Pay Now and Argue Later – Case Review

After the Court of Appeal’s judgment in S&T v Grove in 2018, it has been the case that a party subject to a smash and grab can issue a counter-valuation adjudication. This means the party needs to first pay the smash and grab the award. We can look to a recent case, Kew Holdings v Donald Install Associates, the TCC arguably took the matter even further by saying that even court proceedings would not be able to proceed until the outstanding balance was paid.

Kew Holdings Limited hired Donald Insall Associates Limited (the Contractor) to convert and refurbish The King’s Observatory in Richmond to form a private residence. However, a dispute arose in 2018 between the two parties concerning the contractor’s entitlement to unpaid fees. The contractor took the step to refer the dispute to adjudication and obtained an award in its favour for just over £200,000.

However, the employer failed to pay the sums that were due and so the contractor commenced enforcement proceedings, obtaining judgment on 5 February 2019. The employer sought permission to appeal but was dismissed by the Court of Appeal. The employer failed to pay the judgment sum and so the contractor obtained a final charging order relating to The King’s Observatory situation before seeking an order for its sale.

So, in response to this, the employer commenced proceedings seeking £2m in damages against the contractor. The contractor retaliated by applying to have the proceedings struck out, saying that it was an abuse of process in respect of the failure to pay the smash and grab adjudication decision and resulting court order.

The court dismissed the contractor’s application to strike out the proceedings. Instead, the court decided to stay the matter until Kew had paid the sums ordered by the court on 5 February 2019. This stay ultimately means that the court proceedings can’t proceed until a certain act is completed.

This position was reiterated by the court in S7T (UK) Ltd v. Grove Development Ltd (2018) and M Davenport Builders Ltd v Greer (2019) again confirming that a party would not be able to start a further adjudication in respect of the contractor’s fees-on substantive issues not yet determined-without paying the outstanding adjudication award. Of course, things could have played out differently had Kew been able to commence court action instead, rendering the smash and grab award futile and becoming a flagrant disregard of the “pay now, argue later” regime of the Construction Act.

Having said the above, the court also found that it would be too draconian to completely strike out the claim. With this in mind, the court awarded the contractor the protection afforded by a say of proceedings unless and until the judgment had been satisfied by the employer.

There have been previous authorities who have dealt with a situation where a decision in a smash and grab adjudication has been challenged by a true value adjudication, and in this decision, the court has taken matters to the next level by declaring that even new court proceedings cannot proceed until the earlier decision has been paid in full.