107772.001 SH Construction Case Booklet

Comment Put simply, this decision is authority for the following propositions. 1) A party cannot rely on a true value adjudication as a defence or set off to the enforcement of an earlier decision ordering immediate payment in a short or contractual adjudication unless and until he had made payment (pay now, argue later). 2) However the Court will not necessarily restrain a true value adjudication commenced before payment has been made if payment is made thereafter and (we hazard) before and certainly no later than the date of the true value decision. 3) The judgment support previous dicta to the effect that the risk of insolvency of the payee is one which rests with the paying party whose remedy is to be scrupulous in giving payment / pay less notices. 4) There is no distinction in the above circumstances between interim and final payments. 5) It remains the case that overpayment on a short or contractual adjudication (for which read “smash and grab”) can be corrected by a later contractual valuation or certificate but that will not detract from the obligation to comply with the earlier immediate payment obligation (pay now, put right later).

Coulson J had also said at [103]: “In my view, the Court of Appeal authorities all point the same way. An employer who has failed to serve its own payment notice or pay less notice has to pay the amount claimed by the contractor because that is “the sum stated as due”. But the employer is then free to commence its own adjudication proceedings in which the dispute as to the “true” value of the application can be determined.” [Emphasis added by the Court.] These (and other) statements seemed clear and unequivocal: the employer became free to commence his true value adjudication when (and only when) he had paid the sum ordered to be paid by the earlier adjudication. The Court recognised that the relevant sections of the judgment of the Court of Appeal in Grove was technically obiter. However, it was provided after full argument and was expressly intended to provide authoritative guidance on an issue that Coulson J had decided in the contractor’s favour. The Court felt obliged to follow and in fact agreed with it. The Court held, it should now be taken as established that an employer who was subject to an immediate payment obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a payment notice or a pay less notice must discharge that immediate obligation before he was entitled to rely upon a subsequent decision in a true value adjudication. Both policy and authority supported that conclusion and that it should apply equally to interim and final applications for payment. That was sufficient to dispose of the present application to rely upon Mr Sliwinski’s decision. The Defendant had not discharged its immediate obligation to pay the sums ordered by Mr Sutcliffe and was not entitled to rely upon the subsequent decision. Whilst the decisions of Coulson J and the Court of Appeal in Grove were clear and unequivocal (in stating that the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended Act before it can commence a ‘true value’ adjudication) that did not mean that the Court would always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation: see Harding . It was unnecessary for the Court to decide whether or in what circumstances the Court might restrain the subsequent true value adjudication and suggesting examples or criteria would be positively unhelpful.

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