Legal

S&T v Grove: paymasters and adjudications

18 December 2018 | By Chris Reeves

Chris Reeves examines the implications of a Court of Appeal decision, which confirms payment procedures trump adjudication.

Chris Reeves

The Construction Act turned 20 this year. Parliament decided that too much cash was being withheld in the supply chain for suspect reasons so went about interfering in construction contracts. Late excuses for non-payment met the sanction of adjudication and a speedy one at that: 28 days.

Post Construction Act contracts revolutionised the system. A dodgy reason for not paying would be challenged by an adjudicator who had the means to decide what was due and when it had to be paid. In default, the courts were ready to show their teeth and enforce adjudicator decisions promptly.

Since 1998 most would argue the system has been a huge success but as is often the case when money is involved, and often very large sums of money, there is the odd example where things have not turned out quite how you might think they should.

Take pay less notices, the notice the paymaster must issue to the contractor in default of which there can be catastrophic consequences. Application goes in, no certificate and no pay less notice means the amount applied for must be paid. The adjudicator will jump into action and an enforceable decision will land in the lap of the paymaster.

Mixed TCC messages

Recently though, the Technology and Construction Court (TCC) has given some mixed messages about a very important issue that paymasters have been left smarting about: if the paymaster has been slow to tell the contractor what it thinks about the valuation, then can the paymaster challenge the valuation before the cavalry arrive?

In 2014, the TCC decided the paymaster was prevented from commencing an adjudication on the underlying value of an interim payment in the absence of a pay less notice. This was important to the contractor as it prevented the paymaster knocking the payment that would be on its way, whatever the merits of the application for payment.

To paymasters who faced paying contractors for work they felt was not properly valued, this caused often large sums of money to be spent with lawyers trying to mitigate what was felt as an undeserved windfall. The case ISG v Seevic caused a stir as many believed it was always open to the paymaster to open up the valuation. But the TCC said otherwise.

Earlier this year in S&T v Grove Developments, the issue was reviewed by Mr Justice Coulson in the TCC. He decided that the paymaster was entitled to begin a second adjudication on the 'true value' of the works whether or not it had served a valid pay less notice. The judge suggested that ISG was wrongly decided.

Grove goes to Court of Appeal

Given the importance of the issue and the conflicting judgments hanging around in the TCC, Grove went to the Court of Appeal:

“The profession and the industry need to know which of the conflicting High Court decisions are correct.”

Sir Rupert Jackson in a unanimous decision agreed with Mr Justice Coulson that, contrary to ISG, a paymaster can start an adjudication concerning the correct value of the sum due and is not deemed to have agreed the valuation because of a failure to get its paperwork right. He noted that the court often has to:

“Hack out a pathway through a dense thicket of amended legislation, burgeoning case law and ever-changing standard form contracts.”

Sir Rupert did just that but decided that if the paymaster wants to review the application in a second adjudication it must pay the contractor first. Sir Rupert’s reasoning is important as he recognised that the payment procedures Parliament intended had to be upheld and the right to adjudication was “subordinate” to that. The Act has created a prompt payment regime but cannot sensibly be construed as permitting the adjudication regime to trump it.

We will have to see if the case sees a spike in adjudications on cases where the contractor scores a technical victory over the paymaster on its interim application for payment. Adjudicators will also have to consider if resignation is the right thing to do if the paymaster has not paid, or the contractor might threaten an injunction preventing the adjudicator proceeding. It could mean more litigation, when adjudication was just meant to be about an independent QS stepping in to see what money was due, and when it had to be paid.

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