Henry Construction Projects Limited v Alu-Fix (UK) Limited

Citation: [2023] EWHC 2010 (TCC)

Key Terms: Smash and Grab, Notified Sum, True Valuation, Adjudication Enforcement.

Introduction

For better or worse, smash and grab adjudications exist, and they are perfectly legal. Whilst they may sometimes (often) lead to an unfair decision, the party on the wrong side of that decision may at least take comfort in the fact that there is scope for setting the record straight through a subsequent ‘true valuation’ adjudication. The question is, when?

This is a question which has been subject to extensive judicial attention over the years, with a general trend towards the position that one must pay first then recover later, but with nothing truly definitive on exact timings.

The recent decision of District Judge Baldwin in the Technology and Construction Court case of Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC) has now provided some much needed clarity.

Background

Henry Construction Projects Limited (“Henry”) employed Alu-Fix (UK) Ltd (“AF”) in relation to a hotel construction project in London.

AF commenced adjudication proceedings against Henry seeking a determination that Henry had failed to issue a pay less notice in response to a valid payment application issued by AF, and that as such the sum claimed in AF’s payment application was due as a ‘notified sum’; a ‘smash and grab’ adjudication.

During the conduct of those adjudication proceedings, Henry commenced its own separate adjudication, seeking a determination as to the ‘true value’ of the payment cycle to which AF’s application related.

AF asked the adjudicator in that second adjudication to resign. They contended that, until such time as Henry discharged its immediate obligation to pay a ‘notified sum’, the adjudicator had no jurisdiction to decide the ‘true valuation’ on the same payment cycle.

The adjudicator did not resign, but instead put the adjudication ‘on hold’ pending payment of the sum which had by that point been found due under the first adjudication; the notified sum.

Henry made payment, after which the adjudicator proceeded to render his decision in the true valuation adjudication, ultimately finding a significant sum due from AF to Henry.

AF did not pay, and Henry sought to enforce.

Pay Now, Challenge Later

In the enforcement proceedings AF contended that the adjudicator in the second adjudication lacked jurisdiction because – notwithstanding payment being made by Henry before his decision was ultimately rendered – the mere fact that the second adjudication was commenced before payment had been made was a sufficient bar to jurisdiction being conferred.

The Court agreed with AF.

It found that the effect of the decision in the first adjudication operated ab initio, confirming that the notified sum was always due (and had not merely become due by virtue of the adjudication).

This being the case, the second adjudication was in fact commenced before Henry had discharged its immediate obligation to pay that notified sum (whether it knew it or not), and accordingly that adjudication was unsound, with the appointed adjudicator lacking jurisdiction.

Summary and Practical Points

This decision reinforces the sanctity of notified sums and should come as no surprise to those who have been following the trend towards ‘pay first’ as it has developed over the years. Such an approach – whilst apt to produce unfairness – is necessary if the aims of the Construction Act are to be achieved.

Practically, those on the wrong side of a smash and grab decision should make certain that any adjudication action to challenge such decision by way of a true valuation is not set in motion until payment has been made in full, as they otherwise risk finding themselves on the wrong end of an enforcement decision too.

James Rooney

12 September 2023