Back in February, Coulson J in the TCC held that the employer, Grove Developments, was entitled to refer a dispute about the value of the contractor's interim application for payment to adjudication, whether or not the appropriate payment notices had been served.
For Emily Monastiriotis’ blog on the TCC decision see "Case analysis: Grove developments limited v S&T UK limited".
S&T raised the appeal on three issues and the Court of Appeal upheld Coulson J.’s findings at first instance on all three of these issues.
The first issue was whether the pay less notice issued by Grove Developments was valid, as S&T claimed it had not specified the basis on which the sum had been calculated in accordance with the amended provisions of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act). The Court agreed with Coulson J. and found it to be valid following the principle established in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749, where the question to consider is how a reasonable recipient would have understood the notice. In this case, the cross-reference in the pay less notice to the calculation sent previously, even if the calculation was not reattached, could not give rise to any doubt in the mind of a reasonable recipient standing in the shoes of S&T on receipt of the pay less notice.
Secondly, the Court agreed with the TCC in that an employer who has failed to serve both a payment notice and a pay less notice is entitled to commence an adjudication to have the correct value of the application assessed and to reclaim any sum which has been overpaid. The Court endorsed all the reasons Coulson J. had given for the first instance decision on this point, including that courts and adjudicators have the power to review and revise sums shown as due in interim applications in any case where the interim application determines what is payable; the sum which has to be paid (the notified sum) and the true valuation of the work done need to be distinguished from each other; and it is fair that an employer has the right to adjudicate over the true value of an interim payment, as the payment regime gives an employer very little time to carry out a complex valuation and the contractor also has the right to adjudicate when seeking payment of a higher sum than that notified. In addition, there is no basis for distinguishing the position at the final account stage, when a true value adjudication is always permissible, from the position at interim stage, in circumstances where s.111 of the Construction Act applies equally to both forms of payment.
The Court of Appeal has added to Coulson J.’s comments regarding the timing of a true value adjudication and has concluded that the true value adjudication cannot be commenced until payment of the notified sum has been made, otherwise the provisions of the Construction Act could be undermined. The adjudication provisions are subordinate to the payment provisions and the Act cannot sensibly be construed as permitting the adjudication regime to trump the prompt payment regime.
The final issue concerned the giving of notices with regard to liquidated damages, as under the JCT contract in question, the employer is required to issue a warning notice and a deduction notice. Although the notices were sent in quick succession, the court concluded, in agreement with Coulson J., that if both notices are received in the correct sequence, that is sufficient to satisfy the requirements of the clause and no specific time period is required for a party to consider the warning notice before the deduction notice is received.
This judgment will bring some significant clarification on the operation of the payment provisions under the Construction Act and on the right to adjudicate. The requirement set out by the Court of Appeal, that a true value adjudication can only commence once payment of the notified sum has been made, does raise questions though as to how this rule can operate in practice and whether the “smash and grab” culture will be reduced.
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