Adjudication Guidance in the UK - The True Meaning of True Value in the context of Smash and Grab Adjudications within the Construction Industry

A recent case has clarified the scope of the "Grove principle" (which is that a true value adjudication cannot be started until the notified sum has been paid). Whilst there is not a wholesale ban on adjudications being commenced whilst payment remains outstanding, claims which concern valuations which could have been the subject of a timely payless notice served in respect of the notified sum in question (such as costs of rectifying defects and LADs) cannot be adjudicated upon prior to the payment of that notified sum.

The Grove Principle

As readers will know, a smash and grab adjudication is one where, in the absence of a valid and timely payment notice and/or payless notice, the payee claims for payment of the sum claimed in the relevant payment application (i.e. the notified sum).

It is accepted law that where a payee is successful, the paying party is entitled to commence its own adjudication proceedings to determine the 'true value' of the works to which the payment application related.

However, as established in S&T(UK) Ltd -v- Grove [2018] EWCA Civ 2448 (Grove), such 'true value' adjudications can only be commenced once the paying party has first complied with its obligation to pay the notified sum (the Grove principle).

An adjudicator will not have jurisdiction to determine a true value dispute where the Grove principle is breached.

In the recent case of Lidl Great Britain Limited -v- Closed Circuit Cooling Limited t/a 3CL [2023] EWHC 3051 (TCC), the scope of the Grove principle was explored.

The Essential Background

The Judgment

The Court was required to grapple with the submissions of 3CL, namely whether or not the meaning of "true value" in the context of the Grove principle extended beyond the limited bounds of re-valuation of works for which payment has become due on a previous payment application (described by the judge as the "same payment cycle true value adjudication prohibition").

The court considered the relevant provisions of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (Construction Act).

While noting that the notified sum in the payer's payment notice (or payee's default payment notice) is usually focussed on the valuation of the work at the payment due date, the court acknowledged that the obligation to pay the notified sum is subject to s.111(3) of the Construction Act, which entitles the paying party to issue a “payless notice”.

Unlike a payment notice, a payless notice often focusses on deductions for matters not immediately relevant to the value of the works specified in the payment notice, such as defective work or delay damages.

As the Construction Act permits the paying party to pay what it considers due by reference to the valuation of the works at the payment date and by reference to any deductions or set offs in relation to defective work or delay damages, it follows that a payer may wish to bring true value adjudication proceedings to determine the value of those deductions or set offs in much the same way as it may wish to adjudicate the true value of the works themselves. The judge confirmed such adjudications will also be subject to the Grove principle to the extent they relate to claims which could have been included in the relevant payless notice:

"[39] It follows, in my judgment that, whilst a payer may well wish to bring a true value adjudication in relation to all such matters (i.e. valuation, defects and delay claims), it may also wish to bring a true value adjudication in relation to matters only of valuation, or only of defects claims, or only of delay claims. Often it will wish to do so in relation to defects claims or delay claims because it has omitted to serve an effective payless notice and, thus, will want to bring a true value adjudication in relation to such matters. In my judgment it must follow that such claims are covered by the Grove principle insofar as they are matters which could have been the subject of a payless notice served in respect of the particular notified sum in question. If, however, they are claims which could not have been the subject of such a payless notice, then it is difficult to see the justification for applying the Grove principle to them."

So whilst there is not a wholesale ban on adjudications being commenced whilst payment of the notified sum remains outstanding, those which concern valuations which could have been the subject of a timely payless notice served in respect of the notified sum in question (such as costs of rectifying defects and LADs) cannot be adjudicated upon until payment of the notified sum.

On the facts, the Court considered that each of Adjudications 2 and 3 were in part commenced in breach of the Grove principle as each concerned valuations which could have been the subject of a timeless payless notice in respect of AFP19. As such, elements of the decisions in those adjudications were found to be unenforceable.

Interestingly, the Court noted that whilst a payer will be unable to commence a true value adjudication in respect of defect or delay claims in existence at the time of the relevant payment cycle until it has paid the relevant notified sum, it can commence a true value adjudication for such claims in respect of the notified sum arising after the payless notice deadline date.

This has potential implications for employers, particularly when assessing the date on which defects became apparent. The "dividing line" discussed in paragraph 40 of the judgment means that in the commencement of true value adjudications it could open the door for employers to argue that defects came to light after the payless notice deadline or holding back on the notification of defects until later to be on the right side of the dividing line.

Thomas Hurst

Legal Director

Key lessons

The case is an important reminder of the basic premise under the Grove principle, namely the need to pay the notified sum prior to seeking to commence a true value adjudication.
Moreover, the case confirms that cross claims (such as those relating to costs of rectifying defects and LADs) will be covered by the Grove principle insofar as they could have been the subject of a valid and timely payless notice in relation to the relevant notified sum. Such claims can therefore only be adjudicated upon following payment of the relevant notified sum.
The paying party can however commence a true value adjudication for such cross claims provided these arise after the payless notice deadline date. This has potential implications for employers, as noted above.
Perhaps most importantly, the case reminds us of the importance to always ensure compliance with contractual and statutory requirements and to ensure that requisite notices are served on time.

Next steps

Our Construction & Engineering team deal with adjudications on a daily basis and would be delighted to discuss any of the issues raised in this article with you further - just get in touch with one of our Key Contacts opposite or your usual contact.