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08 May 2019

Case review: M Davenport Builder Limited v. Mr Colin Greer and Mrs Juila Greer

by Mark Woodward-Smith, Group Managing Director -

The term ‘smash and grab’ gained popularity from the case ISG Construction v Seevic College2, and means an adjudication which involves one party to a construction contract claiming payment when the paying party has failed to issue either a payment or pay less notice of an interim application. The value of the application becomes the “payment notice in default”.

Background
M Davenport Builders carried out construction operations at a building in Stockport for the Greers under a contract which contained no provisions for adjudication or for the amount or date of payments.

This resulted in the relevant provisions of the Scheme for Construction Contracts to be implied into the contract. Davenport applied for a final payment of £106,160.84 on 22 June 2018. The due date for payment was 25 June 2018 and the final date for payment calculated in accordance with Clause 8 of the Scheme was 12 July 2018. The Greers failed to submit a Payment Notice, or any Pay Less Notices, in response to Greers’ application for payment and subsequent default notice nor did they make the payment. Therefore, Davenport commenced adjudication proceedings for the unpaid sum of £106,160.84 (plus interest) and the adjudicator awarded this sum.

The Greers, again, did not pay the sum ordered by the adjudication and instead on 30 October 2018 commenced a ‘true value’ adjudication (with a different adjudicator). Following the re-evaluation of the works, the adjudicator decided that no sum was due to Davenport.

Davenport commenced enforcement proceedings for the outstanding payment awarded in the first adjudication, however the Greers argued that the decision made in the second adjudication would offset the payment due in the first adjudication. The key issue for the court to decide was whether the Greers could rely on the decision awarded to them in the second adjudication by way of set off or counterclaim, considering they had not paid the amount awarded to Davenport in the first adjudication.

Decision
This case considered two previous cases; firstly, Harding v Paice3 which allows a party to recover the full amount requested in an application for payment where the other party has failed to issue a payment or pay less notice without the adjudicator being required to undertake a valuation exercise.

Secondly, S&T(UK) Ltd v Grove Developments Ltd4 which builds upon Harding v Paice and confirmed that, when a ‘smash and grab’ adjudication has taken place, an employer is not precluded from referring the matter to adjudication to establish the ‘true value’ of the works, but only provided that the sums awarded in the first adjudication has been settled first. In other words, the employer would have to make payment in line with the earlier adjudication before referring the true value adjudication.

It was therefore held in Davenport v Greer that the defendants were obliged to pay the sum specified in the first adjudication award despite the decision of the second adjudication. This was due to the Greers being subject to an immediate payment obligation that they had failed to satisfy, and so they were not entitled to rely upon offsetting this with the results of the second adjudication.

It also made no difference that the payment application was for a final account rather than for an interim payment, the same fundamental principles set out in Grove still applied. It is important to note that that there may still be circumstances where the Court may restrain the subsequent true value adjudication:

‘the employer must make payment in accordance with the contract or in accordance with section 111 of the [HGCRA 1996 as amended] before it can commence a ‘true value’ adjudication. That does not mean that the Court will always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation…”

Conclusion
Where a payment notice has not been issued by an employer following an interim or final application, and the contractor is awarded the amount by way of an adjudicator’s decision, the employer is still entitled to challenge the valuation, but he cannot commence the true value adjudication until the award in the first adjudication has been paid. If a true value adjudication is commenced before payment of the first adjudication decision, it is likely that the true value decision will not be enforceable.

Lessons to take away
This case reinforces the importance for the payer to prioritise the issuing of payment notices and pay less notices on time and to ensure that the amounts are accurate and as per the correct allocation of works carried out, and that any deductions are explained and quantified. Failure to do so, risks substantial payment and cost liability.

To download a PDF version of Mark’s article please click the link here: Davenport v Greer JSJ

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