Written by Oliver Macrae.

The case of Bexheat v Essex Services appears to address the question of whether a “true value” adjudication is binding on a subsequent “smash and grab” adjudication.  

In short, the parties were progressing the contracted work (mechanical, electrical and plumbing services at a care facility) when there was a dispute as to the true value of interim application 22 (“IA22”) (the parties were circa £650,000 apart in terms of valuation), which was referred to adjudication (the “First Adjudication”). The decision of the adjudicator was released on 12 October 2021 confirming that just under £150,000 was due to Bexheat, and this sum was duly paid.

However, the payment cycle relating to interim application 23 (“IA23”) was in flight prior to the commencement of the First Adjudication, with Bexheat seeking payment of £848,000. A pay less notice was issued a day late, setting up a smash and grab adjudication.

Bexheat commenced the smash and grab adjudication (the “Second Adjudication”) in the sum of just over £700,000 (taking account of the sum that it had been paid pursuant to the First Adjudication). The tricky nuance is that the decision in the First Adjudication was released the day before the deadline for the IA23 pay less notice.  

This led Essex to argue that the true value of IA23 had been determined by the First Adjudication, and therefore no sum was due to Bexheat.

The court disagreed with Essex. The judgment centred on the interplay between s111 (which prohibits withholding payment after the final date for payment in the absence of pay less notice) and s108 (the right to refer a dispute (here, a true value adjudication) to adjudication at any time) of the “Construction Act”. The judgment of O’Farrell J concluded that parties must comply with their obligations under s111 before it could refer, or rely on, a true value adjudication.

Therefore, by virtue of its failure to issue a valid pay less notice as against IA23, Essex was required to pay the notified sum in full, before then seeking to recover monies in due course. The decision in the First Adjudication was released two days prior to the deadline for submission of the pay less notice against IA23, meaning Essex did have time to reflect the First Adjudication decision in its pay less notice. To that extent, this issue was of its own making.

The practical point remains that issuing a valid and on time pay less notice is of paramount importance, even where the content of the interim application may be disputed. A party cannot fail to respond to a pay less notice on time and then seek to deploy other arguments to avoid payment.

From a legal perspective, we think this has provided further clarity. We already know following Grove that you must pay the notified sum before commencing a true value adjudication, but this goes further in concluding that you cannot rely on a true value adjudication until the notified sum is paid.

This case is factually unusual (given that a true value adjudication usually follows a smash and grab) whereas this matter arose from a smash and grab following a true value adjudication. Nevertheless, it has again re-emphasised the importance of issuing a valid and on time pay less notice.