Guides & Advice

Closing the door on ‘smash and grab’ adjudications

Published: 16th June 2020
Area: Real Estate & Planning

Closing the door on ‘smash and grab’ adjudications

Employers and main contractors have been trying to get around ‘smash and grab’ adjudications for a while now, but it seems that they are here to stay.

To avoid being on the wrong end of this sort of adjudication, employers must ensure that the correct payment and pay less notices are issued in line with the terms of a contract. If not, and a ‘smash and grab’ adjudication begins, it can considerably impact cash flow.

What is a ‘smash and grab’ adjudication?

The term is used to describe an adjudication started by a party looking to claim the whole amount of the payment applied for on the basis that no payment / pay less notice was issued. This form of action is also known as a ‘technical knockout’ adjudication.

It involves an employer having to ‘pay now and argue later’, meaning they must pay the amount the adjudicator has decided before a second adjudication takes place in respect of the true amount payable.

Avoiding the ‘pay now, argue later’ approach

Although this principle is a matter of settled law, employers and main contractors are – unsurprisingly – trying to find ways to circumvent the approach. The most recent attempt is the case of J & B Hopkins Limited v Trant Engineering Limited [2020] EWHC 1305 (TCC).

Recent case involving ‘smash and grab’ adjudication

Trant Engineering Limited, as main contractor (Trant), engaged J & B Hopkins Limited, as sub-contractor (J & B), to carry out M&E works at a new recycling plant on the Isle of Wight under a sub-contract dated 20 April 2018.

J & B submitted its interim application number 26 on 30 July 2019 for £812,484.94 plus VAT. J & B commenced a ‘smash and grab’ adjudication for the sum applied for on the basis that it said that Trant hadn’t issued a valid payment/pay less notice.

Trant’s position was that J & B’s claim should fail on the basis that:

  1. it had issued a valid payment and pay less notice; and
  2. J & B’s interim application was not substantiated properly and so not a valid application in any event.

The Adjudicator decided in J & B’s favour and that the sum of £812,484.94 plus VAT together with interest was payable to J & B immediately in full and without deduction.

The next stage

Trant didn’t comply with the adjudicator’s decision. As such, J & B commenced proceedings in the Technology & Construction Court (TCC) seeking to enforce the adjudicator’s decision. Trant sought to defend the enforcement proceedings and requested a stay of execution because of manifest injustice.

The TCC hearing took place on 4 May 2020. Trant argued that by the time the adjudication was commenced, J & B was no longer entitled to be paid the sum stated in application 26 because any entitlement under application 26 had been superseded by subsequent interim payment cycles. Those later payment cycles were all subject to valid payment notices (Trant having clearly learnt its lesson the hard way), which provided that no further sums were due to J & B. On this basis, Trant’s position was that “to enforce the decision would be inconsistent with, and undermine, the correction principle” i.e. the principle that interim payments can be corrected in the next interim payment cycle.

A failed defence

The judge rejected Trant’s position deciding that the existence of later payment cycles does not mean the prior sum was not due at all. A party cannot withhold payment of an adjudication decision in relation to an earlier payment cycle simply because subsequent payment cycles have reduced, or nil rated the amount of payment due.

The judge noted that “there is a danger in considering a stay where the Claimant has a valid Adjudicator’s Decision of using the concept of manifest injustice as a wider examination of the supposed “merits” of the underlying dispute. If that were to occur, it would frustrate the purposes of the Act and it would frustrate the intention of Parliament.”

In short, the enforcement proceedings were successful; J & B were entitled to be paid.

Why it’s important for employers and main contractors to comply fully with their payment obligations

The outcome of this case isn’t surprising and is consistent with the general approach of the TCC that unless there is a genuine reason not to do so, it will seek to give effect to adjudicator’s decisions.

What the facts emphasise is just how important it is for employers and main contractors to comply fully with their payment obligations. The consequences of failing to issue valid and timely payment/ pay less notices opens the door to unwelcome ‘smash and grab’ adjudications. Attempts to defend smash and grab adjudications can often be futile, simply incurring additional costs.

With the benefit of hindsight, there can be little doubt that Trant would have wanted to turn back the hands of time so that it could issue water-tight payment and pay less notices.

How to avoid a ‘smash and grab’ adjudication

For now, ‘smash and grab’ adjudications remain a risk. As such, employers and main contractors need to ensure they follow the payment terms in construction contracts to the letter. This is the only way to completely avoid a ‘smash and grab’ adjudication, and the extra costs that come with it.

Contact us

If you’re concerned about the risk to your business then please contact our head of construction disputes, Kate Onions on 07890 569 554.

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