Does Grove give us more than the potential end to "Smash and Grab" Adjudications?

In this second part of the series regarding the judgment in Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) ("Grove") we look at the other points contractors and employers alike should be aware of.

Many reports regarding Grove relate to Coulson J's rather lengthy explanation as to why an Employer is allowed to start its own adjudication regarding the "true" value of a payment application, notwithstanding a technical "smash and grab" adjudication being brought by the Contractor. Our article on this topic can be found here. However, this is not the only point worthy of note.

Content of Pay Less Notices

The JCT standard form contracts state that a Payment Notice and Pay Less Notice must specify both the sum that the Employer considers to be due to the Contractor at the due date (in the case of Payment Notices) or at the date the notice is given (in the case of Pay Less Notices) and the basis on which that sum has been calculated. This requirement is a direct result of the requirements under sections 110A(2) and 111(4) of the Housing Grants, Construction and Regeneration Act 1996 (as amended).

In Grove, the Contractor applied for payment by way of a detailed spreadsheet running to 30 odd pages, which set out the basis of a gross sum of circa £39m. After taking account of payments received to date, the application claimed £14,009,906.58 from Grove. Grove subsequently served a Payment Notice which included a version of S&T's application but this time with Grove's assessment/values inserted. The Payment Notice was served late and as such Grove needed to serve a valid Pay Less Notice to avoid paying the sum claimed in the Contractor's application. When serving the Pay Less Notice, Grove referred to the basis of the sum it considered due as being the calculation set out in the Payment Certificate/Notice. The issue was whether the Pay Less Notice complied with the requirement to specify the basis of calculation.

The Contractor sought to argue that the Pay Less Notice was not valid as it had merely referred to a document enclosing the basis of the sum due rather than re-attaching that document to the Pay Less Notice. The Adjudicator agreed stating that the JCT standard form required a Pay Less Notice to "specify" the basis of the sum due and consequently, such calculation had to be provided within the Pay Less Notice itself.

Having considered various previous authority which suggested the Courts will take a practical view of the contents of Pay Less Notices and will not allow complaints as to form which are artificial or contrived, Coulson J held that the Pay Less Notice did properly set out the basis of calculation and as such it was a valid Pay Less Notice.

The basis of Coulson J's decision is founded on the view of what a reasonable recipient would understand from the notice to mean. Any argument that the Pay Less Notice was invalid simply due to the basis being set out in a separate document referred to rather than attached was "artificial and contrived".

Whilst this clarification is useful, it should be noted that the judgment is not without warning. If you seek to rely on documents by reference, you must ensure the referenced document has indeed been received and that the words of reference are sufficiently clear, otherwise you risk your Pay Less Notice being considered invalid.

It should also be noted that Coulson J appears to have commented favourably in support of the Scottish case of Muir Construction Limited v Kapital Residential Limited [2017] CSOH 132. This Scottish case related to the validity of a Pay Less Notice which failed to state how the sum of £nil had been arrived at from the stated gross figure. It was held that a clear calculation with specified figures was required to demonstrate how the figure of £nil was arrived at. Whilst this case is not binding in English law, Coulson J's favourable commentary suggests Employers should take heed of this judgment and ensure a clear calculation is set out in any Pay Less Notice.

Service of notices relating to Liquidated Damages.

A further dispute in Grove related to the service of notices relating to liquidated damages. The JCT standard forms require the Employer to serve a notice confirming to the Contractor that he may require the payment of liquidated damages. The Employer must then serve a further notice requiring the payment of liquidated damages. In Grove, the Employer served these two notices within seconds of each other.

Although both notices were received by the Contractor and in the required order, the Contractor sought to argue that the second notice was not valid as he had not had the opportunity to consider the first notice before the second notice was served. However Coulson J did not agree. The contract in question did not stipulate any required minimum time period between the notices and as such, provided the notices were served in the correct contractual order, the notices were valid notwithstanding the negligible amount of time between the notices.

Conclusion

Grove is a substantial judgment covering a number of key areas regarding payment disputes between Employers and Contractors. What appears to be key across the board is simply this: ensure notices are served in time and with plenty of detail to minimise debates going forward.

Permission to appeal to the Court of Appeal has been granted in this case and the appeal is expected to be heard by the Court of Appeal by no later than February 2019.