14 March 2019 #Construction
In M Davenport v Greer, one of the first cases to follow the court of Appeal’s decision in S&T v Grove (which we discussed here), the TCC held that an employer could not use a “true value” adjudication decision as a defence or set off to enforcement proceedings for an earlier decision in favour of the contractor.
M Davenport Builders (MDB) carried out building work for the Greers under a contract which contained no provisions for payment and so the payment terms of the Scheme for Construction Contracts were implied into the contract. When MDB issued a final account for £106,160.84, the Greers did not pay but failed to issue a payment or pay less notice.
MDB commenced an adjudication for the unpaid sum (plus interest) and was successful. The Greers did not pay the sum awarded to MDB and instead commenced a second adjudication (before a different adjudicator) as to the true value of the works. The adjudicator decided in favour of the Greers that no money was payable to MDB.
MDB brought enforcement proceedings to the TCC in respect of the unpaid award in the first adjudication decision. The Greers defended the proceedings on the basis that the decision in the second adjudication could be used as a set-off or counterclaim.
Stuart-Smith J held that the Greers could not rely on the decision in the second adjudication as a ground to avoid paying the sum awarded in the first adjudication. He followed the reasoning of S&T v Grove that the first “smash and grab” adjudication created an immediate obligation to make payment, which had to be done before commencing a second adjudication as to the value, and on that basis held that because the Greers had failed to discharge that obligation, they could not rely on the result of the second adjudication to resist enforcement of the first decision.
Although S&T v Grove related to interim applications, Stuart-Smith J found no significant reason to justify a difference in approach for a final application, on the basis that deprivation of cashflow could have serious effects for a contractor whether it occurred during or at the end of the works.
However, although the decision in S&T v Grove was clear that payment was required before a true value adjudication could be commenced, Stuart-Smith J did not determine any issue relating to the jurisdiction of the second adjudicator, on the basis that the question of jurisdiction for the second adjudication did not need to be determined given that he had held that the Greers could not rely on the decision in that adjudication. Instead, citing Harding v Paice  EWCA Civ 1231, he noted that in that case a party discharging its payment obligation from a first adjudication was not a prerequisite to that party commencing a second adjudication.
This element of the decision does not entirely follow S&T v Grove, which held that the payment obligation must be discharged before the second adjudication can be commenced. Despite finding that there was no distinction between the interim and final payment contexts, by not applying Grove to the issue of jurisdiction of the second adjudication, Stuart-Smith J implicitly creates a distinction i.e. that Grove fetters the right to adjudicate in the case of interim payments, but not for final payments.
This is the first reported case to apply last year’s Court of Appeal decision in S&T v Grove. Critically, it confirms that S&T v Grove applies to true value adjudications after an initial “smash and grab” adjudication in the context of both interim and final payment applications.
Whilst the principle makes sense, however, questions remain over whether it is commercially practical, particularly in light of the decision that the second adjudicator will not necessarily lack jurisdiction (which means that the second adjudication may be able to proceed, and be relied upon and enforced, but only once the payment awarded in the first adjudication has been made). It is not obvious why an employer should be obliged to pay the sum from the first adjudication when they already have a further decision that that sum is not the true value and so is not due to be paid. All that will happen in those circumstances is that the employer has to pay the sum awarded in the first adjudication and then commence enforcement proceedings to recover it on the basis of the second decision, instead of dealing with both decisions by means of set-off.