Posted: 26/01/2024
Disputes concerning default payment applications are one of, if not the most, common type of dispute that is referred to in adjudication. When the notice of adjudication is given, seeking payment of a ‘notified sum’ (a so-called ‘smash and grab’ (S&G) claim), it is not uncommon for it to include a request asking the adjudicator to value the application if the S&G argument fails.
There has been a lingering question as to whether the issue of S&G and ‘true value’ are separate disputes, and therefore, need separate adjudications. This was answered in Bellway Homes Limited v Surgo Construction Ltd [2024] EWHC 10 (TCC).
Bellway Homes Limited was the developer and employer. Surgo Construction Limited was the main contractor. Surgo had subcontracted the installation of kitchens to Roundel Manufacturing.
On 22 December 2022, Roundel made an application to Surgo for the sum of £152,225.23. Surgo failed to provide either a payment notice or a payless notice in response to this application. Roundel then gave notice of adjudication to Surgo on 28 March 2023.
The notice requested payment on the basis that the sum claimed in Roundel’s application had become the notified sum and no payless notice had been issued. Therefore, it was payable in full (the S&G argument). However, the notice went further and asked as an alternative, if the S&G argument failed, for the adjudicator to decide Roundel’s entitlement up to the end of December 2022 ‘calculated on a substantive basis, in such sum as the adjudicator shall decide’.
The adjudicator decided that Roundel had not made a valid application for payment and rejected the S&G argument. However, the adjudicator went on to value Roundel’s entitlement and awarded the sum of £146,118.82 in respect of work completed. For reasons which are not explained in the judgment, Bellway then took an assignment of all of Roundel’s rights in the adjudicator’s decision, including the right to enforce the decision.
Bellway then issued proceedings to enforce the award. It argued that the dispute referred to was essentially ‘what was the referring party entitled to be paid?’
Surgo argued S&G and ‘true value’ are separate claims, independent from one another, which require a different type of analysis, and are payable on different contractual bases.
The judge agreed with Bellway’s argument that both S&G and valuation arguments went to answering the same question – what is the referring party’s entitlement to payment? – and was unpersuaded that, because the issue of S&G could be decided without consideration of valuation, it pointed towards separate disputes. In fact, the judge’s view was that as the ‘true value’ could potentially only come after an S&G was considered, it pointed towards a single dispute.
Surgo also tried to argue that the adjudicator lacked jurisdiction to decide value because they had made a finding that there was no valid application. Therefore, it was not open for the adjudicator to decide that ‘a sum of money’ was due in any event. The judge disagreed, explaining that the notice clearly gave the adjudicator jurisdiction to carry out a valuation in respect of the application if the S&G argument failed, and this is what they did. The adjudicator had not gone off on a ‘frolic of their own’ to find some other basis for awarding money.
Roundel’s approach to its adjudication was not unusual, so it is helpful that the court has confirmed that contractors can proceed in this way. The question remains: should they?
From a contractor’s perspective, it must consider whether to hedge its bets and pursue both the S&G and valuation disputes, or confine the referral to just the one issue. Doing both gives rise to an evidential burden and so involves extra cost. If a contractor relies too heavily on the S&G argument and does not put sufficient effort into proving the value of its claim, the result could be a significant undervaluing, possibly even a zero or negative valuation depending on the employer’s arguments.
Additionally, some of the adjudicator’s findings in completing this valuation (for example, whether or not an item of work is a variation) could be binding in future adjudications. Thus, the contractor may have inadvertently bound itself to an unfavourable adjudicator’s decision, which can only be undone by the commencement of full litigation.
Also, consider a situation where the adjudicator is faced with an S&G argument of particularly large value. The S&G matter is finely balanced, and the adjudicator is still undecided. The adjudicator then views the evidence on value and thinks it is rather scarce, and does not justify half of the sum applied for. It is not outside the realm of possibility that the lack of evidence would tip the scales in favour of rejecting the S&G argument, with the adjudicator considering the ‘fairer’ option to be to value the claim, instead of over awarding.
Finally, assuming the contractor has sufficient evidence, does it necessarily want to ‘show its hand’ to the employer if no decision on value may be necessary at that stage?
It must be remembered that if an adjudicator agrees with an S&G argument, they must not go on to consider ‘true value’ within the same adjudication. Indeed, they are likely to have no jurisdiction to do so; consider Henry Construction Projects Ltd v Alu-Fix (UK) Ltd [2023] EWHC 2010 (TCC).
© 2024 Penningtons Manches Cooper LLP.
All rights reserved.
Website design by Frontmedia / Dynamic Pear
Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.
Return to news headlines 