New TCC case confirms that an employer could not rely on ‘true value’ adjudication

New TCC case confirms that an employer could not rely on ‘true value’ adjudication

The Court of Appeal’s decision in the case of S&T v Grove made it clear that, where there has been an adjudication on a ‘smash and grab’ basis (that is, because of the lack of a pay less notice), an employer can bring a further adjudication to determine the true value of the works.

The indication in that case was that the employer would only be able to commence an adjudication as to the ‘true value’ of the works, once the decision of the adjudicator in the first adjudication had been complied with. In other words, the employer would have to make payment in line with the earlier adjudication before commencing the ‘true value’ adjudication.

There has been plenty of legal commentary about the implications of this decision. Not least given that the Housing Grants, Construction and Regeneration Act 1996 (the Act), provides that parties to a ‘construction contract’ can refer a dispute to adjudication ‘at any time’.

The decision in the S&T v Grove case, on its face, does appear to cut across the right to refer a dispute ‘at any time’, if the employer is only entitled to commence an adjudication as to the ‘true value’ after making payment of the sum the adjudicator has decided should be paid in the first adjudication.

The recent TCC decision in the case of M Davenport Builders Ltd v Greer & another [2019] EWHC 318 (TCC) has provided further clarity on the point.

In line with the ST v Grove case, and as comes as no surprise, the TCC held that an employer does have to make payment of the earlier adjudication award before commencing its ‘true value’ adjudication.

In this case, the employer had not made the payment required by an earlier adjudication decision relating to a final account application. Instead, the employer had commenced its own ‘true value’ adjudication.

The TCC held that the employer could not use the decision in a ‘true value’ adjudication as a defence to or set off to enforcement proceedings in relation to the earlier adjudication decision in favour of the contractor.  The TCC made it clear that an employer must make payment before starting its true value adjudication. A principle, which it concluded, clearly applied both to interim and final applications for payment.

It does seem, however, there may still be a hint of doubt as to whether an employer must always make payment before commencing a true value adjudication. It is noteworthy that, in reaching its decision, the TCC stated that:

‘the employer must make payment in accordance with the contract or in accordance with section 111 of the [HGCRA 1996 as amended] before it can commence a ‘true value’ adjudication. That does not mean that the Court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation…”

It seems a shame that the TCC did not take the next step to clarify those circumstances in which the Court may consider the second ‘true value’ adjudication may be valid, instead deciding that it was not necessary and would in any event be unhelpful to do so.

As matters stand, it would seem that the general position will be that an employer will be required to pay first and argue later. This highlights the need for employers to ensure that they have robust payment administration processes in place so that pay less notices are being issued on time so as to avoid  ‘smash and grab’ adjudications.

Moving forward, it will be interesting to see what circumstances, if any, the TCC will allow a ‘true value’ adjudication to take place before an employer has made payment as arguably, the way that the TCC have left this point open may well lead to further attempts to ‘argue now and pay later’.