The Court of Appeal, as predicted, has confirmed that employers do indeed have the right to challenge the ‘true value’ of a contractor’s interim application in a subsequent adjudication.
It upheld a ruling made by Mr Justice (now Lord Justice) Coulson in the Technology and Construction Court earlier this year in the case of Grove Developments Ltd v S&T (UK) Ltd.
Importantly though, whilst backing Mr Justice Coulson’s decision not to follow the line of cases starting with ISG Construction Ltd v Seevic College (2015), seen by many as unnecessarily draconian, the Court of Appeal explicitly ruled that that an employer must ‘pay first, adjudicate later’.
And acknowledging just how murky this area of the law has become, in its decision the Court of Appeal stated: “We are all trying to hack out a pathway through a dense thicket of amended legislation, burgeoning case law and ever-changing standard form contracts”.
Much anticipated judgement
The construction industry has been eagerly awaiting the Court of Appeal’s decision in this case because of the controversial way so-called ‘smash and grab’ adjudications, which allow potential windfall payments to contractors as a result of procedural failures by their employers, have been handled.
Until recently, a party that failed to serve a valid payment or pay less notice within the specified time scales would:
This strict regime dates back to the cases of ISG v Seevic and Galliford Try Building Limited v Estura Ltd (2015) both decided by Mr Justice Edwards-Stuart.
Following these cases, many contractors would deliberately issue payment applications to unsuspecting employers to obtain a windfall that could not be challenged until much later.
More options for employers
The Court of Appeal’s decision to back Mr Justice Coulson’s ruling in Grove v S&T is a welcome one – it basically confirms that there should be certainty in the way the interim payment regime operates but it should also be fair. Where an unwitting employer has failed to adequately respond to a contractor’s payment notice, there should be a sensible mechanism for putting it right.
It undoubtedly gives employers more options when facing a ‘smash and grab’ adjudication from a contractor but the fact that an employer must first pay the contractor the amount it has applied for, could see contractors continuing to pursue such claims in the future.
Contractors might do this for a number of reasons including:
The Court of Appeal has recognised that this could be harsh on employers left exposed to contractor insolvency but says the best form of protection is to be ‘scrupulous’ in issuing the right notices at precisely the right times.
To see what else we have written on this issue, please see: