The Technology and Construction Court (“TCC”) in Kew Holdings Ltd v Donald Insall Associates Ltd reinforced that in construction projects an employer must ‘pay now, argue later’, and while the court stopped short of striking out a subsequent claim where the employer had attempted the opposite, it refused to allow the employer’s claim to proceed pending payment.
Background: the adjudication brought by Donald Insall
Kew Holdings Ltd (“Kew”) engaged Donald Insall Associates Ltd (“Donald Insall”) to provide architectural services in relation to the conversion of The King’s Observatory – a large property in Richmond – from offices to a private residence.
In 2018 Donald Insall successfully referred a dispute to adjudication. The adjudication was a ‘smash and grab’ claim – that is, a claim that payment was due in full as a result of Kew’s failure to adhere to the strict requirements of the contractual payment mechanism. The valuation of the underlying works was not relevant.
Kew failed to make payment so Donald Insall brought court proceedings to enforce the adjudication decision and obtained summary judgment. When Kew failed still to make payment, Donald Insall took steps to enforce the summary judgment. At the date the present case was heard, separate procedures to force sale of The King’s Observatory were ongoing.
The present case: Kew’s attempt to have the works revalued
On 6 March 2020, Kew raised the present case: a professional negligence claim against Donald Insall in respect of allegedly late and inadequate drawings, inadequate advice and overcharging. The effect of success would be to revalue the works for which payment was awarded in the adjudication.
Previous case law has made clear an employer must make payment of an enforceable adjudication award prior to bringing a second adjudication to challenge the valuation of the underlying works.
Donald Insall argued that a similar approach should be applied to Kew’s court proceedings: Kew’s claim was an abuse of process and ought to be struck out. Donald Insall made various arguments to support this, including that Kew had shown a deliberate, persistent refusal to comply with the summary judgment.
It was accepted by Kew that payment must be made, but Kew argued that its court proceedings to revalue the works should be paused rather than struck out pending payment.
The TCC’s decision
The TCC refused the application to strike out the claim, and instead paused the proceedings for payment to be made by Kew. Amongst the court’s findings were:
- the legislative regime for payment in construction contracts specifically enables the employer to bring a challenge after payment: “To strike out the claim would be contrary to that regime since it would deprive [Kew] of the ability to ‘argue later’”;
- Kew’s decision to raise the proceedings having chosen not to make payment was “in flagrant disregard of the ‘pay now, argue later’ regime” and amounted to “unreasonable and oppressive behaviour”. The court noted that Kew seemed to have the resources to pay and had simply chosen not to do so; and
- the above points notwithstanding, striking out would be “too draconian”. Donald Insall was sufficiently protected by pausing the proceedings unless and until payment was made. After that, Kew would be allowed to pursue its court proceedings.
Points to takeaway
The TCC’s decision makes clear that an enforceable award in a ‘smash and grab’ adjudication must be paid before the value of the underlying works can be challenged, whether by adjudication or court proceedings. Although the TCC did not go so far as to strike out Kew’s claim, the court made clear that Kew’s failure to pay the adjudication award was unreasonable, and justified Kew’s proceedings being paused. Kew is likely to be exposed to additional costs as a result.
Striking out is a feature of English and Welsh court procedure and typically prevents a claim being taken any further. The Scottish courts do not have a direct equivalent but can dispose of proceedings by various mechanisms throughout the course of a court action. It is likely that courts in Scotland would follow a similar approach as the TCC took in this case.