Are unscrupulous contractor smash and grab claims closer to being dead?
In the case of Bellway Homes Ltd v Surgo Construction Ltd on 9th January 2024 some clarity has been established in the ever-controversial aspect of “smash and grab” adjudications and “true value” adjudications. In this case the adjudicator was asked to make an order for payment on a “smash and grab” default basis or alternatively on a “true value” basis. The adjudicator found that the “smash and grab” argument failed and the “true value” succeeded, which resulted in a payment of £148,431.70 plus VAT and interest.
The case went to enforcement, Surgo cried foul on the basis that more than one dispute had been referred, that is, “smash and grab” is one dispute and “true value” is another dispute. Surgo also argued that the payment application in the “smash and grab” having failed meant there was no payment application so there was no sum of money applied for and the Adjudicator could not determine a sum of money, which was also different in value to the payment application.
The court found that the Notice of Adjudication set the dispute out as what payment was due at the end of December 2022 and if the “smash and grab” argument failed then the “true value” assessment be made in the alternative. The court ruled that to adopt the two approaches as separate disputes was “too legalistic” and the two routes advanced went to the same goal of determining the sum owed they were not two separate disputes. The dispute it was held was a “single, disputed claim for a sum due.”
The important and interesting point to note here is if a true value can be ascertained if the parties have been arguing a payment value in the total absence of a notified sum. It means that a notified sum does not have to exist. An invalid payment application and all other payment notices being absent in Bellway meant no notified sum in respect of the end of December 2022. The case allows the sum that should be due where there is a Due Date to be assessed and ordered on a true value basis. There is in effect no escape form a payment obligation.
Multiple dispute arguments at enforcement are common and the precedent in most of these cases ends with the multiple disputes being classed as sub-disputes leading to one dispute being “What is the sum due?” Parties can this advance many submissions including numerous sub-disputes to arrive at the answer to the “What is the sum due?” question. It is important to frame a notice of adjudication with that focus. The weak multiple dispute argument also happened here in Bellway but the difference is this judgement specifically deals with “smash and grab” and “true value” processes in the multiple frame. It holds that both are definitely not separate disputes where the sum due has been asked for. Both can now be argued in the same adjudication. Until Bellway there would have been a risk discussion with clients on whether we would take one or the other track, we can now do both.
So if both processes can be argued and the “smash and grab” was valid, what would the answer have been in respect of the sum due? Which process should the Adjudicator give favour to and award given they are both valid processes and perhaps result in two different values? The “smash and grab” case or the “true value” case? Surely the “true value” is the best answer as it is the long term one saving the parties on future costs and argument? But then the “smash and grab” is arguably the notified sum, so what is the right approach? Also, if the true value is submitted and argued, then considered by the Adjudicator and the “smash and grab” is awarded, does that preclude a true value claim in a future adjudication? The Adjudicator should possibly take care to qualify the exclusion of the true value submission if the “smash and grab” one is awarded so that such might be dealt with in the future? The best approach might be to seek party clarity from the outset on what is to be decided, that the process we suggest ought to be the true value, but who is going to agree when the “smash and grab” is lacking in evidence but valid! There may still be a lot of trouble ahead!
There is much case adjudication law now on “smash and grab” claims centred on the validity of payment applications/ default payment notices as required by the Construction Act. Such payment notifications, which are seldom perfect in practice must have it seems perfect discipline to be valid and served timely. The perfect form, intent and substance must be present. Cases have failed due to payment applications/default payment notices being ruled as invalid resulting in adjudication costs and no payment. All of that is nonsense where substantial work has been completed and in essence money owed. Provided the Notice of Adjudication is properly written the true valuation referred is now a legal “backstop “ to any default payment claim.
Is a valid “smash and grab” default payment notice set in stone?
Consider what happens to other types of payment notice in adjudication, they are not set in stone. If a Payment or Pay Less Notice is disputed then an adjudicator will be asked to determine the sums properly due, that is the “true value”. What is the difference then between the way a Payment/Pay Less Notice is treated in adjudication and a Default Payment Notice? Should they be treated the same? That is, be subjected to a “true value” analysis? Bellway now paves the way to allowing true valuations of sums due where a default notice is involved. Does it allow an adjudicator to optionally open up the default payment notice? Is this the end of “smash and grab”? Do we need another enforcement case on this point? It may not be long before there is!
What Defences can be submitted now?
Consider this scenario - Following Bellway, the adjudication notice asks what is the sum due? The referred dispute only claims payment in default and not the true value. The default payment notice is valid.
Can the Responding party introduce and advance a true value argument and ask the adjudicator to open up the default payment notice to reach the sum due? Is there prejudice if the Respondent’s arguments on true value are dismissed as irrelevant? Is the Respondent’s true value argument irrelevant?
Think of a situation where party B has claimed £250,000 and it is in default. Party A argues that party B has not done the work and indeed owes £50,000 in a repayment for overpayment and damages. The adjudication requires the Adjudicator to determine the sum due or any such other sum. Party B only claims the default “smash and grab”, which is on the face of it procedurally valid but party A’s true value defence and counterclaim of £50,000 is truly the real position. Party B is being unscrupulous and trying to benefit from “smash and grab”. You are the Adjudicator. What are you going to decide? Are you going to award party B, £250,000 for smash and grab and dismiss the true value as irrelevant? Or are you going to take account of the true value defence party A has advanced and award a repayment of £50,000 against party B?
The default payment law was set up to protect payees from having their payments ignored, but there has been a growth in the use of that law in unscrupulous claims that are really “smash and grab”. The Adjudicator should be comfortable in knowing what to do when faced with any situation where the order for payment will be vastly different from the reality of what is deserved. What is deserved is in our opinion the moral outcome and what the statutes intended. A lot of questions are now raised going forward, but Bellway is most likely the start of the end of “smash and grab” adjudications.
If you have any views on this aspect it would be good to hear from you.