S&T (UK) Ltd v Grove Developments Ltd

Factual and Procedural Background

By a contract dated 26th March 2015, Company B engaged Company A to design and construct a hotel at an airport. The contract was a standard form, the JCT Design and Build Contract 2011, with amendments, and the contract sum was approximately £26.4 million. The contractual completion date was 10th October 2016. Delays occurred, with Company A failing to achieve practical completion by that date. On 13th October 2016, Company B served a non-completion notice pursuant to the contract. Practical completion was achieved on 24th March 2017.

On 31st March 2017, Company A submitted interim application number 22 claiming approximately £39.7 million in total value of works, an increase of about £14 million over the previous valuation. Company B failed to issue a Payment Notice within the contractual five-day period but sent a Payment Notice on 13th April 2017 valuing the work at approximately £1.4 million. On 18th April 2017, Company B issued a Pay Less Notice stating the sum due was £0.00, relying on liquidated damages for delay amounting to approximately £2.5 million. On the same day, Company B served notices related to liquidated damages in the required sequence but within seconds of each other.

Company B made no payment in respect of interim application 22. Company A initiated a series of adjudications, including one challenging the validity of the Pay Less Notice. The adjudicator held the Pay Less Notice invalid and ordered payment of approximately £14 million. Company B contested this in the Technology and Construction Court (TCC), where Mr Justice Coulson held that the Pay Less Notice was valid, Company B was entitled to adjudicate to determine the true value of the works, and that Company B had complied with the contractual notice requirements to recover liquidated damages. Company A appealed to the Court of Appeal.

Legal Issues Presented

1. Whether the employer's purported Pay Less Notice sent in response to interim application 22 complied with the contractual requirements.
2. Whether the employer is entitled to pursue a claim in adjudication to determine the correct value of the works on the date of interim application 22.
3. Whether, in April 2017, the employer complied with the contractual requirements in order to maintain its claim for liquidated damages.

Arguments of the Parties

Appellant's Arguments

• The Pay Less Notice was invalid because it failed to "specify" the basis on which the sum was calculated, merely referring to an earlier Payment Certificate and spreadsheet.
• The employer had no contractual entitlement to pursue adjudication on the true valuation of the works after failing to serve a valid Pay Less Notice.
• The notices for liquidated damages were not properly served in the required sequence with sufficient time for the contractor to respond.
• The timing and content of the Pay Less Notice did not meet the statutory and contractual requirements, undermining the employer’s right to withhold payment.
• Criticism of reliance on the Mannai Investment case for interpreting the requirement to "specify" in notices.

Respondent's Arguments

• The Pay Less Notice was valid as it clearly specified the sum due and the basis by reference to a clearly identified and contemporaneously provided spreadsheet.
• The construction industry practice allows notices to refer to detailed calculations in other documents, and the contract did not require the detailed calculations to be contained within the notice itself.
• The employer is entitled to adjudicate to determine the true valuation of the works, even if no valid Pay Less Notice had been served, reflecting the adjudicator’s wide powers and the statutory regime.
• The notices for liquidated damages were served in proper sequence and the contract does not require a minimum interval between such notices.
• The statutory and contractual frameworks promote cashflow and prompt payment, with adjudication serving as a mechanism for resolving valuation disputes subsequently.

Table of Precedents Cited

Court's Reasoning and Analysis

The court addressed each of the three issues in turn. On the first issue, the court considered the statutory and contractual requirements for a Pay Less Notice, focusing on the requirement that the notice "specify" both the sum due and the basis of calculation. The adjudicator had held that merely referencing an earlier document was insufficient, but the judge and the Court of Appeal adopted an objective approach, relying on Mannai Investment, to find that a reasonable recipient familiar with the documents would understand the basis of the sum. The court rejected a strict "bright line" rule requiring all calculations to be contained within the notice itself.

Regarding the second issue, the court acknowledged the conflicting authorities but concluded that the employer is entitled to adjudicate on the true valuation of the works even if no valid Pay Less Notice was served, provided the employer has complied with the immediate payment obligation under section 111 of the Amended Act. The court emphasized the distinction between the immediate payment obligation (cashflow) and the ultimate valuation of the works (justiciable issue). The adjudication regime is subordinate to the payment regime, and the employer must pay the notified sum before commencing a "true value" adjudication. This interpretation aligns with the statutory purpose of promoting prompt payments followed by dispute resolution.

On the third issue, the court considered the sequence and timing of notices required to recover liquidated damages for delay. Although the notices were sent within seconds of each other, the court held the contract required only that the notices be given in sequence, not that any specific interval elapse. The court rejected the appellant's argument for implying a reasonable lapse of time, citing established principles on implying terms and the need for certainty in commercial contracts.

Throughout the analysis, the court reviewed relevant case law, statutory provisions, and the contractual terms, carefully balancing the need for certainty and commercial practicality with the protection of parties' rights under the legislation and contract.

Holding and Implications

The Court of Appeal DISMISSED the appeal, affirming the decision of the Technology and Construction Court.

The court held that:

• The employer's Pay Less Notice was valid and effective despite referencing a previously issued detailed spreadsheet.
• The employer is entitled to pursue adjudication to determine the true valuation of works on an interim application, even if no valid Pay Less Notice was served, but only after complying with the immediate payment obligation under the statute and contract.
• The employer complied with the contractual notice requirements to recover liquidated damages for delay, as the notices were served in the correct sequence and no minimum interval between notices was required.

The decision confirms the interplay between prompt payment obligations and adjudication rights under the Housing Grants, Construction and Regeneration Act 1996 (as amended), reinforcing the importance of compliance with statutory and contractual notice requirements while preserving the right to dispute valuations through adjudication. No new precedent was set beyond clarifying these points in the context of the contract and facts before the court.