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Fri July 10 2020

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Live by the sword, die by the sword

29 Jun 15 The case of Leeds City Council v Waco UK Ltd provides a lesson for those engaged in exploiting loopholes, warns Sarah E Phillips.

Sarah E Phillips is a solicitor with Thomas Eggar LLP
Sarah E Phillips is a solicitor with Thomas Eggar LLP

The Technology & Construction Courts appear to be seeing an increasing number of enforcement actions in relation to what has become known as the ‘smash and grab’. No, these are not matters that you might expect to find in the criminal courts; rather this somewhat unattractive term has been coined to describe perfectly legitimate adjudications started when a payment that is due under a construction contract has not been paid by the final date for payment and no valid payless notice has been issued.

The term has arisen because, provided that i) the claimant can demonstrate that the payment was properly applied for, ii) the final date for payment has passed and iii) there is no payless notice, the adjudicator will generally find for the claimant without inquiring into the amount being sought. The strict application of the payment terms of the Housing Grants & Regeneration Act 1996 (as amended) (the ‘Act’) does not require the amount applied for to be validated in any way.  The application just has to state the sum due and how it has been calculated. If no payment notice or payless notice is served by the payer, the amount stated in the application must be paid regardless of how excessive or otherwise it may be.

Just as adjudicators will generally award such payments, the court will generally enforce the award, provided the adjudication process is sound. While this is a perfectly valid way of getting paid, it has become what many consider to be the exploitation of a technicality – applying the letter of the law with little thought for the spirit that had intended to support the cashflow of the supply chain.

In light of the above, the recent case of Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC) could be considered a moderate rebalancing of the scales towards the payers in ‘smash and grab’ cases. It is a timely reminder that technicalities can be worked both ways. Therefore it is worthy of careful note by all those who might at some time need the assistance of the Act to get paid.

Waco UK Ltd (‘Waco’) won a ‘smash and grab’ adjudication against Leeds City Council (‘LCC’). LCC did not pay, so Waco started summary judgment proceedings. LCC resisted the action and applied to the Court for permission to challenge the adjudicator’s decision. Summary judgment was not given and LCC was awarded permission to challenge on the proviso that it paid the sum awarded by the adjudicator first, which it did.

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LCC applied to the court for a declaration that the payment application, which formed the basis of the adjudication, was invalid because it was submitted too early. For example, it was submitted before the contractual due date and that, because of this, the adjudicator’s decision was wrong and the money paid over should be re-paid (plus interest). It succeeded and got its declaration.

In arriving at this decision, the details of all the payment application submissions made by Waco throughout the contract were scrutinised. The submission dates were compared to the contractual due dates to see if they complied with the contract provisions and, if they did not, evidence of any agreement between the parties to accept the non-compliance was sought. No contractual justification was found for interim applications to be made on any dates other than those stipulated in the contract.

On the particular facts of the case, it was found that by their conduct (repeatedly accepting and paying interim applications that were submitted a few days after the contractual valuation date) the contract administrator and LCC had agreed that small degree of flexibility in the submission dates but no evidence was found to support a similar agreement to the early submission of applications. The relevant application was submitted six days early, it was not valid and could not therefore form the basis for an entitlement to payment.

Even though the detailed findings are specific to the case, the message to be taken from it is that if you are going to try to enforce your rights on a technicality, you should make sure your own administration is bullet-proof first. Do not let the submission of applications drift and if there is going to be a delay, get specific agreement to any change from the Employer’s side and, as always, keep careful records.

About the author: Sarah E Phillips is a solicitor with Thomas Eggar LLP

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