of the smash and grab award before commencing the true value adjudication.
In making his decision, Mr Justice Stuart-Smith relied on the decisions in Grove, noting that Coulson J’s (as he then was) comments in the TCC clearly and unequivocally meant that “the employer becomes free to commence his true value adjudication when (and only when) he has paid the sum ordered to be paid by the earlier adjudication”. The Judge also referred to the Court of Appeal’s comments thatsection 111(1) of the Construction Act creates an “immediate” payment obligation whereby the paying party must “pay the notified sum (to the extent not already paid) on or before the final date for payment”. The Act is concerned with cash flow rather than final determination of what sums are properly due to a contractor; it would not be appropriate for a defendant to string along a claimant while it gets a true value decision rather than discharging its immediate payment obligation.
" Mr Justice Stuart-Smith in the TCC held that the Employer was not entitled to use the true value decision to resist the enforcement of the smash and grab decision by way of defence, set-off or counterclaim as the Employer had not first made payment of the smash and grab award before commencing the true value adjudication. "
Adopting a phrase from Coulson J’s judgment, Mr Justice Stuart-Smith noted that “the second adjudication cannot act as some sort of Trojan horse to avoid paying the sum stated as due”, putting it beyond doubt that payment of the notified sum is required before a true value adjudication can be commenced.
This case confirms the precedent set down in Grove and, more specifically, that a party must pay the smash and grab award before it can start its true value adjudication.
However, Davenport creates some ambiguity as to whether a court will restrain a party from progressing with a true value adjudication in the absence of full payment of the sums awarded in the smash and grab. Mr Justice Stuart-Smith was also bound by another Court of Appeal decision, Harding v Paice, inwhich a true value adjudication was commenced before payment of the smash and grab sum was made but the Referring Party in the true value adjudication was not restrained from continuing with it. The fact that the smash and grab award was paid before the TCC hearing may have had a significant impact.
We suspect that the Davenport decision will not prevent contractors from continuing to enforce their entitlement to payment by way of smash and grab adjudications and that these will remain a key weapon in protecting cash flow in the industry. There is, however, the need for further clarity on the circumstances in which the commencement of a true value adjudication will be restrained by the courts.