Pay first, or risk disappointment: court declines to save ‘true value’ adjudication commenced prematurely
In Henry Construction Projects Ltd v Alu-Fix (UK) Ltd , the TCC declined to enforce a true value adjudication decision where that adjudication had been commenced before the contractor had discharged its immediate payment obligation to its subcontractor arising from an earlier dispute.
This was notwithstanding the earlier award had, in the meantime, been paid.
The Background to the Case
Henry entered into JCT standard building sub-contract with Alu-Fix, to carry out works at a boutique hotel development in central London.
Following a dispute, Alu-Fix terminated the Sub-Contract. This triggered a payment mechanism which required Alu-Fix to submit an application for payment. It did so on 15 November 2022 and Henry had until 13 December 2022 to pay the sum notified of c.£260k .
Henry did not pay, and Alu-Fix referred the matter to adjudication on what is commonly referred to in the construction industry as the ‘smash and grab’ basis (the “SGA”). Henry contended it had submitted two potentially valid pay less notices on 25 November and 12 December 2022 respectively.
On 18 January 2023, before the SGA was decided, Henry commenced a true value adjudication claiming that Alu-Fix was, as a result of overpayment, indebted to Henry in the sum of c.£235k plus VAT (the “TVA”).
The SGA Adjudicator found in favour of Alu-Fix. The TVA adjudication was stayed pending payment of the SGA award. Henry paid the SGA award; the TVA continued; and the TVA Adjudicator ultimately found in Henry’s favour.
Alu-Fix failed to comply with the TVA award. It argued the TVA adjudicator had lacked jurisdiction, as Henry had commenced the TVA before complying with what the SGA Adjudicator had found was Henry’s immediate obligation to pay the sum notified in Alu-Fix’s application.
What did the Court Decide?
Applying the principles summarised in the well-known case of Bexheat v Essex Services Group , the TCC agreed with Alu-Fix and refused Henry’s application for summary judgment to enforce the true value adjudication decision. The court determined that Henry’s immediate payment obligation had arisen on 13 December 2022, and that Henry’s TVA commenced on 18 January 2023 – at a time payment in the SGA dispute had not yet been made – was thus premature.
This case lends further support to the court’s policy of ‘pay now, argue later’. While it may not fully close the door on commencing a TVA prior to the outcome of a SGA being decided, it ought to serve as further deterrent to those considering such a course of action, unless they have, in the words of the Judge, “a sufficient level of confidence that any dispute raised [in the SGA] should result in a finding of no immediate payment obligation having been established.”
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