No More Smash & Grab

We have reported previously on an important decision made by Mr Justice Coulson regarding the case of Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123 (TCC). The ruling effectively ended the ‘smash & grab’ adjudications that had become prevalent in recent years, when it stated that an employer is entitled to run a second decision to determine the ‘true’ value of an interim application for payment, even if the employer’s payment notice and payless notice were invalid.

The highly anticipated Court of Appeal decision has recently been handed down. In a judgment given by Sir Rupert Jackson, that is highly significant for the construction industry, the Court of Appeal has upheld the decision of Mr Justice Coulson.

By a JCT Design & Build Contract 2011, Grove engaged S&T to design and build a new Premier Inn Hotel at Heathrow Terminal 4. The parties fell into dispute about the sum payable as an interim payment together with the deduction of liquidated damages

S&T contended that the Deduction Notice was invalid, because it had not received the Warning Notice before the Deduction Notice was sent, neither had it been given time to read or digest the Warning Notice first. Thus, to use the contractual language, it had not been ‘notified’ by the Warning Notice before Grove ‘gave notice’ in the Deduction Notice.

The Court of Appeal rejected that argument, holding that:

(1) The words “notified” and “give notice” both require the sending and receipt of a notice, so if both notices are received in the correct sequence that is enough to satisfy the requirements of the clause.

(2) No specific time period is required for a party to consider the Warning Notice before the Deduction Notice is received. Whilst the Court acknowledged that this removes any real purpose for the clause, it held that it is impossible to identify any specific period of time which should elapse between serving the two notices, and a requirement for a ‘reasonable’ lapse of time is unworkable and does not satisfy the requirements for an implied term.

This is a significant determination as it makes the Warning Notice a mere procedural hurdle. The Court of Appeal acknowledged that the system provides “no obvious benefit to anyone, if the employer warns the contractor of what he may do just seven or eight seconds before he actually does it”.

However surprising it may seem, the contract requires no more than the giving of notices in a specified sequence – Judges should not generally impose their notions of commercial common sense upon the parties to business disputes. It is sufficient that a scintilla of time elapses between the giving of notices two and three.

If parties wish to give more strength to the Warning Notice, they may wish to consider a bespoke amendment to the standard form.

Our litigation team continue to receive instructions from Developers; Employers; Contractors; Architects; Surveyors and Suppliers (including builders merchants), providing advice on both contentious and non-contentious issues that affect all those within the construction industry.