A recent High Court decision has major implications for the future of payment disputes in construction.
A recent decision in the High Court could overhaul the process of resolving payment disputes in the construction industry, with significant ramifications for both contractors and their clients.
Payment disputes are all too prevalent in the construction sector and it is common for parties to turn to adjudications to settle them. If a client fails to respond to a contractor’s interim application with a payment or pay less notice, adjudications are used to determine the amount (if any) that the client should pay.
Clients have typically seen adjudications decide against them in circumstances where they have submitted a late or incomplete response to a contractor’s interim payment application.
As is all too well known, the party that instigates the adjudication (often the contractor) will have the upper hand, because it has had time to prepare its case, while the other side must respond to the referral within seven days as part of a strict 28-day period from start to finish.
Hence why this practice has become known as a ‘smash and grab’ adjudication.
Such was the case in Grove Developments v S&T UK Ltd  EWHC 123 (TCC), a dispute which was considered by the High Court in February 2018.
Its outcome looks to have changed the playing field in favour of clients, and could lead to smash and grab adjudications becoming a thing of the past.
The case focused on the engagement of S&T under a JCT design and build contract 2011 to deliver a Premier Inn Hotel at Heathrow Terminal 4. During the project, disagreement arose between the parties over the amount S&T claimed to be owed under an interim payment application, as well as Grove’s levying of liquidated damages.
The contractor applied for payment of £14,009,906. This was disputed by Grove, which in response served a payment notice claiming the proper sum was in fact £1,407,748.
“Contractors pursuing this legal route in future will have to build a strong case that doesn’t rest on a client’s late issuing of a payment or pay less notice”
This notice was filed after the permitted time and therefore ignored by S&T. Grove subsequently also served a pay less notice within the required timeframe.
Crucially, Grove failed to detail the calculations it had used to reach this differing sum, instead relying on calculations made in the previous earlier ‘expired’ payment notice. This omission gave S&T the opportunity to initiate an adjudication on the basis that this pay less notice was itself ‘invalid’ too.
The judge disagreed with S&T, claiming that the basis of the calculation (in reference to original payment notice) Grove used for the pay less notice was valid and that therefore the adjudication’s decision should not be enforced.
The High Court’s decision in this case signals a changing balance of power.
Grove has been granted the opportunity to take the dispute to a second adjudication to determine the ‘true’ value of an interim application, meaning that other developers could be entitled to this in future – even if their original payment and pay less notices are invalid.
The ruling goes against the precedent set by such cases including ISG v Seevic (2014) and Harding v Paice & Springall (2014), in which the contractor’s initial interim payment valuation was upheld.
This could spell the end of the smash and grab adjudications pursued by some contractors, and all firms will need to think carefully before initiating an adjudication – as a quick resolution is no longer guaranteed.
Contractors pursuing this legal route in future will have to build a strong case that doesn’t rest on a client’s late issuing of a payment or pay less notice. This in turn could lead to fewer contractors settling payment disputes through this process.
The ruling, if upheld, could well sound the death knell for smash and grab cases. As it escalates to the Court of Appeal, the industry will be watching closely.
Paul Lowe is an associate and construction specialist at Weightmans