Henry Construction Projects Ltd v Alu-Fix (UK) Ltd – The TCC provides further clarification on the ability to commence a true value adjudication when there is a notified sum in dispute.

The immediate payment obligations in section 111 of the Construction Act 1996 (which provide that a notified sum must be paid on or before the final date for payment) must be complied with before a party can commence or rely on a true value adjudication. Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC) reconfirms this. One set of facts in which a party might consider commencing a true value adjudication prior to the outcome of a smash and grab adjudication would be in cases where that party has a sufficient level of confidence that any dispute raised will result in a finding of no immediate payment obligation having been established.

Background to the matter

Henry Construction Projects Limited (‘HCP’) commenced proceedings for an application for summary judgment to enforce an adjudication decision dated 06 March 2023 concerning a true value dispute. The adjudicator held that Alu-Fix (UK) Limited (‘Alu-Fix’) was in debt to HCP for the sum of £191,753.88.

Alu-Fix defended these proceedings on the grounds that the adjudicator lacked jurisdiction to decide on a true-value dispute because HCP had commenced the true value adjudication before paying the notified sum (which was found to be payable in the smash and grab adjudication).

HCP argued that it should be entitled to rely on the decision in the true value adjudication, contending that it had met its immediate payment obligation following the decision in the earlier smash and grab adjudication.

It is useful to pause here and consider the chronology of events leading up to the summary judgment proceedings:

• Alu-Fix commenced a smash and grab adjudication on 15 December 2022 in respect of its application for payment dated 15 November 2022. In response, HCP argued it had submitted two potentially valid pay less notices.
• HCP commenced the true value adjudication on 18 January 2023 contending that sums were due to it as a result of an overpayment. Alu-Fix contended that the adjudicator lacked jurisdiction to decide the matter on the basis that HCP had not made payment in respect of the 15 November 2022 payment application.
• The decision from the smash and grab adjudication was issued on 27 January 2023, deciding in Alu-Fix’s favour in the sum claimed with HCP to make payment by 03 February 2023.
• The adjudicator stayed the true value adjudication pending payment to Alu-Fix in respect of the smash and grab decision.
• HCP paid in full on 02 February 2023. The stay was then lifted, with the adjudicator reaching his true value decision on 06 March 2023. The adjudicator decided that Alu-Fix was in debt to HCP for the sum of £191,753.88.

The Court noted that the specific facts in this case were novel and had not previously been addressed by any authority.

The parties’ respective positions

It was HCP’s position that until there was an adjudication decision as to whether there was a valid pay less notice, no immediate payment obligation subsisted. HCP argued that the obligation arose upon the finding in the smash and grab adjudication and was discharged upon payment of the awarded sum.

Alu-Fix relied on the Court’s findings in AM Construction. It contended that the law and authorities in this area are clear, and a true value adjudication cannot be commenced in circumstances where there remains an unsatisfied immediate payment obligation. Alu-Fix went further to argue that there should be no attempt to impose retrospectivity as the burden was on HCP to pay the notified sum in the first instance.

The law

It is settled law that:

• where a valid application for payment has been made, an employer who fails to issue a valid Payment Notice or Pay Less Notice must pay the notified sum;
• section 111 of the Construction Act creates an immediate obligation to pay the ‘notified sum’;
• an employer is entitled to exercise its right to adjudicate pursuant to section 108 of the Construction Act to establish the ‘true valuation’ of the work;
• the entitlement to commence a ‘true value’ adjudication is subject to the immediate payment obligation in section 111; and
• unless and until an employer has complied with its immediate payment obligation, it is not entitled to commence or rely on a ‘true value’ adjudication.

The Court’s decision

The Court dismissed HCP’s application for summary judgment.

The Judge ruled that:

“Overall, in my view, the outcome in this case, whilst not closing the door on commencing a [true value adjudication] prior to the outcome of a [smash and grab adjudication] and later relying upon the outcome, ought to discourage such a course in areas of spurious [smash and grab adjudication] dispute, but not deter those who have a sufficient level of confidence that any dispute raised should result in a finding of no immediate payment obligation having been established.”

A final thought

To avoid jurisdictional challenges arising and being used to successfully defend any enforcement proceedings, a party must first comply with its immediate payment obligations. The above case demonstrates that the obligation to pay a notified sum cannot be retrospectively rectified.

Prior to commencing a true value adjudication parties ought to consider whether doing so would be premature. We recommend seeking specialist legal advice prior to referring a matter to adjudication to ensure that any essential pre-requisites have been met. Equally, a party on the receiving end of a referral notice would be well advised to seek input from a construction solicitor at the earliest given opportunity.

Speak to our specialist Construction and Engineering lawyers

Our specialist team at IBB is on hand to advise from the outset, whether it be in respect of the drafting of the contract itself or assisting in respect of a dispute which has materialised.

If you have any questions about this blog, please speak to one of our construction team on 03456 381381 or email construction@ibblaw.co.uk.

Alternatively, contact Samantha Beasley on 01895 207283 or Samantha.Beasley@ibblaw.co.uk.