Grove Developments Ltd v S&T (UK) Ltd

A payment or pay less notice is construed objectively, in its factual context, by asking how a reasonable recipient would understand it. Incorporation by reference is permissible where the referenced document is clearly identified and enables the recipient to understand the sum and its calculation. Validity remains a matter of fact and degree.

Where an employer has failed to serve an effective payment or pay less notice, it must pay the sum stated as due, but may thereafter commence a separate adjudication concerning the true value of the relevant application. The notice regime regulates cash flow and does not deem the stated sum to be the true valuation.

Contractual notices concerning liquidated damages are effective where sent and received in the required sequence, absent any specified interval between them.

The claimant employer engaged the defendant contractor under a JCT Design and Build Contract 2011 for the construction of a hotel. Following adjudications concerning incorporation of amendments, extension of time and payment, the parties disputed the validity of the employer’s pay less notice and the enforceability of the third adjudication decision.

The court also considered whether the employer could seek a separate adjudication as to the true value of an interim application if its payment notices were ineffective, and whether notices concerning liquidated damages had been served in the required sequence.

1. Pay less notice. The notice was valid. It clearly identified the sum said to be due, the liquidated damages deduction and the earlier payment certificate containing the detailed valuation. A reasonable recipient would have understood the calculation. The contract required specification of the basis of calculation, not transmission of every supporting document at the same time. The contrary construction was artificial and contrived.
2. The construction of payment and pay less notices is objective and contextual. The notice must make clear its contractual character, the sum said to be due or deducted, and the basis of calculation. Whether those requirements are met is a matter of fact and degree. The same general approach applies to contractor and employer notices.
3. The third adjudication decision was not enforceable. The court had finally determined the only dispute referred in that adjudication, namely the content of the pay less notice. The first adjudicator’s decision concerning incorporation of the Schedule of Amendments also remained binding, so the notice was served within the applicable contractual period.
4. True value. On the assumption that the employer’s notice was deficient, the employer would still have been entitled, after paying the sum stated as due, to commence a separate adjudication concerning the true value of the interim application. The court and adjudicator had power to open up, review and revise notices and applications. The valuation dispute was different from the notice-validity dispute and had not been decided in the earlier adjudication.
5. The contract distinguished between “the sum due”, representing the contractual true valuation, and “the sum stated as due”, which became payable under the notice regime. Failure to serve an effective notice did not create a deemed agreement that the contractor’s figure was the true value. The same principle applied to interim and final payments. The court declined to follow the different approach in ISG Construction Ltd v Seevic College and Galliford Try Building Ltd v Estura Ltd, considering there was a powerful reason to do so.
6. Liquidated damages notices. The warning and deduction notices were sent and received in the required sequence. Clause 2.29 prescribed no minimum interval between them. Their validity was therefore not affected by the fact that they were received only seconds apart.
7. Issues A, B, C and D were decided in Grove’s favour. No interest was payable on the agreed basis.