Employers still trip up when it comes to issuing pay less notices. As a result they can find themselves on the sharp end of ‘smash and grab’ adjudications and paying substantial sums even where there is no merit behind them.
True value adjudications can come to the rescue. They are an opportunity for employers to dispute the valuation of applications that have been the subject of a smash and grab and can be an effective means of recovering monies.
The court is clear that employers must pay sums before commencing a true value adjudication – but when exactly? How much can payment be delayed?
This recent case highlighted that the answer is probably not by much.
Background
Henry Construction Projects Limited (“HCPL”) was the main contractor on boutique hotel project in London and entered into a sub-contract with Alu-Fix (UK) Ltd (“AFUL”). Following disputes under the sub-contract, AFUL operated termination at will provisions which also triggered a requirement on AFUL to issue a payment application. HCPL did not pay for the amounts claimed and AFUL referred the matter to adjudication (the “First Adjudication”) in December 2022.
HCPL sought to defend the adjudication on the basis that it issued a valid pay less notice. While that adjudication was ongoing, HCPL launched a simultaneous adjudication (the “Second Adjudication”) on a true vale basis on the disputed payment application. AFUL asked that adjudicator (Mr Molloy) to resign on the basis that HCPL had not discharged a payment obligation so Mr Molloy did not have jurisdiction. Mr Molloy did not resign on the basis no decision had yet been made on the First Adjudication.
AFUL won the First Adjudication and it was ordered that HCPL pay the sums claimed by 2 February 2023. Mr Molloy stayed the Second Adjudication until payment was made. HCPL made payment and Mr Molloy lifted the Stay and decided that HCPL was owed significant sums (nearly the whole amount of the First Adjudication). AFUL did not pay and enforcement proceedings ensued.
Judgment
The court held that Mr Molloy did not have jurisdiction in respect of the Second Adjudication and refused enforcement. The court applied principles, now well-established since S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448 (the Grove case), that a party could not commence a true-value adjudication until it had discharged its immediate payment obligation.
The crucial issue was (given HCPL had made payment) when that immediate payment obligation arose. HCPL had argued that while the First Adjudication was ongoing it was disputed there was an immediate payment obligation so therefore no bar on the Second Adjudication arose.
The court held that the final date for payment for the dispute payment application fell in December 2022 as was decided in the First Adjudication. As HCPL had not paid by that date it followed that it had not discharged its immediate payment obligation when it commenced the Second Adjudication and therefore Mr Molloy did not have jurisdiction. The court also felt this was consistent with the Construction Act’s intent of securing cashflow for contractors, and that the issue could have been avoided had HCPL issued a pay less notice in time.
Analysis
The judgment is formed of pretty clear legal principles but it underlines that true value adjudications should be left well alone until an immediate payment obligation is discharged. Otherwise, employers might find themselves not just losing a smash and grab but also with an unenforceable adjudicator’s decision.
However, the key takeaway is really that, while true value adjudications can be a helpful and necessary tool, the best advice is to avoid the issue in the first place and issue the pay less notice on time.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.
