Trant employed J&B to carry out M&E works at a recycling plant. In accordance with the payment provisions set out in the contract, J&B submitted its Interim Payment Application No. 26 in the amount of £812,484.94 plus VAT. Trant failed to issue a valid payment or pay less notice in response and the sum stated as due in that application therefore became the notified sum due for payment. However, Trant refused to make payment and a dispute arose between the parties, which was referred to adjudication.
In that smash and grab adjudication, Trant sought to argue that it had in fact issued the requisite notices but those submissions were rejected by the Adjudicator, who proceeded to decide that the sum stated as due in Payment Application No. 26 was due and payable to J&B immediately and without deduction. Trant still refused to make payment and J&B had to enforce the Decision.
Of note, Trant did not allege that the Adjudicator had acted in breach of natural justice, nor did it raise any challenge to the Adjudicator’s jurisdiction. Instead, Trant argued that Payment Application No. 26 had been superseded by subsequent interim payment cycles where valid payment notices had been issued such that no further sums were due to J&B. On Trant’s case, to enforce the Adjudicator’s Decision in respect of the sums due for Interim Payment No. 26 would be to “undermine the correction principle’” which permits interim payments to be corrected in subsequent payment cycles.
The TCC did not accept that as a valid ground for resisting enforcement, finding that a dispute in regards to Payment Application No. 26 had arisen and referred to adjudication. That dispute did not cease to exist because subsequent applications were made and ‘corrected’ by Trant’s corresponding payment notices. In the words of Mr Justice Fraser:
“What, in law, was the notified sum under Interim Application 26 does not, in my judgment, become incapable of adjudication simply because the payment cycle moves on to Interim Application 27 and subsequent applications...”
Although this was thought by most practitioners to be the case, it is useful to have the TCC’s confirmation. In effect, it means that a party can get every other notice in on time, but if it fails with just one at any point during the life of a project, it may open up a smash and grab opportunity.
Trant also argued that if the decision was enforced, it should be granted a stay of execution on the grounds of manifest injustice. This was because a true value adjudication was underway for a later interim application and it was said that this would determine the true value of J&B’s account.
However, the TCC said it is dangerous to consider a stay on the basis of manifest injustice in these circumstances. It pointed out that if that was an effective means of securing a stay, it would frustrate Parliament’s intention in passing the Housing Grants, Construction and Regeneration Act 1996 , which sets out in clear terms the necessity of issuing, and the repercussions of failing to issue, timely payment notices and pay less notices.
The outcome of this case is perhaps unsurprising, but it reinforces the difficulty of resisting enforcement even with novel arguments. It is also useful for the court to confirm that a party must comply with an adjudicator’s decision on a smash and grab adjudication on an earlier payment cycle even where there have been developments, including valid notices, in future payment cycles.
If you would like to discuss any of the issues raised in this article further, please contact Adam Brown or another member of Birketts’ Construction and Engineering Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2020.