True Value’ Adjudications: tactics to avoid having to ‘pay first’ where risk of insolvency squandered where party had not acted with due diligence

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True Value’ Adjudications: tactics to avoid having to ‘pay first’ where risk of insolvency squandered where party had not acted with due diligence

Published 30 abril 2020


In Broseley London Limited v Prime Asset Management Limited [2020] the Court declined to grant a stay of execution to allow the Employer to commence ‘true value’ adjudication on the final account where it had not paid the amount due on an interim valuation adjudication, or otherwise acted with due diligence to challenge that decision.

What did the Employer try to argue?
It has been well established since the decision in S&T (UK) Ltd v Grove Developments Ltd [2018] that a party cannot commence a ‘true value’ adjudication without first making payment of the sums due.

In this case, the Employer sought to get around that by arguing that there should be a stay of execution in circumstances where:

1. The Contractor was unlikely to be able to re-pay the cash once the matter had been finally determined;

2. The Contractor’s financial position was worse now than it was at the time the contract was made. This was due – principally – to the impact of the COVID-19 pandemic and not related to the Employer’s failure to pay the interim application;

3. There was a real risk that the Contractor would seek to dissipate or otherwise dispose of the cash such that it would not be available to be re-paid;

4. The Employer intended to commence a ‘true value’ adjudication of the final account which would be concluded in a timely manner and properly determine the dispute as to the sum due under the contract.

What did the Court say?
The Court took short shrift with the Employer in circumstances where it had failed to either pay the sums due or take any steps to otherwise challenge the Adjudicator’s decision, which had been issued in September 2019 (i.e. some 7 months previously).

It held that:

1. The suggestion that an Employer would be entitled to commence a ‘true value’ adjudication on the final account which is necessarily dependent on the validity and previous decision made on the interim account without having to ‘pay first’ would be:

“a remarkable instruction into the principle established in S&T: it would permit the adjudication system to trump the prompt payment regime, which is exactly what the Court of Appeal said… would not be permitted to happen”

2. Rather than taking legitimate steps to challenge the Adjudicator’s decision on the interim account, the Employer had delayed unnecessarily and sought to adopt other tactics to avoid having to pay the sums due.

3. Accordingly, whilst the Employer had failed to discharge the burden of establishing that the Contractor would be unable to re-pay the sums due in any event, it could have paid and commenced a ‘true value’ adjudication, or taken other action to challenge the Adjudicator’s decision earlier and at a time when the Contractor would have been able to re-pay.

The Employer’s application for a stay of execution was therefore dismissed and Judgment given for the Contractor.

The lessons to be learned
This case operates as a firm reminder that the Court will uphold the underlying principles of the payment regime and adjudication to facilitate cash flow in the industry. It will not permit parties to rest on their laurels and engage in delay tactics to avoid payment. The message in this case was clearly “pay up or shut up”; otherwise, you might end up bearing the risk of any subsequent insolvency.

Authors

Rebecca Austin

Rebecca Austin

London - Walbrook

+44 (0) 20 7894 6729

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