For over 20 years, subcontractors have been allowed to rely on something colloquially know as a ‘Smash and Grab Adjudication’. The basic rule being that if a pay less notice was either late or invalid in some other way, the subcontractor would not only win the ensuing adjudication but that the amount claimed would be treated as fair and true, with little chance of any challenge by the main contractor.
In one sense this seems perfectly reasonable. The law is quite clear on when a pay less notice should be issued and the components which are needed to ensure it is valid under the terms of the Construction Act.
By creating an environment where the subcontractor would by default be awarded the sum claimed ensured that project cashflow could be maintained. It also meant that the subcontractor could not be financially blackmailed into accepting a reduced sum in order to keep their business afloat. For more information on this topic see the article ‘Court rules against withholding payments to force a cash crisis’.
However, the practice has led many to question whether it puts too much power in the hands of the subcontractor and results in the main contractor being excessively punished for falling foul of the strict pay less notice regulations. Whichever side of the debate you sit on, the recent case of Grove Developments Limited vs S&T (UK) has changed the legal landscape forever.
The ruling, which was originally handed down in February 27 2018, with a subsequent Appeal Court judgement on November 7 2018, has significant ramifications for when and how adjudications relating to missing or invalid pay less notices are handled.
Without citing a complete case history, not all of which is relevant here, the key elements are that in responding to an interim payment application by S&T, Grove Developments issued a pay less notice which was valid in all senses barring the fact that it was issued out of time.
Grove then issued a pay less notice within the appropriate time frame but did not re-attach the calculations previously submitted which outlined the basis upon which the funds were withheld, although they did refer to it. Subsequently, although the adjudicator originally found in favour of S&T, the Technology and Construction Court (TCC) ruled that Grove had complied with the requirement to specify the basis of the calculation by referring to documents previously submitted.
Now, here’s the really interesting bit. Grove also claimed that even if both pay less notices were invalid, they should still have the right to dispute the amount claimed and to bring an adjudication on that basis. The presiding judge, Coulson J, agreed that decisions previously relied upon, such as ISG v Seevic, Galiford Try v Estura and Kersfield v Bray and Slaughter, contained reasoning that was incomplete and erroneous.
In other words, Coulson was saying that even though a pay less notice is invalid, the main contractor has every right to open a separate adjudication over the stated value of the account. This holds true whether the amount claimed is an interim payment or a final account.
For subcontractors who have previously relied on these so called smash and grab adjudications, the ruling has significant ramifications. However, it is important not to be fooled into thinking an invalid pay less notice can no longer be relied upon as a basis for adjudication.
The provisions of the Construction Act which state that a pay less notice must be issued within a set period time and contain the basis upon which the amount withheld has been calculated still holds true. But there’s an if and it’s big one too.
If the pay less notice is found to be invalid, you may still win the initial adjudication, but then lose a second case concerning the value claimed. All of this could result in a belated and possibly unmanageable disruption to cashflow.
The key thing to remember is that, as a result of this ruling, it is imperative to have all the evidence necessary to immediately refute a claim that the amount specified is in any way inaccurate before attempting to starting an adjudication over the invalid pay less notice. Failure to do so is likely to get you caught up in a second adjudication over the amount, potentially negating any benefit gained from the first and possibly leaving you in a worse financial position than had you not adjudicated in the first place.