In the well-known case of Grove v S&T (2018) (Grove), Sir Rupert Jackson concluded that Grove was entitled to commence a True Value Adjudication. Sir Rupert Jackson went on to express a view as to the correct timing of a True Value Adjudication. His conclusion was that the notified sum must be paid first before the commencement of the True Value Adjudication.
Notwithstanding such a conclusion, some questions remain unanswered. For example, what happens if a True Value Adjudication is commenced before a Smash and Grab Adjudication for non-payment of a notified sum has been commenced and/or concluded? How would a True Value Adjudication be stopped? Would it be a jurisdiction issue for the adjudicator to consider? Would it be a bar to enforcement?
The recent decision in Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC) (23 May 2023) (Henry Construction) has provided a possible answer to some of these questions.
The case
In Henry Construction, Henry Construction was the Employer. Alu-Fix (UK) Limited (Alu-Fix) was appointed as a sub-contractor under a JCT Standard Building Sub-Contract (the ‘Contract’). Alu-Fix terminated their Contact via a termination at will clause. Such termination triggered the payment mechanism, and Alu-Fix submitted a Payment Application which gave Henry Construction 28 days from such date to pay the sum properly due.
Alu-Fix did not receive payment and commenced a Smash and Grab Adjudication. Henry Construction defended the adjudication on the basis of an argument that it had complied with the payment process and had submitted two ‘potentially’ valid Pay Less Notices.
Before the submissions stage had taken place in the Smash and Grab Adjudication, Henry Construction commenced a True Value Adjudication.
The jurisdiction of the True Value Adjudicator was questioned by Alu-Fix. The argument advanced by Alu-Fix was that the Adjudicator had no jurisdiction on the basis that Henry Construction was yet to pay the notified sum and had not issued an effective notice.
The Jurisdiction challenge was disputed by Henry Construction. Its argument was that there was a ‘genuine dispute’ regarding the validity of the Pay Less Notice and therefore until it was decided that there was no valid Pay Less Notice, no immediate payment obligation arose.
Mr Rayner, acting as the adjudicator for the Smash and Grab Adjudication, disregarded the issues raised by Henry Construction and awarded Alu-Fix the sum claimed, which was to be paid within 7 days of the decision.
The True Value Adjudication was stayed and the sums due were paid by Henry Construction who then, being under the impression that the immediate payment obligation had been released, lifted the stay on the True Value Adjudication.
The True Value Adjudication was decided in Henry Construction’s favour and Mr Molloy (acting as the True Value Adjudicator) contended that Alu-Fix was indebted to Henry Construction in the sum of £191,753.88 plus interest.
Alu-Fix did not pay the award and Henry Construction commenced enforcement proceedings.
The hearing was held on 17th May 2023 before District Judge Baldwin. Based on the particular facts of the case, the Judge’s finding was that a party cannot start a True Value Adjudication while a Smash and Grab adjudication is on-going. Consequently, the second adjudicator lacked jurisdiction and his decision was not enforced.
The decisive factor in the case was that distinction between ‘the final date for payment’ and ‘the final date for late payment’. The latter was the label Judge Baldwin gave to the date Henry Construction paid, concluding that this was not in fact the final date for payment but merely the final date for late payment.
More particularly, as originally decided by Mr Rayner, the Pay Less Notice(s) were deemed invalid and therefore the final date for payment was in fact 28 days from the date of the initial Payment Application. Henry Construction therefore had no grounds to commence the True Value Adjudication as they had not released their immediate payment obligation.
Failure by Henry Construction to pay the notified sum meant that Mr Molloy had no jurisdiction when commencing the True Value Adjudication. Mr Molloy’s decision and award was , in consequence, deemed a nullity.
Discussion
The case is an example of and a salutary lesson about the risks of commencing a True Value Adjudication before payment of the notified sum. The risk applies even in circumstances in which there is a ‘dispute’ as to the validity of any purported Pay Less Notice.
The case does not end the argument as to whether there can ever be merit in commencing a True Value Adjudication while a Smash and Grab Adjudication is ongoing. Indeed, the outcome in Henry Construction might well have been different had the purported Pay Less Notice been upheld.
That being said, a party needs to think carefully before following the Henry Construction route.
The safest option is to let the Smash and Grab Adjudication run its course.
In the final analysis, there is perhaps no quick (True) fix:
- if a payor is confident in their defence why not let the Smash and Grab Defence run?
- If a payor is not confident in their defence, in the context of Grove v S&T and now Henry Construction, the prudent course of action is the traditional ‘pay first, argue later’.
For further information and support, please get in touch.
For further information, please contact:
Sam Beer, Hill Dickinson
sam.beer@hilldickinson.com
