Adjudication enforcement - What impact will Bellway Homes Ltd v Surgo Construction Limited have on interim payment disputes?

The dispute

Surgo sub-contracted part of its works relating to the installation of kitchens to Roundel Manufacturing Limited (“Roundel”). Roundel made an interim application on 22 December 2022 for payment of £152,225.23 (the “Application”). Surgo did not issue any payment notice or payless notice and did not make payment.

Roundel referred the matter to adjudication and asked the adjudicator to decide: 

1. that its payment application became the ‘default payment notice’ (in accordance with section 110B(4) of the Construction Act), such that the amount claimed therein became the ‘notified sum’ which was due and payable to Roundel; or, alternatively
2. the appropriate true value of its application, being the value of the work properly performed in accordance with the sub-contract up to 31 December 2022

The adjudicator found that Roundel’s application for payment was not valid and that it comprised: “no more than a than a number of accountancy summaries that do not seem to correlate with each other.”  It therefore did not meet the test under the Construction Act of being valid for the purpose of a ‘smash and grab’ adjudication.

On the alternative declaration, the adjudicator concluded that Surgo had instructed the works for which Roundel sought payment and therefore valued the account on the basis of the invoices which Roundel had issued when it completed the installation of each kitchen.The adjudicator decided that Surgo owed Roundel the sum of £146,118.82 for the true value of the works.

Surgo refused to make payment. Roundel assigned its claim to Bellway and Bellway brought enforcement proceedings.

Surgo resisted enforcement on the basis that:

• multiple disputes had been referred to adjudication (smash and grab and true value) which was prohibited by the Construction Act; or, if there were not multiple disputes
• the adjudicator exceeded jurisdiction by determining the true value payment having rejected the ‘smash and grab’ claim – in finding ‘no valid’ payment application, the adjudicator had no jurisdiction to determine a sum of money due in any event.

In response, Bellway contended there was only one dispute – what sums were due arising out of Roundel’s application for payment? There were two routes to answering that question – smash and grab or the true value of the works. 

Further, Bellway argued that the adjudicator was simply answering the question being asked - what amount was Roundel due up to the end of December 2022 calculated on a substantive basis? If this was wrong in law, that was not relevant to the enforcement proceedings.

What did the Court decide?

The adjudicator had jurisdiction to determine the dispute. 

The Judge found that this could be described as a single dispute in respect of a sum due and the notice of adjudication: “clearly characterised the dispute as a failure to pay any sum due to the Claimant by the final date for payment, whether by means of a notified sum or by way of a substantive amount due”. To characterise this as two different disputes would be taking a ‘too legalistic’ approach.

The Judge therefore agreed with Bellway that “the character of this matter is that there are two routes advanced to the same goal of determining a sum owned”. 

On exceeding jurisdiction, the Judge was of the view that Surgo’s position: “does not stand up to close scrutiny”.  The adjudicator’s discussion of the application’s validity did not mean he was rejecting the payment application as capable of being an application for payment in any circumstances. 

The alternative claim advanced by Roundel in the adjudication was simply introducing an alternative route to the adjudicator’s decision, namely a request for a true value adjudication if the default payment provision basis failed.  

The Judge therefore rejected both of Surgo’s arguments and upheld the decision.

What impact might this judgment have on future disputes?

Whilst there are a number of legal authorities which have grappled with the issue of single or multiple disputes, this is the first which concerns the different routes to payment.  

As matters stand, where a party is asking an adjudicator what sum is due, if worded appropriately, the same adjudication can consider the arguments on a default payment/smash and grab and true value basis and such approach is not likely to be considered two separate disputes. 

This is significant, as it paves the way for referring parties to frame their claims for sums due on an alternative basis, which should save time and money and avoid the need for the parties to engage in serial adjudications. 

However, the inevitable effect on the responding party is that they will have to defend a claim on both basis in a very short time period, which will obviously have cost implications and could increase breach of natural justice challenges. 

It also raises issues regarding the viability of future true value claims – if the responding party puts forward its position on the true value in defence, it may be precluded from bringing its own ‘true value’ adjudication in the future on grounds that it is the “same or substantially the same” dispute being referred to adjudication again (paragraph 9 of the Scheme). 

In reality, it may be that there are limited circumstances where a referring party (a payee, in this case) seeks a true value decision in the alternative because a payee would usually be the party bringing a smash and grab claim to avoid or delay a true value claim until it receives cash in its pocket.

In any event, it will be interesting to see what an adjudicator will do where it is asked to consider both alternative claims, but the smash and grab/default payment basis is valid and successful – will the adjudicator put forward a true value in the alternative in any event?  Presumably the immediate payment obligation under statute will prevail in these circumstances, particularly given the intention of the Construction Act to aid cash flow and the ‘pay now, argue later’ maxim? Or, is a decision based on the true value of the works beneficial (and commercially sensible) for all parties in the long run?

These questions remain unanswered for now, so it seems to be a case of watch this space! It also seems likely that there will be future enforcement decisions which consider these issues and the interplay between smash and grab and true value adjudications.   

Key takeaways

This decision serves as a reminder that:

• parties may only refer one dispute to an adjudicator but the Courts will apply a wide interpretation to ‘dispute’ and will not be overly legalistic
• if one issue cannot be decided without another, this suggests a clear link and one dispute
• adjudicator’s decisions are likely to be enforced by the Court and jurisdictional challenges are rarely upheld unless clear and unambiguous (the fact that the adjudicator may have been wrong is not sufficient as a challenge)
• payees may start to refer payment disputes to adjudication on an alternative basis, particularly if there are weaknesses in their default payment/smash and grab claim
• it is important to comply with notice requirements and notice provisions under the Construction Act – many interim payment application disputes could be avoided or reduced in scale if parties issued valid and timely payment or pay less notices at the outset

What else do I need to know? 

This decision indicates that the ‘true value’ of the works can still be established where there is no ‘notified sum’ pursuant to section 111 of the Construction Act.   

So, does this mean that there does not need to be a notified sum for an adjudicator to be able to award payment?  

It is not clear that this will be the case when considering interim payment disputes in the future. First, this was an enforcement decision and the Court’s approach is to generally uphold the decisions of an adjudicator (in the absence of a valid jurisdictional challenge), even where there may be an error of law. 

Secondly, there was no Part 8 claim to seek a final determination of the issue or challenge the decision on the basis that it was legally incorrect.  The outcome may have been different in these circumstances. 

What it does show is that non-compliant applications for payment are still capable of being assessed in a payment dispute when referred to adjudication.

1. [2024] EWHC 10 (TCC)