16th April 2018
A significant judgment in Justice Coulson’s final case in the TCC before heading off to the Court of Appeal (Grove Developments Ltd v S&T (UK) Ltd  EWHC 123 (TCC,  All ER (D) 08 (Mar)) has allowed an employer to challenge, by way of further adjudication, the amount due to a contractor in respect of an interim application (by reference to the true value of the works). This was despite the fact that an earlier adjudication had determined that Grove’s pay less notice was invalid. On the basis of previous case law (including the ISG v Seevic and Galliford Try v Estura case), S&T would ordinarily have been entitled to be paid in excess of £14 million on the basis of its interim application irrespective of the “merit” of such application and leaving the payer with little comeback until subsequent interim valuation or at final account stage.
This case marks a considerable shift from the previous position under TCC authorities such as ISG where if a paying party under a construction contract failed to give a payment or pay less notice, it was deemed to have agreed to the amount stated in the contractor’s interim payment application. It was made clear in the judgment that the failure to issue a valid notice does mean that the payer still has to pay the full amount of the application (the Notified Sum) in the first instance. However, the payer can subsequently commence a further adjudication to seek a declaration on the ‘true value’ in adjudication.
The court also held that a pay less notice was valid even though it specified the basis of calculation by reference to an earlier document, and that the employer’s notices in respect of liquidated damages were valid under the contract (in this case, a JCT Design and Build Contract 2011).
Grove, a developer (and employer under a JCT contract), appointed S&T as contractor to build a Premier Inn hotel at Heathrow Airport.
The chain of events was as follows:
The issues that the court was required to determine included:
At first glance, the judgment could be interpreted as the end of smash and grab adjudications. A number of commentators appear to have reached this conclusion.
Coulson J states that he does not, “consider that the conclusions which I have reached strike at the heart of the adjudication system. On the contrary, I believe that it will strengthen the system because it will reduce the number of ‘smash and grab’ claims which, in my view, have brought adjudication into a certain disrepute.”
It remains to be seen whether this will be the case. Whilst this judgment has offered clarity and provides some comfort to payers under construction contracts that a failure to serve a valid pay less notice is not necessarily as disastrous as it may have been previously, payees may continue to see the merit in attempting to obtain payment in the absence of a valid notice and then use any decision in their favour as a means by which to negotiate with the payer.
Further, if Grove is followed, an employer will not be able to commence its own adjudication until it has paid the “sum stated as due” under the smash and grab adjudication. This could mean that ‘smash and grab’ adjudications remain popular for cash flow purposes.
Irrespective, this case has significantly departed from the position under ISG which Coulson J confirmed to be “erroneous and/or incomplete” and should therefore be viewed positively by payers.
However, there remains uncertainty arising out of the above, if a payer loses a smash and grab adjudication but has a valid jurisdictional point to run to resist enforcement, are they entitled to run the valuation adjudication before the courts have dealt with the enforcement proceedings. Preventing the payer from commencing an adjudication would fetter the right to refer a dispute to adjudication however the commencement of a valuation adjudication would appear to breach Mr Coulson’s judgment.