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Second ‘true value’ adjudication cannot be used to set off sum owed in the first ‘smash and grab’ adjudication

April 18, 2019

The case of M Davenport Builders v Greer (2019) has confirmed that a party to a construction contract cannot use a second, 'true value,' adjudication decision to avoid paying an earlier 'smash and grab' adjudication.

What happened in this case?

The contractor, Davenport, carried out construction works for the Greers. There were no provisions in the contract for adjudication or the amount or date of payments and so the provisions of the Scheme for Construction Contracts applied.

In June 2018, Davenport issued an application for payment of the final account of just over £106,000.

After the Greers failed to pay or issue a payment or pay less notice, Davenport referred the matter to adjudication. Davenport was awarded the sum claimed in its notice due to the failure of the Greers to issue their own notice in response - the classic 'smash and grab' scenario.

The Greers did not pay the award but six days later commenced a second adjudication seeking a declaration of the 'true value' of the works. The second adjudicator looking at the substance of the matter decided that they didn't need to pay Davenport anything. The £106,000 sum awarded by the first adjudicator due to a technicality was not considered substantively correct.

Crucial questions

The questions that the Technology and Construction Court (TCC) had to consider were:

Could the Greers use the existence of the second 'true value' adjudication to avoid making a payment to Davenport for the first adjudication?
Did the second adjudicator have the jurisdiction to make the 'true value' assessment as it was commenced before the first adjudication sum of £106,000 had been paid?

Decision

The TCC decided that the second 'true value' adjudication could not be relied upon to set off the sum awarded in the first adjudication. This is despite the fact that this case related to the final sum due at the completion of the works and not an interim payment during ongoing works.

Unhelpfully, the TCC did not answer the second question regarding jurisdiction. Mr Justice Stuart-Smith considered it was enough to state that Greers could not "rely" on the 'true value' adjudication without having to decide whether or not it could have been brought in the first place.

The case clarifies that there is an immediate payment obligation that has to be discharged under the first adjudication decision before a second adjudication can be relied upon and this principle applies to both interim and final payment applications.

Area of uncertainty?

Mr Justice Stuart-Smith has been criticised for creating some ambiguity with his decision, although, he had a difficult task reconciling two previous Court of Appeal decisions which took competing views on the issue of jurisdiction.

In S&T(UK) Ltd v Grove Developments Ltd [2018] it was suggested that the immediate payment obligation had to be satisfied before the second 'true value' adjudication could be 'commenced' whereas in Harding v Paice [2016], it was suggested that the lack of payment would not necessarily preclude a further adjudication.

The difficulty in this situation is that Mr Justice Stuart-Smith has introduced a possible middle-ground of situations where there may be a second adjudication decision made validly by an adjudicator with jurisdiction showing the 'true value' due, but it cannot be relied upon to stop payment towards the first (substantively incorrect) valuation.

This case could have been distinguished from Grove on the basis that this related to a final account sum and Grove related to an interim payment but that does not seem to have been done. Both have been treated the same whereas it would make some sense for them to be treated differently.

Confusion

To help parties and practitioners, the situation should really be more black and white: the second adjudicator should have been held to have no jurisdiction and so their decision could not be relied upon at all, or the second adjudicator did have jurisdiction and that decision could be considered when enforcing the first adjudication. The question of jurisdiction would have to be decided at a further hearing.

Where the recent decision in Grove had introduced some certainty, this decision has created some confusion on the jurisdiction point.

Watch this space.

To see what else we have written on this issue, please see:

Wards Solicitors' James Murray is a specialist in this area of the law. For more information, or help in relation to any construction and engineering dispute, please contact him directly.