Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (t/a 3cl) [2023] EWHC 3051 (TCC)
A party tried to expand the scope of the 'pay now argue later' principle concerning smash and grab adjudications as settled by S&T (UK) Ltd v Grove [2018] EWCA Civ 2448 (Grove).
Question for determination by the Court
In Grove, the Court of Appeal decided that a payer who loses a smash and grab adjudication can only start an adjudication over the true value of those works after they have paid the notified sum. The principle in Grove continues to apply, and further TCC cases have confirmed and extended the Grove principle so that a party is not permitted to adjudicate on the true value of a payment application where it has not complied with its immediate payment obligations - even where the payee has not obtained an adjudicator's decision.
Lidl Great Britain Ltd (Lidl) and Closed Circuit Cooling Ltd (t/a 3CL) (3CL) entered into a framework agreement which permitted individual work orders to be raised as separate contracts. The previous adjudication between the parties concerned a dispute regarding the validity of an application for payment (Adjudication No 1). In that decision, HHJ Stephen Davies granted summary judgment in favour of 3CL's smash and grab adjudication decision and Lidl complied with that order on 18 September 2023 paying the sum awarded.
However, before Lidl complied with the judge's order in Adjudication No 1, they commenced adjudication no 2, which concerned their entitlement to deduct the costs incurred in appointing a third party to rectify defects with 3CL's works. The adjudicator decided that they could deduct these sums (Adjudication No 2).
3CL did not comply with the Adjudication No 2 decision and so Lidl commenced a Part 7 claim to enforce the decision. 3CL separately pursued a Part 8 claim seeking a declaration that the decision in Adjudication No 2 was unenforceable.
A third adjudication between the parties was commenced by Lidl in August 2023 in relation to 3CL's entitlement to an extension of time (Adjudication no 3).
Decision
3CL argued that until Lidl had complied with its immediate payment obligation arising from Adjudication No 1, Lidl was not permitted to commence its Adjudications 2 and 3 or, indeed, any (i) true value adjudications; or (ii) any further adjudications even if they did not specifically relate to the payment cycle and notified sum payable.
The TCC held that it was not possible to interpret the Construction Act as "prohibiting any adjudication whilst the notified sum remains unpaid, even where the subject matter of the adjudication has no relation to the notified sum". In essence the TCC disagreed that there was a wholesale prohibition on all adjudications being commenced until payment of the notified sum had been made. However, there was a prohibition on starting an adjudication relating to matters that could have been included in a pay less notice where the notified sum had not been paid. This would include, for example, costs of rectifying defects and deduction of delay damages.
If a claim for defects or delay arises after the relevant deadline for submitting a pay less notice (i.e. in a subsequent payment cycle), there is nothing to stop the payer commencing an adjudication in respect of those matters even if payment of the earlier notified sum has not been made. HHJ Davies saw the date for the pay less as being a dividing date with anything after that date being outside the Grove principle.
Commentary
This case provides useful clarification on the scope of the Grove principle and reinforces the position that a true value adjudication cannot be commenced until a party complies with its immediate payment obligation under the contract. There will no doubt be further cases that seek to challenge the scope of the Grove principle but for now it serves as a useful reminder to make sure you comply with the payment and notice requirements under your construction contract.
Read the full judgement.
