Grove Developments Ltd v S&T (UK) Ltd19

The Claimant (“Grove”) employed the Defendant contractor (“S&T”) to design and build a Premier Inn
at Heathrow T4 under a JCT Design and Build Contract 2011.

There were three adjudications. The first decided that a Schedule of Amendments was
part of the contract; the second decided that S&T were not entitled to a full
extension of time; and the third decided that Grove’s pay less notice was invalid. This third
decision meant that S&T were potentially entitled to be paid £14m pursuant to its
application number 22. Grove anticipating this possible outcome had issued Part 8 proceedings
whilst S&T sought enforcement of the third decision.

The proceedings raised 4 issues.

(1) Whether Grove’s pay less notice complied with the contract;

(2) Whether even if the pay less notice complied with the contract, the third decision
should still be enforced;

(3) Whether in principle Grove was entitled to commence a separate adjudication as
to the ‘true’ value of interim application 22;

(4) Whether Grove’s notices in respect of liquidated damages were properly issued.
This issue is not further addressed here.

Issue (1) – The pay less notice

All the authorities pointed the same way. The pay less notice was to be construed in a
similar way to the underlying contract. It was to be approached objectively, taking
into account the objective contextual scene: how would a reasonable recipient have
understood it? One way of testing it was to ask whether the notice provide an adequate
agenda for a dispute about valuation and to any cross claims available to the employer?

A pay less notice was not to be construed more generously than a contractor’s
application/payment notice. But the adverse consequences which follow a defective pay
less notice were relevant to the test of the reasonable recipient: would that recipient have
realised the document was an application or payment notice with force, and all the
consequences that may entail?

The guidelines applied equally to a payment notice and pay less notice; each must make plain what
it is; clearly set out the sum said to be due and/or to be deducted, and the basis on which that
sum is calculated. Finally the court looked at two recent cases where it was held notices were
deficient.20

In this case the Court concluded the pay less notice was valid. It did properly set out the
basis of calculation by reference to a detailed calculation sent 5 days before the pay less
notice with a purported payment notice. There were detailed figures for every element of the
works and it satisfied the test of providing a detailed agenda for valuation. There could be no
possible objection in principle to a notice referring to a detailed calculation set out in another,
clearly- identified document. The fact that the document was not reattached to the pay less notice
did not matter. There was nothing in the contract requiring it be re-sent. It was clear what was
being referred to and it was incorporated by reference. The Court pointed out that a party
who relies on incorporation by reference without re-sending the document takes certain risks
that something may go wrong with technology or the mode of delivery of the first document. In
this case there were no such practical difficulties. The pay less notice complied with the
contract.

Issue (2): Should the third decision be enforced anyway?

Grove said not because it was served late on the assumption the Schedule of Amendments did not
apply. The first adjudicator had decided that the Schedule of Amendments did not apply. That
decision was and remained binding on the parties. Further, the Court having finally decided
the issue as to validity of the pay less notice, there was nothing left to enforce.

The Court decided that the second adjudicator’s decision in the third adjudication was wrong, it
could not be enforced.

Issue (3): Did the employer have the right to adjudicate the ‘true’ value?

On first principles, the Court held the answer must be “yes”. Its starting point was a judgment of
the Court of Appeal21 where Dyson LJ (as he then was) said that if the decision of an engineer
acting as contract certifier was not binding on the parties, it could be reviewed by an arbitrator
or by the Court. The case was authority for the propositions that the Court could decide the
‘true’ value of any certificate, notice or application and as part of that process to open up
review and revise the same. Thus the Court and an adjudicator has the same power to
decide the true value of interim application 22. In addition the Act conferred a
statutory power to refer any dispute to adjudication without limitation (section 108(1)). The same
was true of paragraph 20 of the Scheme. The dispute as to the true value would be a different
dispute from one about the absence of validity of a payment or pay less notice. In addition the
contract terms were of the utmost importance. The words “the sum due” in Clause 4.7 arose from the
application of the contractual mechanism designed to calculate the precise entitlement (the
‘true’ value). This was very different from the “sum stated to be due” or “stated as due”
in Clause 4.9 which identified the sum payable under the notice in question.

Nothing in the Act, Scheme or contract prevented the employer doing what the contractor
could do: attacking the sum stated as due in a notice. Finally, nothing in section 110A,
section 110B and section 111 of the Act, drew any distinction between an interim and
a final certificate. They applied to both. Thus whether what was in dispute was an
interim or final payment, the employer had the right in principle to refer to adjudication a
dispute about the ‘true’ value.

It was then necessary to review existing authorities to see if they compelled a different
conclusion. On the face of it the very question now raised was answered by Jacob LJ
in Rupert Morgan22 when he said that although in the absence of a withholding notice the
employer had to pay the sum certified, that did not preclude the employer “from subsequently
showing he was overpaid. If he is overpaid on an interim certificate the matter can
be put right in subsequent certificates. Otherwise he can raise the matter by way of
adjudication or if necessary arbitration of legal proceedings.” Rupert Morgan was
binding and made good sense.

The Court considered two previous decisions in ISG v Seevic23 and Galliford Try v Estur24
which Edwards-Stuart J “took a different line” and found itself unable to follow them. In so doing
Coulson J observed that the value should not be deemed to be agreed merely by virtue of the absence
of an effective payment or pay less notice.

Thus an employer whose payment notice or pay less notice was deficient or non-existent could pay
the contractor the sum stated to be due in the contractor’s interim application but was then free
to commence adjudication proceedings to dispute that the sum paid was the “true” value of the works
for which the contractor had claimed.

Comment

This decision limits the time effects of so called “smash and grab”. An employer who for lack of
notice is found liable to pay a greater sum than his own valuation, can pay up and in principle
immediately adjudicate the true value of an interim as well as a final payment application. In an
appropriate case, he might even seek a stay of execution in the meanwhile.

It may be that the effect of this decision will be to reduce the number of “smash and grab”
adjudications.

The reference to the judgment of Jacob LJ in Rupert Morgan is interesting for another reason.
It will be recalled that Jacob LJ said an overpayment could (also) be put right in a subsequent
certificate. The question which remains to be answered is whether, instead of adjudicating, a
paying party can adjust the value in a subsequent certificate or valuation and effectively reclaim the overpayment?

 

This article was originally written and published on the internet by Slater Heelis in June 2016.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

 

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