My colleagues Andy Mather and Richard Rowlatt recently reported on the much discussed Court of Appeal decision in Grove Developments Limited v S&T (UK) Limited. The Technology and Construction Court (TCC) has now applied the case for the first time, providing important reminders for handling pay less notices.
Macfarlanes acted for the successful respondent, Grove Developments, in the case, in which:
- it was decided that employers are able to bring an adjudication to determine the “true value” of a contractor’s interim application even if it has missed the deadlines for serving a payment notice and a pay less notice; but
- it was suggested that in such circumstances the employer is not able to commence the second “true value” adjudication before it has paid out the original sum applied for by the contractor.
Davenport v Greer – the facts
The TCC has now applied Grove for the first time, in M Davenport Builders Ltd v Greer & Anor . In that case:
- there was an initial adjudication in which the adjudicator held that the claimant contractor was entitled to recover the sum specified in its payment application (relating to payment of the final account) because the requisite notices had not been served in time by the defendant employers;
- the defendants commenced a second adjudication to determine the true value of the works six days after the first adjudicator handed down his decision but before making any payment. The second adjudicator determined that no money had in fact been due to the claimant; and
- the claimant applied to the court to enforce the first adjudication. The defendants argued that they were not obliged to pay, seeking to rely on the second adjudication by way of set-off or counterclaim.
Stuart-Smith J in the TCC enforced the claimant’s decision and found that the defendants were required to “pay now, argue later” (i.e. they could not rely on the second adjudication to resist enforcement of the first).
Key takeaway points from the judgment were as follows:
- the judge clarified that the principles outlined in Grove apply equally to interim and final applications for payment;
- it is clear that employers who have failed to serve the requisite notices on time must discharge their obligation to make payment before they can rely on an adjudicator’s decision as to the “true value” of the work in question; and
- despite the fact that both the first instance decision and in the Court of Appeal in Grove contain commentary which suggests that employers are not simply prevented from relying on an adjudicator’s “true value” decision but also prevented from commencing a “true value” adjudication until payment has been made, observations made by Stuart-Smith J in the judgment suggest (citing Harding v Paice) that employers are not necessarily restrained from commencing/continuing a true value adjudication before making payment (albeit they would not be able to enforce the adjudicator’s decision until after the payment has been made). In this instance the judge did not have to decide the point, indicating that:
“It is not necessary for me to decide whether or in what circumstances the Court may restrain the subsequent true value adjudication and, in these circumstances, it would be positively unhelpful for me to suggest examples or criteria and I do not do so."
As with all of the recent and expanding body of case law on this topic, this judgment serves to highlight the importance from an employer’s perspective of serving the correct notices within the required timeframes if it considers that it owes the contractor less money than it has applied for.
Even if the contractor may only end up holding onto the money for a relatively short period of time, during that period the employer will bear the risk of contractor insolvency and losing the money, which would be a bitter pill to swallow if the employer had legitimate grounds for withholding but simply failed to serve the right notices.