M Davenport Builders Ltd v Greer & Anr

[2019] EWHC 318 (TCC)

As we reported in Issue 222, the CA in the case of S&T (UK) Ltd v Grove Developments Ltd had confirmed that, where there has been a “smash and grab” adjudication, an employer can bring an adjudication to consider the true value of the works. That is, provided the employer has paid the sums awarded in the first adjudication. This very issue cropped up here, where there was a final account dispute between Davenport and Mr and Mrs Greer. The adjudication and payment provisions of the Scheme applied. Davenport made a payment application for the final account on 22 June 2018 for £106,160.84. The due date for payment was 25 June 2018 and the final date for payment was 12 July 2018. The Greers failed to submit a Payment Notice or a Pay Less Notice within the required time frames. Davenport therefore issued a Payee’s Default Notice, which adjusted the final date for payment from 12 July 2018 to 18 July 2018. The Greers failed to pay, and Davenport commenced adjudication proceedings (“Adjudication One”).

On 24 October 2018, in Adjudication One, Davenport was awarded the full amount claimed in its final account application plus interest. Again, the Greers did not pay. Instead, on 30 October 2018 they commenced a new adjudication (“Adjudication Two”) challenging the valuation of the final account. The Greers were looking to set-off or counterclaim against the amount awarded in Adjudication One. In Adjudication Two, the adjudicator decided that as a result of the revaluation, no sum was due to Davenport. 

Davenport commenced enforcement proceedings. The Greers sought to rely on the award made in Adjudication Two. The key question in this case was whether they could rely upon the decision in Adjudication Two, considering that they had not paid the amount awarded in Adjudication One.   

Here, as well as considering Grove, Mr Justice Stuart-Smith considered the case of Harding v Paice [2016] 1 WLR 4068, where, Paice had failed to pay the award ordered from an adjudication following their failure to submit a Payment Notice or a Pay Less Notice. Harding commenced enforcement proceedings. Paice commenced a subsequent “true value” adjudication before the hearing of the enforcement proceedings. Despite the fact Paice did not pay the sum before launching the subsequent adjudication, Paice was not prevented from proceeding with or relying on the result of the later adjudication in the enforcement proceedings. However, before the CA made its decision in the enforcement proceedings and before the adjudicator gave their decision in the “true value” adjudication, Paice had paid the sums ordered by the initial adjudication.

However on the facts here, the Judge concluded that before the Greers could rely on the decision made in Adjudication Two, they were required to discharge their immediate payment obligation from Adjudication One. The Judge held: 

“In my judgment, it should now be taken as established that an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication.”

In Mr Justice Stuart-Smith’s view, it was clear that the immediate payment obligation had not been discharged in this case and as a consequence, the Greers were not entitled to rely upon the decision made in Adjudication Two. As a result, the Greers were ordered to pay £106,160.84 plus interest and the costs of the enforcement proceedings. 

Mr Justice Stuart-Smith also considered the difference between final and interim applications and whether the difference was of any importance here. He came to the view that there was nothing in the provisions of the HGCRA or the Scheme which suggested that different policy considerations should apply. Payments at the end of a particular contract may be vital to enable the contractor to continue to operate going forward; quite apart from the need to fund the continuing obligation to make good or complete works under the contract in question. In the view of the Judge, the deprivation of cash flow may have a serious adverse influence on a contractor, whether it occurs during or at the end of the works.  

However, the Judge also said this:

“That does not mean that the Court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation: see the decision of the Court of Appeal in Harding. It is not necessary for me to decide whether or in what circumstances the Court may restrain the subsequent true value adjudication and, in these circumstances, it would be positively unhelpful for me to suggest examples or criteria and I do not do so.”

Tantalisingly, the Judge did not provide any examples or circumstances; he did, however, say this of the Harding case earlier in the judgment:

“The decision of the Court of Appeal implies that it is not an essential prerequisite to relying upon a later true value adjudication decision that the earlier immediate obligation should be discharged before launching the later true value adjudication. Paice did not pay its immediate obligation under the third adjudication before launching the fourth, and they were not precluded from proceeding with or relying upon the fourth adjudication for that reason. This suggests that the critical time will be the time when the Court is deciding whether to enforce the immediate obligation.”

No payment had been made by the Greers and despite the suggestion made by the Judge that there may be circumstances when payment by an employer is not a prerequisite to relying upon a subsequent true value adjudication, the prudent course in most cases would appear to be that the employer should pay first and argue later. 

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