Tuesday, 5 September 2023

Henry Construction Projects Ltd v Alu-Fix (UK) Ltd

[2023] EWHC 2010 (TCC)

Henry applied for summary enforcement of an adjudicator’s decision in the sum of £190k. Alu-Fix said that the commencement by Henry of the true value adjudication (“TVA”) before payment of a notified sum pursuant to s.111 of the HGCRA meant that the adjudicator did not have jurisdiction. Henry said that the point was a novel one, and was not a jurisdictional point, as such. Rather, Henry should be allowed to rely upon the decision in the TVA, having paid the immediate payment obligation consequent upon the decision of a previous adjudicator in the prior "smash and grab adjudication" ("SGA"), which followed the raising by Henry of a "genuine dispute", namely asserting the validity of two pay less notices ("PLN") following Alu-Fix’s payment application ("PA").

The contract was a JCT Standard Building Sub-Contract. Alu-Fix made a PA on 15 November 2022 in the sum of £257k and then referred the non-payment to the SGA on 15 December 2022. Henry said there were two valid PLNs, and then, on 18 January 2023, commenced the TVA. The SGA was ongoing. Alu-Fix invited the TVA adjudicator to resign. The TVA adjudicator noted that:  

"2. As things currently stand, the question of whether there is an undischarged primary payment obligation is in dispute and is the subject of the adjudication before Mr Rayner. As such, presently there is nothing preventing me from proceeding.

3. In the event Mr Rayner reaches a Decision that there has been a failure to pay a notified sum, then I accept that, unless and until a Court decides that such Decision is not valid, it will be binding on the parties. In such circumstances, I accept that, unless that payment obligation is discharged, it would not be appropriate for me to proceed. However, we are not in that position yet".

The SGA decision was issued on 27 January 2023 in favour of Alu-Fix. The TVA adjudicator stayed the TVA pending payment, confirming that they would resign if payment was not made in accordance with the decision. Henry made full payment on 2 February 2023 and the TVA stay was lifted.

DJ Baldwin referred at length to the decision of O'Farrell J in the case of Bexheat v Essex Services Group (Dispatch, Issue 263) and the Judge’s conclusion that:

“(i) where a valid application for payment has been made, an employer who fails to issue a valid Payment Notice or Pay Less Notice must pay the ‘notified sum’ in accordance with s. 111 of the 1996 Act;

(ii) s. 111 of the 1996 Act creates an immediate obligation to pay the ‘notified sum’;

(iii) an employer is entitled to exercise its right to adjudicate pursuant to s.108 of the 1996 Act to establish the ‘true valuation’ of the work, potentially requiring repayment of the ‘notified sum’ by the contractor;

(iv) the entitlement to commence a ‘true value’ adjudication under s. 108 is subjugated to the immediate payment obligation in s. 111;

(v) unless and until an employer has complied with its immediate payment obligation under s. 111, it is not entitled to commence, or rely on, a ‘true value’ adjudication under s. 108”.

Henry said that the case here differed from those previously decided, in that, at the time that the TVA started there was an ongoing “genuine dispute” as to the validity of the PLN of 25 November 2022. Therefore, unless and until there was an adjudication that there was no valid PLN, no “immediate payment obligation” arose. Accordingly, the embargo on launching a TVA prior to the payment of any immediate payment obligation was not engaged and no question of jurisdiction could arise. The payment obligation became immediate upon the ruling of the SGA adjudicator and that was discharged within the deadline ordered. Henry further said that it could not be right that there might be a nil finding on a valid PLN, but that the TVA nevertheless had to await that outcome before being commenced. A decision in Alu-Fix’s favour would be a huge curtailment on “employers’” rights, especially given that prompt payment of the SGA decision had been made.

Alu-Fix said that a TVA could not be started whilst there remained an unsatisfied immediate payment obligation. The adjudication process was speedy in any event, even without being able to start before the outcome of any SGA. Any immediate payment obligation must be paid to assist with cashflow. The burden was on Henry to either pay upfront before commencing the TVA or, alternatively, on choosing to raise a dispute, to accept that the TVA will inevitably be delayed.

DJ Baldwin said that the key element here was the determination of the commencement date of the immediate payment obligation. If this date was, or was to be treated as being, before 18 January 2023, then Henry was not entitled to commence the TVA and, therefore, the TVA adjudicator could not be said to have had jurisdiction. As the TVA was prematurely commenced, it would be a nullity. Here, the SGA adjudicator decided that the final date for payment was 13 December 2022. The Judge could not see any basis for concluding anything different. This finding the facts as they always existed and applying these to the question of the existence of jurisdiction. The result was that Henry was not entitled to commence the TVA on 18 January 2023 without first having discharged its immediate payment obligation. 

The Judge made clear that the outcome here was not closing the door on commencing a TVA prior to the outcome of an SGA. Whilst it ought to discourage such a course in areas of spurious SGA disputes, that should not deter those who have a sufficient level of confidence that any dispute raised should result in a finding that there was no immediate payment obligation. The difficulty with Henry’s submission was that it would risk tipping the balance unfairly towards the disputing party and prejudicing the ultimately vindicated right of the payee to be paid. In other words, the disputing party could not only delay paying what might ultimately, as here, be decided to be a sum which was already due, but also would be able to steal a march on the other party by being permitted to commence a TVA when the notified payment should have been made all along. If there is a genuine dispute as to the notified sum, the payer has the ability to protect itself by issuing a valid PLN.


Back to the previous page

PDF logoClick to download PDF

Subscribe to our newsletters

If you would like to receive a digital version of our newsletters please complete the subscription form.