“Smash and grab” adjudications: the beginning of the end?

A recent TCC decision suggests that the case law supporting so called “smash and grab” adjudications might have to be reassessed.

The “smash and grab” occurs where the paying party under a construction contract fails to serve a valid pay less notice in time. According to ISG v Seevic and Galliford Try v Estura, the recipient is entitled to the full amount set out in its application, even if that amount does not reflect the true value of the works.  We covered this topic in a previous blog.

The courts have subsequently sought to tighten up the circumstances in which a “smash and grab” may be successful:

• It was made clear that a party wishing to rely on the rule must follow the contract ‘to the letter’ and interim applications which are not clear on their face will not entitle a party to enforce a “smash and grab” adjudication (Caledonian Modular).
• The interim application must be free from ambiguity and must be “in substance, form and intent” an interim application (Henia v Beck).
• The interim application cannot be submitted earlier than permitted under the contract (Leeds CC v Waco).

The “smash and grab” came before the Court of Appeal late in 2015 in the context of a final payment rather than an interim application (Harding v Paice).  The Court of Appeal held that despite failing to serve a pay less notice that the paying party was entitled to challenge the proper valuation of the final application in a second adjudication.  The Court of Appeal acknowledged that its decision took a different approach to the Seevic and Galliford Try cases but did not say that they were wrongly determined. 

ICI v Merit Merrell Technology [2017] EWCA 1763

This case recently came before Mr Justice Fraser in the TCC and related to a NEC3 contract for the construction of a new paint manufacturing facility.  The parties to the contract ended up in dispute and MMT terminated the contract for ICI’s repudiatory breach.

Prior to the termination MMT had served two interim applications with ICI failing in both instances to serve a payment notice or pay less notice. MMT obtained two adjudication decisions that the full sums applied for in the interim applications were payable, and ICI made payment.

MMT brought a claim before the TCC for damages for ICI’s repudiatory breach of contract. As part of this MMT challenged the true value of ICI’s two interim applications.  In defence, ICI sought to rely on Seevic and Galliford Try – arguing that it was not open to the court to determine the true value of ICI’s applications.  ICI argued that MMT could only challenge the value of the works at the point of a subsequent application however none arose because of the termination.

The TCC found that the value of ICI’s applications could be scrutinised for overpayment. The reasons for the decision are partly dependent on the facts of the case and the terms of the NEC3 contract but Justice Fraser’s comments on Seevic and Galliford Try may have wider repercussions.

Justice Fraser held that the decision of the Court of Appeal in Harding v Paice “cast some real doubt on whether [Seevic] would be decided in the same way now. That must lead to similar doubts as to whether the reasoning in that case concerning rights to recover overpayments is correct …”. He also questioned whether the decision in Galliford Try “remains correct”.

Conclusion

The decision is the latest to look to restrict the “smash & grab” tactic. Paying parties may look to rely on Justice Fraser’s words and challenge the value of an interim application in absence of a pay less notice.  Previously the paying party could only challenge the value of an application at the next application or the final application.  It will be interesting to see how the courts determine the next “smash & grab” where there has been an undisputed overpayment.

Written by Callum Miller