In Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC), the Technology and Construction Court (TCC) sought to determine what impact (if any) the decision of a true value adjudication has on a subsequent “smash and grab” adjudication.

Facts

The case relates to a payment dispute for plumbing works carried out by Bexheat Ltd (“Bexheat”), as sub-subcontractor to the sub-contractor, Essex Services Group Ltd (“ESG”), as part of the construction of a residential and extra-care facility.

In mid-July 2021, Bexheat submitted its payment application no. 22, in the gross sum of £1,832,071.87 and seeking a net payment of £678,885.78. In response, ESG issued a Pay Less Notice, calculating the net sum owed to Bexheat for that period to be £4,808.44 Bexheat commenced adjudication proceedings (the “First Adjudication”) seeking a determination on the true valuation of payment application no.22. The adjudicator concluded that the true value of this payment application was £1,319,830.61, meaning the sum due to Bexheat was £141,646.35 plus VAT. ESG paid this amount to Bexheat in full.

One day before the commencement of the First Adjudication, Bexheat submitted its payment application no.23 for the period up to 31 August 2021, in the gross sum of £2,010,121.74 and seeking a net payment of £847,675.97. In response to which, ESG submitted their Pay Less Notice one day late. No payment was made by ESG, so Bexheat commenced further adjudication proceedings (the “Second Adjudication”) seeking payment of the sum of £706,029.70, that being the sum applied for within payment notice no.23 accounting for the sum paid by ESG in relation to payment application no.22 together with VAT and interest. Due to the late issue of the Pay Less Notice, the adjudicator agreed with Bexheat that the sum stated in payment application no.23 would be the notified sum, and thus owed by ESG. However, no payment was made by ESG.

As no payment was made by ESG, Bexheat commenced enforcement proceedings.

ESG claimed that the decision in the First Adjudication on the true value was binding on the Second Adjudication meaning the dispute in both adjudications was the same or substantially the same, and so the value of payment application no.23 had already been calculated in the First Adjudication. However, Bexheat argued that the decision in the First Adjudication only applied to the payment application it was regarding, that being payment application no.22, and did not determine the value of later payment applications.

The TCC’s decision

The judge found that there was a substantive difference between the First and Second Adjudication. The TCC rejected ESG’s argument, holding that the First Adjudication concerned the determination of the true value of the payment due to Bexheat, whereas the Second Adjudication considered whether ESG had served a valid Pay Less Notice.

In delivering their decision, the TCC set out the following reasoning:

  • The two adjudications were not the same or substantially the same. They concerned two distinct payment periods and the Second Adjudication did not concern ‘true value.’
  • ESG’s argument ignored s.111 of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”). If ESG had intended to argue that the ‘true value’ of the August pay period had already been determined, it should have served a Pay Less Notice to that effect.
  • When an employer fails to issue a valid Pay Less Notice it must comply with the immediate payment obligation under s.111 before seeking to establish the true valuation of the work, meaning if ESG had wanted to rely on the First Adjudication, they were still required to make payment in respect of payment application no.23 before relying on the First Adjudication.

The judge rejected ESG’s arguments and determined that the decision in the Second Adjudication was valid and enforceable.

Final thoughts

The TCC’s decision in Bexheat v ESG appears to make clear that a paying party, in this case ESG, are obligated to comply with their immediate payment obligations under the Construction Act before they are able to rely on the decision of an earlier true valuation adjudication.

This article was co-written by Josh Grieveson, Trainee Solicitor, and Emma Bulloch, Summer Student.