The ‘Grove principle’ in construction adjudication further examined

In the case of S&T(UK) Ltd -v- Grove [2018] EWCA Civ 2448 (“Grove”), in the context of construction adjudication, the Court of Appeal held that whilst it was permissible for a paying party to commence an adjudication to determine the true value of the works, the obligation on the paying party to pay the notified sum under s.111 of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) (section 10 of the Construction Contracts (Northern Ireland) Order (“1997 Order”) takes precedence over the paying party’s entitlement to adjudicate under s.108 of the HGCRA (section 7 of the 1997 Order) and the notified sum must be paid before the true value adjudication is commenced.

A recent judgment of the TCC in England and Wales has provided clarification and guidance as to whether the principle established by Grove was intended to be confined solely to the actual value of the works, or whether a broader interpretation ought to be applied for example, to claims for damages brought by the employer.

Background

The case in question is Lidl Great Britain Limited -v- Closed Circuit Cooling Limited t/a 3CL [2023] EWHC 3051 (TCC) and was a further case involving the well-known retailer, Lidl, and an industrial refrigeration and air-conditioning contractor, 3CL. Previously, 3CL had run an adjudication seeking payment of a notified sum following an interim payment application (interim application no.19). The decision in that adjudication was enforced by the TCC in the previous case of Lidl Great Britain Ltd -v- Closed Circuit Cooling Ltd (t/a 3CL) [2023] EWHC 2243 (TCC).[1]

Prior to enforcement (and prior to any payment by Lidl of the notified sum), Lidl started its own adjudications relating to: (i) the date of practical completion of the works; (ii) the cost of remedying defects to be offset against the sum owed to 3CL; and (iii) whether 3CL were entitled to an extension of time.

In respect of adjudications (ii) and (iii), 3CL raised jurisdictional challenges on the basis that following Grove, those adjudications were commenced without jurisdiction as Lidl had not paid the notified sum before it had commenced them.

Decisions were, however, made in those adjudications and Lidl commenced proceedings to enforce payment of the sums awarded to it in the defects adjudication. 3CL sought declarations from the Court that the decisions in the defects and extensions of time adjudications were unenforceable.

Decision

As such, the key issue to be determined was whether the Grove principle should apply to true value disputes in the wider sense of the meaning, as submitted by 3CL (i.e. without being limited to merely just the value of ‘the works’ but also employer cross claims such as liquidated damages and defects).

The TCC held there is not a wholesale ban on all adjudications being commenced without payment of the notified sum, but matters concerning valuation which could have been included in a pay less notice (such as the cost of rectifying defects and delay damages), cannot be adjudicated upon by the payer without first paying the notified sum.

The TCC did, however, draw a distinction between claims which occur after the date the pay less notice was due to be submitted and those which occurred before that date. If (for example) defects manifested after the deadline for a pay less notice, they may still be adjudicated upon without payment of the notified sum.

Carson McDowell View

Although this judgement was given by an English Court, it is likely to be considered by a court in Northern Ireland when the same (or similar) issue comes before it.

The case serves to re-emphasize the approach taken by the Courts, that the principle from Grove (in line with the statutory requirements) is that the paying party has to pay the notified sum before seeking to adjudicate on the true value (or any aspects of the true value).

It does raise the question as to whether employers will seek to argue that defects only came to light after the final date the pay less notice was due to be submitted in order to try to be able to adjudicate on those defects, in which case the date a defect comes to light may now take on an added significance.

It is likely that there will be additional case law in relation to the Grove principle in the future and further debate in true value adjudications as to what could (and could not) have fallen within the scope of any pay less notice at the relevant time.

Again, it is another reminder to the parties to be aware of (and to seek to comply with) the notice requirements provided for and within their construction contracts and thus avoid issues such as this arising.

If you would like any further information or advice, please contact Gavin Kerr from our Construction team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

[1] For an article on that previous case, please see https://carson-mcdowell.com/news-insights/insights/lidl-great-britain-limited-v-closed-circuit-cooling-limited-t-a-3cl