The case of S&T (UK) LTD v Grove Developments Ltd is one of the most important cases of recent years for the construction industry.
Judgement in the Court of Appeal was handed down in November 2018, but the decision is recognised as being a controversial one, not least by the lead author of the Court’s decision Sir Rupert Jackson. Unconditional leave to appeal this decision was granted and the matter was potentially to be heard in the Supreme Court in 2019. However, as often happens, the matter settled before trial. This was likely to the relief of the parties involved, but less so to we observers in the legal profession and wider construction community who were eager to know what arguments would be raised and what the ‘final say’ would be.
It was therefore of immense value to have the opportunity this week to attend a mock trial organised by the Society of Construction Law, wherein the eminent Counsels for both S&T and Grove presented some of the submissions they would have made before the Supreme Court.
To briefly recap this dispute concerned:
- whether under a JCT form of contract an effective pay less notice had been served in regard to an interim payment; and
- if there was no pay less notice, could payment of the notified sum be prevented by the paying party seeking a declaration as to the true value of the works done at the time of the interim payment.
The second issue was significant because if a party is ordered in an adjudication to make what it believes is an overpayment, solely on the grounds that a notice under the contract provisions is operative, could they immediately start a second adjudication to open up what the notified sum should actually have been? The rationale for doing so is that the second adjudication is likely to find a lower figure than that contained in the notice. The additional practical advantage is that a second adjudication could be commenced and potentially even completed before the successful party in the first adjudication is able to obtain enforcement of the first decision. It is also worth noting that this principle could apply equally to a contractor seeking to open up a notified underpayment.
The solution reached by the Court of Appeal was, liberally speaking, a bit of a compromise. The Court of Appeal found that a dissatisfied party could commence a second adjudication on true value, but only after it had paid the sum ordered in the first adjudication. S&T did not agree with this decision. In their view at the stage of interim payments the contractual notice provisions should be determinative, whatever the outcome of the notices and counter notices should be. True valuations should only take place as part of the final payment due under the contract. Grove argued that the Court of Appeal decision was correct and an adjudicator does have the power to order a payment based upon the true valuation of works at any time including for interim payments.
It would be excessive to lay down herein all the submissions that were made on the night. However, one that I found of particular interest was raised by Mr Anthony Speaight QC in support of S&T’s position. He argued that the right to interim payment is solely based on the building contract (as may be amended by statute) and otherwise does not exist at common law. Further, that an adjudicator’s statutory power is only to determine “a dispute arising under the contract”* and that a dispute must be a cause of action recognised under the law of England as something for which a court could grant a remedy. As there is no contractual right in the JCT for corrective repayments at interim stag, nor one imposed by statue (so it was argued) there can be no dispute under the contract (emphasis added). It should be recalled that under the un-amended JCT forms of contract re-valuation only expressly occurs as part of the final account process. Mr Speaight went on to argue that as no one had been able to conclusively prove any other entitlement by way of implied clause or restitution, which in fairness was entirely disputed by his opposite Mr Alexander Nissen QC, an Adjudicator could make a declaration as to true value, but not order a payment of that sum (thereby rendering the process largely impotent).
In effect, so it was argued on S&T ‘s behalf, the Court of Appeal had based its decision on a false premise, favouring a solution that prioritised convenience (in support of a wide remit of adjudicators’ powers) over a strict interpretation of the law. Whether this is true or if S&T v Grove is just an example of the proper working of common law jurisprudence will for the time being be left to the academics to argue. The position for those of us in the construction industry remains as the Court of Appeal have determined. At least until someone else is prepared to pick up the gauntlet.
For what it is worth at the mock trial the audience (comprising some 240 members of the SCL) were invited to vote on who had won. By a slim majority of 5:4 in favour, the Court of Appeal decision was thought to have been correct.
*s108 The Housing Grants, Construction and Regeneration Act 1996 as amended