10. Pay less notice-form and requirements-effect of failure to give notice Grove Developments Ltd v S&T (UK) Ltd 19
In this case the Court concluded the pay less notice was valid. It did properly set out the basis of calculation by reference to a detailed calculation sent 5 days before the pay less notice with a purported payment notice. There were detailed figures for every element of the works and it satisfied the test of providing a detailed agenda for valuation. There could be no possible objection in principle to a notice referring to a detailed calculation set out in another, clearly- identified document. The fact that the document was not reattached to the pay less notice did not matter. There was nothing in the contract requiring it be re-sent. It was clear what was being referred to and it was incorporated by reference. The Court pointed out that a party who relies on incorporation by reference without re-sending the document takes certain risks that something may go wrong with technology or the mode of delivery of the first document. In this case there were no such practical difficulties. The pay less notice complied with the contract. Issue (2): Should the third decision be enforced anyway? Grove said not because it was served late on the assumption the Schedule of Amendments did not apply. The first adjudicator had decided that the Schedule of Amendments did not apply. That decision was and remained binding on the parties. Further, the Court having finally decided the issue as to validity of the pay less notice, there was nothing left to enforce. The Court decided that the second adjudicator’s decision in the third adjudication was wrong, it could not be enforced. Issue (3): Did the employer have the right to adjudicate the ‘true’ value? On first principles, the Court held the answer must be “yes”. Its starting point was a judgment of the Court of Appeal 21 where Dyson LJ (as he then was) said that if the decision of an engineer acting as contract certifier was not binding on the parties, it could be reviewed by an arbitrator or by the Court. The case was authority for the propositions that the Court could decide the ‘true’ value of any certificate, notice or application and as part of that process to open up review and revise the same. Thus the Court and an adjudicator has the same power to decide the true value of interim application 22. In addition the Act conferred a statutory power to refer any dispute to adjudication without limitation (section 108(1)). The same was true of paragraph 20 of the Scheme. The dispute as to the true value would be a different dispute from one about the absence of validity of a payment or pay less notice. In addition the contract terms were of the utmost importance. The words “the sum due” in Clause 4.7 arose from the application of the contractual mechanism designed to calculate the precise entitlement (the ‘true’ value). This was very different from the “sum stated to be due” or “stated as due” in Clause 4.9 which identified the sum payable under the notice in question.
The Claimant (“Grove”) employed the Defendant contractor (“S&T”) to design and build a Premier Inn at Heathrow T4 under a JCT Design and Build Contract 2011. There were three adjudications. The first decided that a Schedule of Amendments was part of the contract; the second decided that S&T were not entitled to a full extension of time; and the third decided that Grove’s pay less notice was invalid. This third decision meant that S&T were potentially entitled to be paid £14m pursuant to its application number 22. Grove anticipating this possible outcome had issued Part 8 proceedings whilst S&T sought enforcement of the third decision. The proceedings raised 4 issues. (1) Whether Grove’s pay less notice complied with the contract; (2) Whether even if the pay less notice complied with the contract, the third decision should still be enforced; (3) Whether in principle Grove was entitled to commence a separate adjudication as to the ‘true’ value of interim application 22; (4) Whether Grove’s notices in respect of liquidated damages were properly issued. This issue is not further addressed here. Issue (1) – The pay less notice All the authorities pointed the same way. The pay less notice was to be construed in a similar way to the underlying contract. It was to be approached objectively, taking into account the objective contextual scene: how would a reasonable recipient have understood it? One way of testing it was to ask whether the notice provide an adequate agenda for a dispute about valuation and to any cross claims available to the employer? A pay less notice was not to be construed more generously than a contractor’s application/payment notice. But the adverse consequences which follow a defective pay less notice were relevant to the test of the reasonable recipient: would that recipient have realised the document was an application or payment notice with force, and all the consequences that may entail? The guidelines applied equally to a payment notice and pay less notice; each must make plain what it is; clearly set out the sum said to be due and/or to be deducted, and the basis on which that sum is calculated. Finally the court looked at two recent cases where it was held notices were deficient. 20
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