An important TCC decision was published on 27 February 2018 in Grove Developments Ltd v. S&T (UK) Ltd [HT-2017-000336 & HT-2107-000381]. One of its implications is to widen the scope for an employer who has received an adverse adjudication decision relating to either the non-payment, or failing to issue pay less notices, to bring parallel adjudication proceedings based upon ascertaining the true value of interim payments.
The construction industry is probably all too familiar with the origins of what is now commonly known as “smash and grab” adjudications.

Under s111 of the Housing Grants Construction and Regeneration Act 1996 (“HGCR”) if a contractor submits an interim payment application and, either the sum isn’t paid, or the employer fails to issue a pay-less notice, then the contractor is entitled to payment of the sum claimed even if its true value could be legitimately disputed. In essence, employers were finding themselves being penalised for not complying with the strict letter of the payment regime required by HGCR.

So the way a dissatisfied employer could strike back was to immediately issue its own adjudication proceedings – only this time asking an adjudicator to establish the true value of the interim payment application.

In 2014 & 2015 two cases of Edwards-Stuart J in the TCC, namely ISG v. Seevic [2015 2 All ER Comm. 545] and Galliford Try Building v Estura [2015 BLR 321] the Judge determined that employers could not bring follow-on adjudication proceedings in order to determine the true value of an interim payment application. The reason being that the employer was deemed to have accepted the sums claimed in the notice.

Despite the Court of Appeal case in Harding v. Paice [2015 EWCA Civ 1231] which was heard after the above TCC cases (and decided differently), subsequent TCC decisions have generally followed the ISG & Galliford decisions.
Grove Developments

This was the last TCC judgment of Coulson J before his appointment to the Court of Appeal a few days ago on 8 March.

Having anticipated that S&T was going to succeed with its smash and grab adjudication Grove issued Part 8 proceedings in the TCC seeking a number of declarations.

There were a number of points which the Judge was asked to address including:

Whether Grove’s pay less notice complied with the requirements of the contract

Grove’s interim payment application had referred to a detailed spreadsheet which was attached to the notice. Coulson J said there was no reason why a payment notice couldn’t refer to a detailed calculation set out in another document which had been clearly identified. S&T’s argument was that the payment notice only referred to the attachment and it hadn’t actually been re-sent. The Judge suggested that this argument was artificial. He accepted however that by referring to a separate document the party relying on it ran the risk of it being invalid if it wasn’t clearly expressed, or the attachment failed through a technical glitch. In this case S&T had previously seen and discussed the attachment.

Whether, in principle, Grove was entitled to commence separate adjudication proceedings seeking a decision as to the true value of its interim payment application

The answer to the question by Coulson J was a resounding “yes” for a number of reasons:

1.The Court was entitled to decide on the true value of any certificate, notice or application and, therefore, was entitled to open up or review any existing certificates.

2. Under s108 HGCR there is no limit as to the nature, scope and extent of the dispute which either side can refer to an adjudicator. The same is true under paragraph 20 of the Scheme. A Court can decide any subsequent dispute as to the true valuation of an interim payment application – so too, therefore, can an adjudicator.

3. In the first adjudication the issue would be whether the employer’s payment notice or pay-less notice was deficient or out of time.  In the second adjudication the dispute is a different dispute to that which was determined in the first adjudication.  

4. The JCT Design & Build Contract 2011 expressly differentiated between “the sum due” in the payment notice or the pay less notice (cl 4.7.2) and “the sum stated as due” (cl 4.9).  “The sum due” is identified in cl 4.7 because that is the result of the contractual mechanism designed to calculate the contractor’s precise entitlement (the “true” valuation).  That is very different to “the sum stated as due” which is the phrase used twice in cl 4.9. Clause 4.9 recognises that the contractor’s application/payment notice will identify the sum which the contractor has “stated to be due” and it provides that, in the absence of a payment notice or a pay less notice from the employer, it is “the sum stated as due”. Similarly, if there is a valid pay less notice then it would be “the sum stated as due” in that notice which would be payable.

5.The right for an employer to refer a dispute about a true valuation arising from an adverse adjudication decision (once it has paid the sum stated to be due) arises from considerations of equity and fairness. If an employer serves a pay less notice (so the contractor is paid less than it believes it was entitled to receive) then the contractor is entitled to refer the question of a true valuation to adjudication. So if a contractor can do it – why can’t an employer.

6. There was no difference between the payment rights and obligations of the parties in respect of interim payments, and those arising in respect of final payments.

This may only be another TCC decision, however it is suggested it is likely to have more significance not least because Coulson LJ is now seated in the Court of Appeal. So whilst the Court of Appeal may need to finally resolve any continued TCC discrepancies, if a similar matter ever comes before Coulson LJ then the parties are likely to have a good sense as to how the Court of Appeal will approach it.
CONTACT: Christopher Filor
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This publication is not intended to provide legal or other professional advice and should not be relied upon as such. Readers should take legal advice before applying the information contained in this briefing.
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