Practical Law

The Court of Appeal’s judgment in S&T v Grove is still the most talked about construction case almost four months after it was handed down, which has much to do with the questions that parties and representatives raised about its practical implications. I discussed some of these implications shortly after the judgment was handed-down, and in particular the Court of Appeal’s finding that:

“… both the Act and the contract must be construed as prohibiting the employer from embarking upon an adjudication to obtain a re-valuation of the work before he has complied with his immediate payment obligation.”

I said at the time that:

“… it is quite clear that, despite section 108 providing a party with the right to refer a dispute to adjudication ‘at any time’, the Court of Appeal has found that there is a fetter on this right, namely that where an employer has not paid the notified sum in accordance with section 111, that employer is unable to refer a dispute concerning the correct value of the works to adjudication.”

In M Davenport Builders v Colin and Julia Greer, Stuart-Smith J has applied S&T v Grove, but with a twist that arguably dispels the conclusion that there is a fetter to the right to adjudicate.

M Davenport Builders v Greers – the background

Briefly, the facts of the case are as follows:

• The Greers employed Davenport to undertake construction works.
• Both the payment and adjudication provisions of the Scheme for Construction Contracts 1998 were implied into the contract.
• Davenport submitted an application for payment for £106,160.84 arising from its final account. The Greers did not submit a payment notice and so Davenport submitted a default payment notice. The Greers did not submit a pay less notice, and also did not make payment by the final date for payment (or thereafter).
• Davenport commenced an adjudication and by a decision dated 24 October 2018 the adjudicator (Mr Sutcliffe) awarded Davenport the sum demanded, £106,160.84.
• The Greers issued a notice of adjudication on 30 October 2018 seeking determination of the “true value” of the final account. On 30 November 2018, the second adjudicator (Mr Sliwinski) decided that as a result of his finding as to the “true value”, no sum was due to Davenport.

Prior to the TCC hearing, the Greers raised what Stuart-Smith J described as a “raft of unmeritorious defences” but, by the time of the trial, they had acknowledged that Mr Sutcliffe’s decision was valid and enforceable. The Greers’ defence was that they should be able to rely on Mr Sliwinski’s decision by way of set off or counterclaim.

The TCC’s decision

I suspect it won’t be a surprise to many of you that Stuart-Smith J decided that the Greers could not rely on Mr Sliwinski’s decision as to the “true value” of the final account as a set off or counterclaim. Therefore, he enforced Mr Sutcliffe’s decision.

You may have thought that this was because, as was made clear by both Coulson J (as he was then) in the TCC and Sir Rupert Jackson in the Court of Appeal, a “true value” adjudication can only be commenced once the sum due under a default payment notice has been paid, and therefore Mr Sliwinski lacked jurisdiction (I should note that it is clear from the judgment that Mr Sliwinski raised doubts as to his jurisdiction at the outset).

However, Stuart-Smith J did not find that Mr Sliwinski lacked jurisdiction, simply that the Greers could not rely on his decision prior to making payment. It is worth quoting from the judgment to understand why he reached that conclusion:

“35. … it should now be taken as established that an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication. Both policy and authority support this conclusion and that it should apply equally to interim and final applications for payment.

…

37. The decisions of Coulson J and the Court of Appeal in Grove are clear and unequivocal in stating that the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended Act 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: see the decision of the Court of Appeal in Harding. It is not necessary for me to decide whether or in what circumstances the Court may restrain the subsequent true value adjudication and, in these circumstances, it would be positively unhelpful for me to suggest examples or criteria and I do not do so.”

It appears to me from these paragraphs that Stuart-Smith J is saying that, while he recognises that a payer must pay the sum due under a default payment notice before commencing a “true value” adjudication, a second adjudicator will not necessarily lack jurisdiction, and the courts won’t always restrain the commencement or progress of such an adjudication. Although I fully appreciate why Stuart-Smith J thought it might be unhelpful if he provided examples of when the court might impose such a restraint, I think many of us would have been very interested to read them!

Harding (t/a MJ Harding Contractors) v Paice and another

Before considering the implications of Stuart-Smith J’s judgment, the keen-eyed among you will have noticed the reference to Harding v Paice as justification for the court not always restraining a “true value” adjudication from proceeding. Stuart-Smith J’s observations about Harding at paragraphs 19(vi) and (vii) evidently go some way to understanding why he reached that conclusion:

“vi) Although the passages cited above refer to the defendants having discharged the immediate obligation before later arguing about the figures in order to show that he has overpaid, there is no clear and unequivocal statement in Harding that discharging the immediate obligation is a prerequisite to (a) starting and/or (b) relying upon a later true value adjudication decision;

vii) The decision of the Court of Appeal implies that it is not an essential prerequisite to relying upon a later true value adjudication decision that the earlier immediate obligation should be discharged before launching the later true value adjudication. Paice did not pay its immediate obligation under the third adjudication before launching the fourth, and they were not precluded from proceeding with or relying upon the fourth adjudication for that reason. This suggests that the critical time will be the time when the Court is deciding whether to enforce the immediate obligation.”

The implications of M Davenport Builders v Greers 

Some may have difficulty in squaring the particular circle that has arisen from this case: the Court of Appeal was clear in S&T v Grove that a “true value” adjudication can only be commenced once the sum due under a default payment notice has been paid. However, in Davenport v Greers it appears that the court has found that such an adjudication can be commenced, but the decision cannot be relied upon until the initial payment has been made. Does this mean that S&T v Grove has been diluted? Others though will no doubt argue that this case has overcome the difficulty that arose from S&T v Grove concerning the fetter on the right to adjudicate at any time. On the basis of Davenport v Greers, it appears that there is no longer any fetter as the dispute concerning the “true value” can be referred at any time.

Either way, I think this case might lead to an increase in “true value” adjudications being started shortly after default payment notice adjudications. This is because payers might work on the basis that, even if they do ultimately have to make payment of the default payment notice adjudication sum, they can then immediately start proceedings for the recovery of the overpayment as they will have a valid decision as to the “true value”. Presumably that is what the Greers will now do, so it begs the question as to whether there is any point in Davenport even accepting the payment? This arguably suggests that default payment notice adjudications may be less effective in the future as payees may realise that they will have to simply repay some or all of the sum due immediately.