Background
The case involved a dispute between Henry Construction Projects Ltd (Henry), the main contractor, and Alu-Fix (UK) Ltd (Alu-Fix), a subcontractor. Alu-Fix terminated the subcontract and submitted a payment application. Henry failed to issue a valid payment notice or pay less notice, leading Alu-Fix to commence a “smash and grab” adjudication to enforce payment of the notified sum.
The Issues
The key issue before the court was whether a “true value” adjudication can be commenced while there is an ongoing or unresolved “smash and grab” adjudication concerning the same payment application.
The Decision
The TCC held that a “true value” adjudication cannot be commenced until any outstanding payment obligation arising from a “smash and grab” adjudication has been satisfied. The court emphasized the importance of maintaining the integrity of the payment mechanism under the Construction Act, which aims to ensure prompt payment in the construction industry.
Key Principles
The decision reinforces the following key principles:
- Prompt Payment: The Construction Act prioritizes prompt payment. “Smash and grab” adjudications are a mechanism to enforce this principle by requiring payment of the notified sum where a valid payment notice or pay less notice has not been issued.
- Sequential Adjudications: While parties can commence multiple adjudications, they must be conducted in a proper sequence. A “true value” adjudication, which seeks to determine the actual value of the works carried out, should generally follow the satisfaction of any payment obligations arising from a “smash and grab” adjudication.
- Jurisdiction of Adjudicators: An adjudicator’s jurisdiction is limited to the dispute referred to them. In this case, the court found that the adjudicator in the “true value” adjudication did not have jurisdiction to proceed while the payment obligation from the “smash and grab” adjudication remained outstanding.
Implications for the Construction Industry
The Alu-Fix case has several important implications for the construction industry:
- Clarity on Adjudication Sequencing: The decision provides clarity on the appropriate sequence of adjudications, preventing parties from using “true value” adjudications to circumvent their immediate payment obligations under “smash and grab” adjudications.
- Emphasis on Compliance with Payment Provisions: The case reinforces the importance of complying with the payment provisions of the Construction Act, including issuing valid payment notices and pay less notices.
- Strategic Considerations for Parties: Parties involved in construction disputes need to carefully consider the timing and sequence of adjudications to ensure they are pursuing the most effective strategy.
Conclusion
The Alu-Fix case is a significant decision that clarifies the relationship between “smash and grab” and “true value” adjudications. It reinforces the importance of prompt payment in the construction industry and provides valuable guidance for parties involved in construction disputes. By ensuring that payment obligations are met before “true value” adjudications are commenced, the decision helps to maintain the integrity of the adjudication process and promote fair and efficient dispute resolution in the construction sector.