The Technology and Construction Court (TCC) recently handed down the latest guidance on the implications of the decision in S&T (UK) Limited v Grove Developments Limited.
S&T v Grove established that unless and until a paying party has complied with its immediate payment obligation following a “smash and grab” adjudication, it is not entitled to commence, or rely on, a “true value” adjudication (the Grove Principle).
The question that was before the TCC in Lidl Great Britain Ltd (Lidl) v Closed Circuit Cooling Ltd (3CL) was whether the Grove Principle restricted the paying party from commencing any adjudication until it has complied with its immediate payment obligation. In summary, the TCC found that there was not a complete prohibition, but that such proceedings could not relate to issues which could have been the subject of a pay less notice.
Background
- Lidl and 3CL were party to a framework agreement which enabled Lidl to call off individual works orders as separate contracts.
- The framework agreement and the relevant order made provision for 3CL to submit applications for interim payment following the achievement of certain milestones. 3CL duly submitted application 19 (AFP19) for £781,986.22.
- Following Lid’s failure to pay, 3CL referred a “smash and grab” dispute to adjudication (Adjudication 1). The Adjudicator ordered Lidl to pay the sum applied for in AFP19 (Decision 1).
- Lidl failed to make payment and instead issued a Part 8 claim in the TCC, challenging Decision 1 on various grounds. 3CL issued its own proceedings to enforce Decision 1.
- The Court dismissed Lidl’s Part 8 challenges and enforced Decision 1. Lidl complied with the order made as a result of that judgment and duly paid the sum due on 18 September 2023. In the meantime, Lidl had commenced two further adjudications (Adjudication 2 and Adjudication 3).
- Adjudication 2 concerned Lidl’s entitlement to recover costs incurred to rectify alleged defects. The Adjudicator decided that Lidl was entitled to payment of £757,845.63 (Decision 2). At the time of commencing Adjudication 2, Lidl had not yet paid the sum payable under Decision 1 but, by the time of Decision 2, it had done so.
- 3CL refused to pay the sum payable under Decision 2 and Lidl therefore sought to enforce the decision. In defence, 3CL sought a declaration that Decision 2 was unenforceable because Lidl commenced Adjudication 2 before it had complied with its immediate payment obligation in respect of Decision 1 (in contravention of the Grove principle).
- Adjudication 3 was commenced by Lidl in connection with the completion date and the Adjudicator decided that 3CL had no entitlement to an extension of time (Decision 3). Again, at the time of commencing Adjudication 3, Lidl had not paid the sum payable under Adjudication 1 but, again, by the time of Decision 3, had done so. Although Decision 3 did not require 3CL to make any immediate payment, it enabled Lidl to say that by virtue of that decision, it was entitled to levy liquidated damages amounting to over £1m. 3CL also sought a declaration from the TCC that Decision 3 was unenforceable on the same grounds as it did in relation to Decision 2.
Judgment
The Court stated that there is not a blanket prohibition on adjudication proceedings in these circumstances. However, claims or deductions which could have been the subject of a PLN served in respect of the sum due, cannot be the subject of adjudication proceedings whilst the immediate payment obligation has not been complied with.
If the claims or deductions could not have been the subject of such a PLN, then there is no such prohibition. The Court gave the following example; if a payer has, at the time of the relevant payment cycle, a claim for defect-related losses in respect of defects already in existence but fails to serve a valid PLN in respect of them, it cannot commence a true value adjudication in respect of such claims until it has paid the relevant notified sum. If, however, it has a claim in respect of defects occurring after the PLN date, there is no prohibition on commencing an adjudication in respect of such matters.
In respect of Adjudication 2, the Court concluded that some of the claims related to defects arising after practical completion and therefore did not involve matters which could have been the subject of a PLN. Others amounted to an effective ‘true value’ of items that, in the Court’s view, could have been the subject of a PLN. The Court therefore severed Decision 2 and awarded Lidl the reduced sum of £496,946.02.
As to Adjudication 3, the Court found that this was, in effect, a ‘true value’ of LADs that could have been the subject of a PLN. The Adjudicator therefore had no jurisdiction and Decision 3 was not enforced.
Comment
This case reinforces the Court’s commitment to the “pay now, argue later” regime by prohibiting adjudication proceedings in connection with matters which could have been the subject of a PLN.
A paying party will only be entitled to commence adjudication proceedings in relation to matters that arose after the date of the PLN for the payment cycle in question. This will often require a detailed analysis of the claims being made and the dates on which they arose.
