Smash and grab gets whacked

The Technology and Construction Court has shown it will take a dim view of parties seeking to take advantage of the statutory payment machinery in manifestly unjust circumstances, in the recent case of JRT Developments Ltd vs TW Dixon (Developments) Ltd [HT-2020-BHM-00010].

TW Dixon (TWD) achieved a stay of enforcement of a substantial “smash and grab” adjudication award obtained by JRT on the basis of:

1. the claimant’s probable inability to repay the judgment sum at the end of the substantive trial under the test in Wimbledon vs Vago, and

2. the principle of “manifest injustice” under Galliford Try vs Estura, now widened to take into account “all the circumstances of the case”.

There had been a successful smash and grab adjudication by JRT, but the payment notice (seeking payment of roughly £1m) was, according to TWD, grossly inflated. TWD’s position on the account was that it had already overpaid JRT prior to the application. TWD therefore refused to pay the adjudication award.

JRT issued proceedings to enforce the adjudication award. In response, TWD sought a stay of enforcement pursuant to rule 83.7 (4) in the Civil Procedure Rules, on the basis that there were “special circumstances”.

TWD also commenced separate Part 7 proceedings to have the true value of the account assessed.

There were two special circumstances relied upon to stay enforcement. TWD was successful on both grounds.

The first was that TWD successfully demonstrated it was probable that JRT was unable to repay the judgment sum under the principles established in Wimbledon vs Vago. The judgment highlights the extent of the evidence required by the defendant in order to demonstrate impecuniosity on behalf of the claimant.

The general rule is that adjudication awards will be enforced. However, the principle of manifest injustice is a rare exception to that rule

The second and more interesting special circumstance was the “manifest injustice” that would have otherwise arisen. As we all know, the general rule is that adjudication awards will be enforced. However, the principle of manifest injustice, established in Galliford Try vs Estura, is a rare exception to that rule.

In this case, the manifest injustice did not simply include TWD’s inability to pay and the injustice in depriving it of a true assessment of the final account were the decision to be enforced. Judge Watson went further and also considered that the wider context of the payment notice and conduct of parties were key to this issue and the overall “fairness”.

Of particular relevance to the finding was the tactical nature by which the payment notice was deployed: it was the first one issued on the project and was issued only several months after termination. On this, the judgment states as follows:

“It was only after JRT terminated the contract that it demanded money […] it is clear that TWD did not appreciate the effect of the disputed payment notice […] the way that JRT obtained the adjudication award should be taken into account […] JRT clearly intended the disputed payment notice to trigger an adjudication and an award of the full amount of the disputed payment notice. It was ready to make its referral on the first day it was able to […] these circumstances do appear to me to be relevant to the fairness of enforcing the judgment sum.” (italics added)

The court will not look kindly on parties seeking to take advantage of the legislative payment framework when there is clearly an issue of fairness

Furthermore, the payment notice itself appears to have been grossly inflated, with items included that were otherwise irrecoverable under the contract, or at all. The judgment comments as follows in this regard: “In addition, TWD has claimed that the disputed payment notice is not a valid payment notice because it contains payments to which JRT has no contractual entitlement. That is an issue for trial. However, TWD argues that this is also part of the context that is relevant to the question of fairness […] it does appear from the evidence before me today that it is at least likely that, following trial, there would be an order for a significant repayment to TWD.” (italics added)

In summary, the court will not look kindly on parties seeking to take advantage of the legislative payment framework when there is clearly an issue of fairness.

The case also provided welcome procedural clarification. It is established that the party on the receiving end of a smash and grab adjudication cannot prosecute a second adjudication on the true value of the account until it had first paid the award in the first adjudication. What was not entirely clear was what that party could actually do. The answer is that it would have to issue proceedings for a determination on true value and it would have to do so expediently pursuant to Broseley London Ltd vs Prime Asset Management Ltd.

The case sets the framework for an avenue that is likely to be more regularly explored as the recession deepens as there will not only be more attempts to “smash and grab” but also an increasing number of solvency concerns.

Tris Tucker is a partner with Foot Anstey and Brenna Conroy is counsel at Keating Chambers. Foot Anstey and Brenna Conroy both acted for the successful defendant in this case.