Over the last few weeks, we have been looking at some of the common arguments that come up in "smash and grab" adjudications - where a party seeks payment based on the paying party's failure to follow the statutory payment regime under the Construction Act – having seen their popularity increase over the last year.
Although the Housing Grants Construction and Regeneration Act 1996 requires a Pay Less Notice to specify the sum that the payer considers to be due on the date the notice is served, and to contain an explanation of how that sum has been calculated, it is possible to incorporate that explanation by reference to an earlier document – but only if it is done correctly.
S&T v Grove Developments
The premise for this was first set out in S&T (UK) Limited v Grove Developments Limited (2018), where S&T had argued that Grove's failure to set out the basis of calculation within the Pay Less Notice, and instead referring to the calculations set out in the spreadsheet which had been enclosed with the earlier Payment Certificate, meant that the Pay Less Notice was invalid. However, Coulson J considered that setting out the basis of calculation by reference to any earlier document was possible and was permissible in the particular circumstances of the case. He did however point out that there was no hard and fast rule, and that it not tenable to say that this reference was always permissible. It is a question of fact and degree, and whether the Pay Less Notice achieved "the requisite degree of specificity".
Grove's Pay Less Notice was sent to the individuals in S&T who were dealing with interim application and as such, would surely be familiar with the documents Grove had issued five days earlier alongside the Payment Certificate. As a result, the individuals knew perfectly well what detailed calculations Grove was referring to in the Pay Less Notice and the cross reference to the earlier document did not and could not have given rise to any doubt or misunderstanding in the mind of a reasonable recipient standing in the shoes of S&T on the day they received the Pay Less Notice.
Key Take Away
If the recipient of a Pay Less Notice is unfamiliar with the documents which are being cross-referenced or those documents are less than clear, there is a risk that the Pay Less Notice has failed to achieve the requisite degree of specificity and is therefore invalid. Therefore, when issuing a Pay Less Notice or considering the possibility of a smash and grab adjudication, parties would be well advised to ensure they are familiar with the foregoing guidance.
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