Mr Justice Stuart-Smith has handed down a not unsurprising, but nonetheless important, decision in M Davenport Builders Ltd v Greer & Anr confirming that an employer must first discharge its immediate payment obligation to pay a ‘smash and grab’ adjudication award before it is entitled to commence or rely upon a decision given in a subsequent ‘true value’ adjudication.
The decision in Davenport follows on from the Court of Appeal’s decision in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448, a claim concerning an interim application for payment, where in obiter guidance the court reached the same conclusion.
As brief background, in Davenport, the contract between the Claimant contractor (“the Contractor”) and Defendant employer (“the Employer”) was for construction operations at a building in Stockport. The Contractor applied for final payment and the Employer failed to serve a Payment Notice or a Pay Less Notice under the Scheme for Construction Contracts, rendering it liable to pay the full sum demanded in the application.
The Contractor obtained a valid ‘smash and grab’ adjudication award against the Employer in the sum of £106,160.84 plus interest (being the sum demanded on its final account plus interest).
Six days after the award, the Employer commenced an adjudication seeking a decision on the true value of the final account. The second adjudicator concluded that no further sum was payable by the Employer.
In the absence of payment, the Contractor pursued enforcement of the first adjudication award in the TCC.
The key question for Stuart-Smith J. was whether it was permissible for an employer, prior to discharging its obligation to pay a ‘smash and grab’ adjudication award, to (a) commence a true value adjudication; and/or (b) rely upon the true value adjudication decision by way of defence, set-off or counterclaim in the TCC enforcement proceedings. He concluded in both cases it was not:
- otherwise, a defendant [employer] would be able to ‘string’ the claimant along while it obtained a true value adjudication decision [21];
- the requirement to ‘pay first’ was consistent with the policy underlying the adjudication regime which was concerned with ensuring cash flow through construction projects rather than the final determination of what sums were actually due to the contractor [27];
- there was no material difference in policy whether the employer’s immediate obligation to pay arose out of an interim or final application [33].
Practically, this means that employers will be required to ‘pay first’ any immediate obligation to pay an adjudicator’s award, before seeking the return of that payment when it has obtained a favourable true value decision [21]. That latter decision could not be relied upon to avoid enforcement in the TCC.