S&T (UK) Ltd v Grove Developments Ltd

A Pay Less Notice must state the sum considered due and the basis of its calculation. Whether it sufficiently specifies that basis is a matter of fact and degree, assessed objectively from the standpoint of the reasonable recipient. It may validly incorporate a clearly identified earlier calculation where this creates no real doubt or misunderstanding.

A payer which has failed to serve a valid payment or Pay Less Notice must first pay the notified sum required by Housing Grants, Construction and Regeneration Act 1996. The payer may then adjudicate on the true value of the work and obtain the financial consequences of that valuation. The statutory prompt-payment regime takes priority over the adjudication regime.

Where a construction contract requires liquidated-damages notices in sequence but fixes no interval, receipt in that sequence is sufficient.

S&T (UK) Ltd, the contractor, designed and constructed a hotel for Grove Developments Ltd under an amended JCT Design and Build Contract 2011. Following delay and practical completion, S&T submitted interim application 22 for about £14 million. Grove had not served a timeous Payment Notice. It later served a Pay Less Notice referring to a detailed valuation spreadsheet sent five days earlier, and served notices seeking liquidated damages.

An adjudicator held the Pay Less Notice invalid and ordered payment of the full application. In proceedings in the Technology and Construction Court, Coulson J held that the notice was valid, that Grove could adjudicate on the true value if necessary, and that its liquidated-damages notices were effective: [2018] EWHC 123 (TCC).

S&T appealed on those three issues.

1. The appeal was dismissed. Grove’s Pay Less Notice validly specified both a nil sum and the basis of that assessment. There is no absolute rule either forbidding or permitting incorporation by reference. The question is whether the notice gives the reasonable recipient sufficient specificity in its actual context. S&T’s relevant personnel had received and understood the clearly identified spreadsheet five days earlier, so the cross-reference created no possible uncertainty.
2. The court’s conclusion was consistent with the objective approach in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. The statutory requirement to specify a basis did not require all calculations to be repeated in, or attached to, every Pay Less Notice.
3. Although academic because the notice was valid, the court held that a notified sum is an immediate payment obligation, not a conclusive valuation of the work. A payer who has failed to give a valid notice may adjudicate on the true value of an interim application. The adjudicator may order repayment of any resulting overpayment. The court approved the analyses of Coulson J and Fraser J, and rejected the inconsistent analyses in ISG Construction Ltd v Seevic College, Galliford Try Building Ltd v Estura Ltd and Kersfield Developments (Bridge Road Ltd) v Bray & Slaughter Ltd.
4. That right arises only after the payer has complied with its immediate obligation under section 111 of the Housing Grants, Construction and Regeneration Act 1996. The statutory adjudication regime cannot be used to defeat the prompt-payment regime.
5. Grove’s liquidated-damages notices were also effective. Notices take effect on receipt. The contract required only that the warning notice be received before the deduction notice. It imposed no express or implied reasonable interval. The notices arrived in the required order, seven seconds apart, which sufficed.

• Court of Appeal (Civil Division): dismissed S&T’s appeal and affirmed the validity of Grove’s Pay Less Notice, Grove’s entitlement to a true-value adjudication after payment, and Grove’s entitlement to liquidated damages.
• High Court, Technology and Construction Court: Coulson J held for Grove on all three issues and declined to enforce the adjudicator’s award requiring payment of the interim application: [2018] EWHC 123 (TCC).
• Third adjudication: the adjudicator had held Grove’s Pay Less Notice invalid and ordered immediate payment of £14,009,906. That conclusion was not upheld in the High Court or on appeal.