Smash and grabs – court again confirms you must pay before you can value


21 July 2020

Since the Court of Appeal’s judgment in S&T v. Grove back in 2018, it has been conventional wisdom that while a party subject to a smash and grab can issue a counter-valuation adjudication, it must first pay the smash and grab award. In a recent case – Kew Holdings v. Donald Install Associates – the TCC arguably took the matter even further, saying that even court proceedings couldn’t proceed until the outstanding balance was paid. 

The facts 

Kew Holdings Limited instructed Donald Insall Associates Limited (the Contractor) to convert and refurbish The King's Observatory in Richmond to form a private residence.

In 2018, disputes arose between the parties concerning the contractor’s entitlement to unpaid fees. The contractor referred the dispute to adjudication and obtained an award in its favour for just over £200,000.

The employer failed to pay the sums due and the contractor commenced enforcement proceedings, obtaining judgment on 5 February 2019. The Employer sought permission to appeal. This was dismissed by the Court of Appeal. 

The employer failed to pay the judgment sum and the contractor obtained a final charging order over The King's Observatory, before seeking an order for its sale. 

In response, the employer commenced proceedings seeking circa £2m in damages against the contractor. The contractor in turn applied to have the proceedings struck out, claiming it was an abuse of process in light of the failure to pay the smash and grab adjudication decision and subsequent court order. 

The decision 

The court dismissed the contractor’s application to strike out the proceedings, opting instead to stay the matter until Kew had paid the sums ordered by the court on 5 February 2019. A stay effectively means that court proceedings can’t proceed until a certain act is done. 

The court reiterated the position in S&T (UK) Ltd v. Grove Development Ltd [2018] and M Davenport Builders Ltd v. Greer [2019], confirming that a party would not be able to start a further adjudication in respect of the contractor’s fees (on substantive issues not yet determined) without paying the outstanding adjudication award. In effect, had Kew been able to commence court action instead, it would have rendered the smash and grab award futile and been a flagrant disregard of the 'pay now, argue later' regime of the Construction Act.

However, the court also found that it would be too draconian to strike out the claim altogether. As such, the court awarded the contractor the protection afforded by a stay of proceedings unless and until the judgment has been satisfied by the employer. 

Comment

Previous authorities have dealt with the situation where a decision in a ‘smash and grab’ adjudication has been challenged by a ‘true value’ adjudication. In this decision, the court has taken matters a step further by saying that even new court proceedings cannot proceed until the earlier decision has been paid in full. 

It is not clear how this decision will operate in respect of every unpaid earlier decision or judgment; however, it is clear that the courts are focussed on ensuring that outstanding payments are 'paid now' and 'argued later' where a party is unreasonably withholding payment. 

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 July 2020.