English court delivers blow to ‘smash and grab’ adjudication orders

Out-Law News | 20 Oct 2020 | 9:08 am | 2 min. read

An English court has ordered a stay of enforcement of a so-called ‘smash and grab’ adjudication decision to prevent “manifest injustice” to a small development company engaged in a construction dispute.

The Technology and Construction Court (TCC) said the adjudication award of over £950,000 should be stayed ahead of the substantive trial of the dispute, due to the probable inability of surveying company JRT Developments to repay the sum awarded if the trial goes against it.

‘Smash and grab’ is a term applied to claims where the payee claims for the full amount set out in an application where the payer fails to serve a valid pay less notice in time.

In this case, a dispute arose between JRT and TW Dixon (Developments) (TWD), a company set up by a couple with no experience of construction to develop 14 houses in Shropshire. Although there was a contract between the two companies, they did not operate the payment procedure specified.

After the contract was terminated by JRT, it sent a payment notice for £952,000, which was disputed by TWD. The issue went to adjudication, and the adjudicator found the payment notice was valid and made an order in JRT’s favour.

JRT issued court proceedings to enforce the decision, and TWD responded by filing its own proceedings seeking a declaration that the payment notice was invalid.

Although TWD conceded that JRT was entitled to summary judgment on the adjudication award, it asked for a stay of enforcement because it said JRT would be unable to repay the sum if the trial went in TWD’s favour. There would also be injustice because TWD was unable to pay the award to JRT.

Judge Sarah Watson said (29 page / 353KB PDF) it was likely that “at least substantial elements” of JRT’s claim for payment were not properly due to it.

She said TWD would be forced into liquidation if it was forced to pay the sum awarded in adjudication, and if the claim was not stayed, it would be deprived of the opportunity to seek redress and that it would recover little, if any, of the money following the trial.

Construction disputes expert Katrina Preston McDermott of Pinsent Masons, the law firm behind Out-Law, said the TCC had adopted the principles of manifest injustice established in a 2015 case between Galliford Try and Estura, as well as the principles concerning the inability to repay the judgment sum set out in the 2005 case between Wimbledon Construction Company and Derek Vago.

“The manifest injustice in this case went a little further than what was considered in the case between Galliford Try and Estura. The trial judge considered that the wider context of the payment notice and the prior conduct of the parties were key to the issue of ‘fairness’,” Preston McDermott said.

“This move suggests that the TCC will frown upon parties who seek to take advantage of the statutory payment mechanism in manifestly unjust circumstances,” Preston McDermott said.