March 2019 - Issue 115

M Davenport Builders Ltd v Greer and another [2019] is the first reported case since the Court of Appeal decision in Grove (reported on in our previous editions of Construct)in which it was held that a payee can commence further adjudication to determine the true value of a contractor’s interim application.

In the Davenport case, the defendants appointed Davenport to carry out construction works and a dispute arose relating to the final account, in respect of which there were two adjudications . The first “smash and grab” adjudication referred to the final payment application and, as a result of Greer’s failure to issue a payment notice or pay less notice, it was held that Davenport was entitled to £106,160.84.  Greer then commenced a second adjudication in order to determine the true value of the works. Here, it was otherwise held that the gross value of the account was £847,500 and in fact, once previous payments had been taken into account, no sum was due to Davenport.

Following the decision in the “true value” adjudication, Davenport brought proceedings in the TCC to try and enforce the decision in the first adjudication. Greer, relying on the second decision by way of set off or counterclaim, claimed that they were under no obligation the pay the sums due.

It was held by Stuart-Smith J that “it should now be taken as established that an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either  a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication”. In effect, Greer could not rely on the second adjudication before they had made the payment due in the first adjudication. The defendant must pay first, before then arguing later over the true value of the sum due. 

Despite this judgment clarifying the fact that an employer must make payment before it can commence a true value adjudication, uncertainity remains through Stuart –Smith J’s further judgment that the Court will not always “restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation.” Stuart-Smith J did not set out circumstances where an employer may commence a second “true value” adjudication, despite the fact that they have not met their obligations under an earlier adjudication.  We must, therefore, await further judgments to provide guidance as to when a court may allow true value adjudication to proceed before the sum awarded in an earlier adjudication has been paid.

Despite this uncertainty, what this case does is underline the importance of employers serving the correct notices on time if it believes that the sums owed are less than those applied for by the Contractor.