Adjudication Matters – March 2019

8th March 2019

Adjudication Decisions: To pay or delay?

M Davenport Builders Limited v Mr Colin Greer (1) Mrs Julia Greer (2) [2019] EWCA 318 (TCC)

Summary

The Technology & Construction Court (“TCC“) has confirmed that a party cannot rely upon a ‘true value’ adjudicator’s decision in its favour as set-off or counterclaim to resist enforcement of a previous “no notice” adjudication if it has not first paid the sums awarded in that first adjudication.

Introduction

It is common practice for a party to pursue a “smash and grab” or “no notice” adjudication where a paying party has failed to issue a valid Payment Notice or Pay Less Notice.

Recent case law such as Grove Developments Limited v S&T (UK) Limited (read the Court of Appeal’s Judgment here. We also covered the first instance decision in our Adjudication Matters – April 2018) confirmed that the paying party must comply with an adjudicator’s decision following a “no notice” adjudication and make payment of the sums directed by the adjudicator, prior to commencing any subsequent adjudication seeking a ‘true value’ of the sums due.

Case Details

M Davenport Builders Limited (the Claimant) entered into a contract with Mr and Mrs Greer (the Defendants) to undertake construction works (the Works) at a building in Southport.

The Claimant made a payment application on 22 June 2018 for the sum of £106,160.84. The Defendants failed to submit either a Payment Notice or a Pay Less Notice in the required time and so the full amount became due. However, the Defendants refused to pay.

In response to the Defendants’ failure to make payment, the Claimant referred the dispute to adjudication (the First Adjudication) and were awarded payment in the sum of £106,160.84.

However, the Defendants did not make payment to the Claimant as required. Instead, six days after issue of the decision in the First Adjudication, the Defendants brought a subsequent adjudication (the Second Adjudication) which sought to assess the true value of the Works carried out by the Claimant and which, the Defendants claimed, would result in no payment being due.

The Second Adjudicator found in favour of the Defendants that the Final Account was significantly less than that which the Claimant had applied for.

The Claimant brought enforcement proceedings against the Defendants in relation to the First Adjudication. The Defendants sought to rely on the decision reached in the Second Adjudication in order to set-off against the amounts payable to the Claimant under the decision reached in the First Adjudication.

Decision

The TCC found in favour of the Claimant, and granted the application to enforce the First Adjudicator’s decision, notwithstanding the decision reached in the Second Adjudication. The Defendants were not entitled to rely on its defence of set-off or counterclaim.

The TCC expressly referred to public-policy considerations in reaching its decision in favour of the Claimant. The adjudication regime exists in order to enforce prompt payment of sums due, without requiring parties to go through the expensive and lengthy civil litigation procedure. It is not appropriate that a party could delay payment of an adjudicator’s award by bringing further adjudications or court proceedings.

The Court’s position is that a party should first pay before it can rely on a subsequent adjudication decision as set-off or counterclaim.

However, it was questioned whether such a policy meant that a party would always be prevented from commencing a true value adjudication before it has paid the sums awarded in a previous no notice adjudication. The Judge recognised that there may be circumstances where a true value adjudication could be commenced prior to payment (even if it could not be relied upon before payment were made). The Judge did not provide examples of such circumstances which means that they are likely to be fact specific and rare.

Summary

Unless there are particularly unusual circumstances, a party should discharge its obligations contained in any prior “no notice” adjudications before issuing a subsequent true value adjudication.

This case not only serves as a helpful reminder that the Courts will expect parties to have paid the relevant sums awarded before bringing a true value adjudication, but also highlights the importance of serving timely Payment Notices and Pay Less Notices so as to avoid being subject to a “no notice ” adjudication.