107772.001 SH Construction Case Booklet

1. Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 6 of 2018. Kenneth T. Salmon, Consultant Solicitor and Katy Ormston, Trainee Solicitor at Slater Heelis LLP. The law is stated at November 2018 and covers enforcement, jurisdictional challenges, and a flurry of natural justice cases questioning whether adjudicators have decided questions not put to them. There is also a case dealing with when it is suitable to transfer proceedings to the TCC in the High Court. 2. Enforcement – Enforcement of adjudicator’s decisions – Interim payments – Pay Less Notices – Liquidated Damages S&T(UK) Limited v Grove Developments Limited 6 The contractor (“S&T”) appealed against a decision in the TCC that it could not recover an interim payment in full from the employer (“Grove”) under a construction contract. The facts of the case were reported in Part 2 of this Adjudication Cases Update. At first instance, the TCC held that the pay less notice in respect of S&T’s interim application was valid, Grove was entitled to commence adjudication to establish the true value of S&T’s interim application and Grove was entitled to recover liquidated damages for delay. With regards to the validity of Grove’s pay less notice, the Court of Appeal considered whether it was permissible to reference other documents in a pay less notice and concluded that it would be a question of fact and degree in each case as to whether a pay less notice achieved the requisite stipulations of section 111(4) of the Act. In this case, Grove’s pay less notice was sent to the same people who were dealing with the interim application and they would be familiar with the documents previously provided in respect of the application and any cross referencing in the pay less notice could not give rise to any doubt or misunderstanding in the mind of a reasonable recipient standing in S&T’s shoes. The pay less notice was valid. The Court of Appeal then considered Grove’s entitlement to pursue adjudication to determine the correct value of the works. This was an academic question due to the validity of the pay less notice. However, the Court observed that: 1. An employer’s immediate obligation under s111 of the Act at interim stage was to pay the sums stated in the relevant notice. This did not make sums payable at an interim stage conclusive as to the correct valuation of the works done. That could remain an issue between the parties if disputed.

2. There was no express power in the Act or the Scheme for a contractor to challenge an employer’s payment notice or pay less notice in adjudication but it was accepted in the industry that such a power exists. Paragraph 20 of the Scheme was wide enough to enable adjudicators to review interim applications where there was an absence of a payment notice or a pay less notice. 3. The correct analysis under the form of contract before the Court of Appeal was that the interim application, the payment notice and the pay less notice are three documents, one of which will trigger the operation of s111 of the Act in every case. That section generates an obligation to pay the notified sum before the final date for payment but does not change the sum notified by one of these documents into a true valuation of the work. Either party can challenge the correctness of the notified sum through adjudication. 4. The distinction between the payment bargain (what had to be paid immediately) and the valuation bargain (the process for reviewing and adjusting payments made) was helpful. 5. Under the payment mechanism the employer has very little time to carry out a complex valuation and such a rushed process cannot sensibly lead to a definitive valuation of the work at any particular date. The mechanism intends to generate a provisional figure for immediate payment. The adjudication provisions stand behind the notice provisions to facilitate a more detailed valuation of the work at that date with arbitration or litigation in the background if either party is dissatisfied with the adjudicator’s evaluation. 6. The contract expressly provided for a negative final payment but there was no express provision for negative interim payments. The wording of section 111 of the Act applies to both interim and final certificates. It would be odd if the same form of words had a conclusive effect in relation to interim certificates which it did not have in relation to final certificates. As a result of these conclusions, the Court summarised that an employer which had failed to serve a payment notice or pay less notice was entitled to adjudicate to determine the true value of an interim application. However, the Act could not sensibly be construed to permit the adjudication regime to trump the prompt payment regime under s111 of the Act. Therefore, an employer cannot start an adjudication to obtain a revaluation of the work before it complies with its immediate payment obligations. With regards to the third question on whether Grove complied with the contractual requirements in order to continue its claim for liquidated damages, the Court of Appeal agreed with the first instance decision that Grove had complied and it was impossible to identify a specific period of time between a warning to deduct liquidated damages and a notice to deduct. If a specific period of time were required, it would be stipulated in the contract.


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