Payment For Construction Works

Do "true value arguments" trump the duty to pay the sum due? Is "Smash and Grab Adjudication" still open?

At the end of last year, there was much comment about the Court of Appeal's decision in Grove, which was supposed to provide clarity regarding payment for construction works under the Amended Construction Act. This had previously been shrouded in uncertainty. The Supreme Court had given permission for the Court of Appeal's decision to be appealed to it, and the construction industry was waiting with bated-breath for the Supreme Court's ruling. Well, you can breathe again because in spectacularly anticlimactic style, the case has settled and the appeal will not be proceeding to the Supreme Court.

To the facts ... Grove engaged S&T to design and build a hotel at Heathrow. Under their contract S&T would periodically send interim payment applications to Grove, the problematic application being Interim Application 22. Application 22 far exceeded Grove's valuation of the work and Grove therefore elected to withhold payment. However, Grove failed to send a payment notice in time and instead relied on a pay less notice sent to S&T. An adjudicator decided that this pay less notice was invalid and that S&T was therefore entitled to be paid the sum that it had applied for in Application 22. At first instance, Grove sought declarations from the TCC that its pay less notice was valid and that it was entitled to adjudicate to determine the true value of Application 22. Coulson J (as he then was) granted these declarations and held that the contractor was not entitled to the interim payment.

Regarding the need to serve valid and timely payment and pay less notices, Coulson J ruled that 'an employer who has failed to serve its own payment notice or pay less notice has to pay the amount claimed [by the contractor] because that is "the sum stated as due", but the employer is then free to commence its own adjudication proceedings in which the 'true' value of the application can be determined'. However, Coulson J stressed that the entitlement to bring 'true value' adjudication proceedings could only be exercised by the employer once it had paid the sum due in the interim payment application.

Coulson J's reasoning was followed by Jackson LJ, who gave the judgment of the Court of Appeal in Grove. The Court of Appeal's judgment therefore confirmed the first instance outcome. In light of recent the development that there will be no Supreme Court judgement on...