‘Smash and grab’ is a type of adjudication exclusively focused on recovering money owed. Seumas Cram from law firm Walker Morris explains what you need to know about them.
The right to commence ‘smash and grab’ adjudications has proven to be one of the most contentious changes brought about by the 2009 amendments to the Housing Grants, Construction and Regeneration Act 1996 (the Act).
This type of adjudication is a claim for payment due to lack of valid notice, rather than seeking a true valuation of the works.
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Such adjudications are often regarded as controversial, on the basis that the claiming party does not need to evidence any substantive entitlement to the sums claimed. Rather, the claiming party will rely on the fact that the paying party has missed the applicable deadline to serve a Payment Notice and/or Pay Less Notice in respect of the relevant payment application.
Whilst smash and grabs have proven a popular ‘ambush’ tactic, in practice, adjudicators will only accept such a claim if the payment application strictly complies with the requirements of the contract and/or statute.
It is therefore crucial to ensure that prior to starting a smash and grab, the claiming party has reviewed the validity of the relevant payment application.
Below are some key questions to ask regarding validity.
Is it clear that it is a payment application?
It must be clear that the document served is intended to be a payment application. Best practice is to expressly title the document “payment application” or similar and accompany it with a covering letter which expressly states that it is a payment application.
Has the application for payment been calculated for the correct valuation period?
In Henia Investments Inc -and- Beck Interiors Limited [2015] EWHC 2433 (TCC), the court heldthat it must be “clear and unambiguous" that the relevant payment application relates to a specific due date. This allows the paying party a fair opportunity to carry out its own valuation of works as at the applicable due date and, where appropriate, submit a Pay Less Notice.
The payment application must clearly state the period for which the works have been valued. If the contract requires a valuation to the end of the month, a payment application with a valuation to (for example) the 27th of the month will not strictly comply with this requirement and may not be valid.
Has the payment application been served in time and in the correct manner?
Subject to the terms of the contract, a late or early payment application may not be valid. It is therefore important to check the required month and deadline for the payment application and the required method of service. The contract may additionally specify that the application is made in a certain form (i.e. hard copy only), and should be served by a particular method (i.e. recorded delivery).
Is the sum due clearly stated?
Any payment applications must specify the sum a contractor considers to be due as at the applicable due date, along with the basis upon which that sum has been calculated. A common mistake is to include a cumulative valuation of the total works to date, without taking into account previous payments. It is important to expressly set out the sum claimed in that particular application rather than the overall value.
Have the payment provisions been varied by the parties' conduct?
The true contractual position can quickly become unclear where the parties deviate from strict adherence to the contractually defined interim valuation and payment application process. This creates a potential risk that a payment application may not be sufficiently “clear and unambiguous" as to which due date it relates to and/or that the deadline for service of the payment application might be missed.
A practical piece of advice is therefore to ensure familiarity with the contract payment mechanism, and to ensure that payment applications are made strictly in accordance with the same wherever possible.
Are all supporting documents included?
Parties should ensure that any relevant supporting documentation referred to within a payment application is provided at the same time as the application itself. Where a payment application refers to additional documents which the paying party has not had sight of, this creates a risk that the calculation of the sum due might not be sufficiently clear and the payment application could be invalid.
Conclusion
It is increasingly evident that smash and grab adjudications are less certain to succeed than many parties expect.
Parties should therefore carefully review their position prior to commencing such adjudications, in order to avoid the wasted time and expense of an unsuccessful adjudication.
It is also important to note that in the event of a smash and grab adjudication being successful, the losing party might choose to initiate its own true value adjudication shortly afterwards in respect of the relevant payment application (albeit that it would have to comply with the smash and grab and make payment first).
Seumas Cram is senior associate in the construction and engineering team at law firm Walker Morris.
