In the current climate, "smash and grab" adjudications – where a party seeks payment based not on the true value owed to them, but on the basis that the paying party has failed to follow the payment regime under the Construction Act ("the Act") – are likely to be as popular as ever as businesses look to maintain cash flow.
The English Courts have again supported this "pay now argue later" regime, confirming that not only must the paying party pay the sum awarded by the adjudicator before they can adjudicate themselves to determine the true value – Court proceedings may also be paused until the sums are paid.
The Case
The case in question is Kew Holdings Limited v Donald Insall Associates Limited. Donald Insall Associates ("Donald") had provided architectural services to Kew Holdings ("Kew") and had obtained an adjudication award in their favour, ordering payment of c.£268,000. Kew failed to pay the sum ordered by the adjudicator leading to Donald raising enforcement proceedings, where Kew was again ordered to pay.
Kew maintained it had a claim against Donald which should be set off against the sums due and so commenced its own proceedings seeking c.£2million of damages. Donald argued Kew's claim should be struck out or at least paused until they had paid the adjudicator's award.
The Court recognised that under the Act, adjudication is only ever intended to be interim binding and that the Act "expressly contemplated the commencement of legal proceedings to establish the parties' rights and obligations by way of a final binding determination". Nonetheless in the circumstances of the case the Court held that Kew's commencement of the proceedings without paying the adjudication award was, "in flagrant disregard of the "pay now, argue later" regime" of the Act and amounted to "unreasonable and oppressive behaviour". While the Court was not prepared to dismiss Kew's Court action entirely, it held that the action must be paused until Kew had paid the sums ordered by the adjudicator and the Court through the enforcement proceedings.
Analysis and practical take-aways:
The case shows the English Courts continue to support the pay now argue later regime of the Act. The case does, however, raise questions about where the line is to be drawn? Will any adjudication decision ordering payment be enough to effectively stifle related Court proceedings until payment has been made? Would this relate only to subsequent, rather than existing legal proceedings? Will the Court order such a pause if the receiving party has not sought to enforce the adjudicator's award through the Court?
While this situation has arisen before, the more recent decision in S&T v Grove [2018] EWCA Civ 2448, has brought matters back into sharper focus. S&T v Grove requires payment prior to the exercise of any further rights at adjudication; this recent decision in Kew v Donald arguably reinforces this by extending it to litigation. It remains to be seen if the Scottish Courts will follow the decision and be willing to pause proceedings, pending payment of an adjudicator's award.
From a practical perspective, the case serves as a reminder to all to follow the payment regime under the relevant contract and diarise the key dates, to ensure that the correct sums are certified.
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