Summary

The position regarding entitlement to payment in so-called ‘smash and grab’ adjudications, based on a failure to serve the appropriate notices, has been the subject of previous well known cases.

In ISG v Seevic, the court found that failure to serve a Pay Less notice for an interim application meant that the Employer was deemed to have agreed the value of that application; the value could not be determined by further adjudication.

In Harding v Paice, the Court of Appeal confirmed that this principle was in relation to interim payments only. In that case, the Employer failed to serve the correct notice on a termination account and the Contractor won a ‘smash and grab’ adjudication. The Employer was entitled to a further adjudication to determine the correct value.

Since those cases the law has been seen by most as settled. However, questions have lingered about whether Harding v Paice applied to all final accounts, or simply termination accounts.

That question has now been conclusively answered.

The Facts

Kilker Projects appointed Richwood Interiors to carry out specialist joinery works at the Dorchester Hotel. The parties were in dispute as to the value of the final account and Richwood began and won an adjudication against Kilker on the grounds of failure to serve a Pay Less notice.

The first adjudicator determined the amount due was the amount stated in the final account application, plus the adjudicator’s fees and expenses.

Kilker began a second adjudication seeking a declaration of the true value of the final account and repayment of any sums found to have been overpaid.

Kilker won that adjudication and Richwood were ordered to pay c. £55,000 plus the adjudicator’s fees and expenses. Richwood resisted payment on the grounds that Kilker had no right to re-adjudicate the value and/or payment of the account. The second adjudicator therefore had no jurisdiction.

Decision

The Court confirmed what most had assumed:

Failure to serve a Pay Less Notice for an interim application which leads to an adjudicator’s decision that the applied for amount is the ‘notified sum’ cannot be challenged on the grounds of valuation in a second adjudication. Any errors can be corrected in subsequent valuations, but a party cannot adjudicate on value.

However, where the ‘notified sum’ determined by adjudication is in respect of final payment, the ultimate value of the contract sum can be determined by further adjudication.

The Court reiterated that the provisions of the 1996 Act and the Scheme were intended to regulate cash flow and payment, not to conclusively determine entitlement.

Comment

Whilst this decision is not unexpected, it provides welcome confirmation of what most had assumed must be the correct position.

This decision limits the impact of ‘smash and grab’ technical adjudications to interim applications only; at final account stage, the Contractor retains a right to have the value properly determined.

A full transcript of the case can be read here.