3CL applied for an interim payment of £781,986.22 (AFP19) in respect of works done pursuant to a Framework Agreement.
Lidl failed to serve a valid payment notice or payless notice and so the sum applied for in AFP19 became the notified sum payable in default.
Lidl failed to make payment so 3CL commenced successful adjudication proceedings (Adjudication 1). The decision in Adjudication 1 was subsequently enforced in the TCC.
Prior to enforcement in the TCC, Lidl commenced 2 of its own adjudications:
- To recover / offset costs it had incurred in rectifying defects and snags in the since completed works which 3CL had failed to complete (Adjudication 2); and
- Seeking a declaration that 3CL was not entitled to any extension of time (Adjudication 3).
In each adjudication, Lidl was successful. In Adjudication 2, it was determined that Lidl could deduct the sum of £757,845.63 from any monies due or which may become due to 3CL.
In Adjudication 3, it was determined that 3CL had no entitlement to an extension of time.
Following the adjudication decisions, Lidl initiated Part 7 proceedings to enforce payments awarded in Adjudication 2. In response, 3CL commenced Part 8 proceedings, seeking declarations that the decisions in Adjudications 2 and 3 were each unenforceable as they were commenced prior to payment of the notified sum under AFP19.
The Court was required to grapple with the submissions of 3CL, namely whether or not the meaning of "true value" in the context of the Grove principle extended beyond the limited bounds of re-valuation of works for which payment has become due on a previous payment application (described by the judge as the "same payment cycle true value adjudication prohibition").
The court considered the relevant provisions of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (Construction Act).
While noting that the notified sum in the payer's payment notice (or payee's default payment notice) is usually focussed on the valuation of the work at the payment due date, the court acknowledged that the obligation to pay the notified sum is subject to s.111(3) of the Construction Act, which entitles the paying party to issue a “payless notice”.
Unlike a payment notice, a payless notice often focusses on deductions for matters not immediately relevant to the value of the works specified in the payment notice, such as defective work or delay damages.
As the Construction Act permits the paying party to pay what it considers due by reference to the valuation of the works at the payment date and by reference to any deductions or set offs in relation to defective work or delay damages, it follows that a payer may wish to bring true value adjudication proceedings to determine the value of those deductions or set offs in much the same way as it may wish to adjudicate the true value of the works themselves. The judge confirmed such adjudications will also be subject to the Grove principle to the extent they relate to claims which could have been included in the relevant payless notice:
"[39] It follows, in my judgment that, whilst a payer may well wish to bring a true value adjudication in relation to all such matters (i.e. valuation, defects and delay claims), it may also wish to bring a true value adjudication in relation to matters only of valuation, or only of defects claims, or only of delay claims. Often it will wish to do so in relation to defects claims or delay claims because it has omitted to serve an effective payless notice and, thus, will want to bring a true value adjudication in relation to such matters. In my judgment it must follow that such claims are covered by the Grove principle insofar as they are matters which could have been the subject of a payless notice served in respect of the particular notified sum in question. If, however, they are claims which could not have been the subject of such a payless notice, then it is difficult to see the justification for applying the Grove principle to them."
So whilst there is not a wholesale ban on adjudications being commenced whilst payment of the notified sum remains outstanding, those which concern valuations which could have been the subject of a timely payless notice served in respect of the notified sum in question (such as costs of rectifying defects and LADs) cannot be adjudicated upon until payment of the notified sum.
On the facts, the Court considered that each of Adjudications 2 and 3 were in part commenced in breach of the Grove principle as each concerned valuations which could have been the subject of a timeless payless notice in respect of AFP19. As such, elements of the decisions in those adjudications were found to be unenforceable.
Interestingly, the Court noted that whilst a payer will be unable to commence a true value adjudication in respect of defect or delay claims in existence at the time of the relevant payment cycle until it has paid the relevant notified sum, it can commence a true value adjudication for such claims in respect of the notified sum arising after the payless notice deadline date.
