It appears that I am not the only decision maker troubled by the increasing volume of so-called Smash and Grab adjudications. In these types of action, a claiming party seeks to be paid its application value regardless of the true value of work actually undertaken. Arguments regarding unjust enrichment and the like fail, not because there is no basis for such an accusation, but because the current law dictates that where a paying party has neglected to issue a compliant Payment Notice or Pay Less Notice the paying party must pay the Contractor’s application in full.
Payment or Pay Less Notices are required by a relevant construction contract’s terms or the Statutory Scheme for Construction Contracts (“Scheme”) where the Parties have failed to agree compliant terms and the Scheme applies in default. The notices must be served in the right form and in time otherwise the Contractor’s claim is payable in full, regardless of any hardship or perverse consequences that might flow from such a result.
So, what can a paying party do when it is on the end of a decision that requires it to make a payment that it knows is patently incorrect? Well, one course of action might be to seek a Part 8 declaration from the Court that the adjudicator was wrong either in regard to the timing or content of the relevant Payment and/or Pay Less Notices and that the Payment and/or Pay Less Notices issued were valid and no payment was due.
In these circumstances, the paying party will issue Part 8 proceedings seeking a declaration to that effect. The Contractor may also issue its own enforcement claim or the parties may agree that, if the paying party loses its Part 8 claim, it will pay the sums awarded by the adjudicator in any event. These types of cases all have a degree of co-operation in them and relate to very discrete points that a Court can deal with in a very short hearing or, more often than not, on a documents only basis.
Regrettably, however, there appears to be an increasing trend for parties to try and use Part 8 declaration proceedings to re-run an entire adjudication case before the Courts. This type of action is seen as an abuse and will, in most cases if not all, be resisted, leaving a paying party that has failed to issue a valid Payment or Pay Less Notice finding itself picking up a hefty legal bill in addition to having to pay the original adjudicator’s decision.
These sorts of issues arose in Hutton Construction Limited -and- Wilson Properties (London)  EWHC 517 (TCC) in which His Honour Mr Justice Coulson clarified the position the Courts will take in relation to spurious attempts to avoid an adjudicator’s decision through part 8 declaration proceedings at the very start of his judgement.
“1. This is a summary judgment application by the claimant, seeking to enforce the decision of the adjudicator, in the sum of £491,944.73. The defendant does not raise any issue as to the adjudicator's jurisdiction, nor is it said that there was any breach of natural justice. Instead, the defendant seeks to defend the summary judgment application on the grounds that the adjudicator was wrong to reach the conclusion that he did and that, in consequence, there should be no judgment in favour of the claimant. The claimant denies that this is a legitimate approach on the facts of this case.
- As I pointed out to the parties during the course of argument, the defendant's stance is an increasingly common one amongst those who are dissatisfied with an adjudicator's decision. It raises fundamental points of principle and practice concerning the enforcement of adjudication decisions. For that reason, having informed the parties that I would enter summary judgment for the claimant and would not permit the defendant to raise their challenge in defence of the claim, I reserved this Judgement.”
The general principle remains that it is not open to a defendant to seek to avoid payment of a sum found due by an adjudicator by raising the very issue on which the adjudicator ruled against the defendant in the adjudication in Part 8 proceedings. Part 8 proceedings may, however, be used to have an adjudicator’s decision set aside by the court where either all parties, including the adjudicator, agree that the decision is wrong or the issue on which enforcement is resisted is on a self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short hearing.
Other than in these very limited circumstances, the only option currently open to a paying party that is disappointed with an adjudicator’s decision is to adjudicate on a later payment cycle if this option is open to it or to arbitrate or litigate the dispute afresh.
Peter Vinden is a practising Arbitrator, Adjudicator, Mediator and Expert. He is Managing Director of The Vinden Partnership and can be contacted by email at email@example.com. For similar articles please visit www.vinden.co.uk.