Here we Grove again: Lidl Great Britain Limited v Closed Circuit Cooling Limited t/a 3CL [2023] EWHC 3051 (TCC)

The Facts

There had been a number of adjudications between the parties:

• The first adjudication was a “smash and grab” adjudication, in which Lidl was ordered to pay the sum in application for payment 19 (“AFP19”) together with interest. 
• In the second adjudication, Lidl sought the cost of appointing a third party to rectify alleged defects in the works.
• The third adjudication, again referred by Lidl, concerned 3CL’s entitlement to an extension of time. Lidl did not seek any remedy in relation to the payment or deduction of liquidated damages.

At the time the second and third adjudications were commenced, the sum awarded in the first adjudication had not been paid.

3CL argued that the decisions in the second and third adjudications were made without jurisdiction because the adjudications had been commenced before the notified sum, as awarded in the first adjudication, had been paid.

Lidl submitted that¹:

• The only prohibition in S&T(UK) Ltd v Grove [2018] EWCA Civ 2448 (“Grove”) on commencing an adjudication is where the dispute referred is a “true value” adjudication in respect of the same payment cycle as the notified sum adjudication (the “same payment cycle true value adjudication prohibition”).
• Neither the second or third adjudications were true value adjudications. The second adjudication was a breach of contract claim for the cost of employing a third party to rectify defective works. It did not seek a valuation of 3CL’s works. The third adjudication was an extension of time claim where no monetary relief was sought.

3CL submitted that²:

• The principle in Grove prevented Lidl commencing any adjudication until it had paid the first adjudication decision (the “any adjudication prohibition”).
• Even if the Grove principle was limited to true value adjudications, this extended to any adjudication where the relief sought was designed to permit the party liable to pay the notified sum to undermine its payment obligation or revalue the account between the parties (the “any true value adjudication prohibition”).

The Decision

The Judge found that there was no basis for the any adjudication prohibition: “There is no rationale for a construction of the Act which has the effect of prohibiting any adjudication whilst that notified sum remains unpaid, even where the subject matter of the adjudication has no relation to the notified sum”³.  The financial prejudice of having to defend an adjudication before receiving payment of a notified sum was lessened by the speedy enforcement process for adjudication decisions.

The Judge found that 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”⁴.  

He gave the examples of defects claims and delay claims: if, at the time of the relevant payment cycle, the paying party has a claim for defects already in existence or for delay already incurred, but fails to serve a valid payless notice, it cannot commence a true value adjudication in respect of such claims until it has paid the relevant notified sum⁵.  This also applies to subsequent payment cycles: “…if the payer chose to refer an adjudication based on a subsequent payment cycle…that would be caught by the Grove principle unless the payer could show that there was nothing in the reference which sought to raise matters which could have been raised in the previous payment cycle, trivial matters excluded”⁶.  

However, there is no prohibition on adjudicating claims that arise after the payless notice date. 

Applying that to the facts:

• The Judge found that there was overlap between the defects raised in the second adjudication and Lidl’s ineffective payless notice for AFP19 (“PAY-7”). The overlap would not be enforced, but the remainder of the second adjudication decision would be severed and enforced.
• In PAY-7, Lidl claimed to be entitled to withhold liquidated damages from 18 June 2022 to 29 September 2022. In the third adjudication, Lidl submitted that 3CL was entitled to no extension of time between the contractual completion date of 25 May 2022 and the date of practical completion on 26 October 2022. Even though the adjudicator had not been asked to decide whether Lidl was entitled to be paid or deduct liquidated damages, in so far as the third adjudication sought a declaration that 3CL was not entitled to any extension of time over the same period as that covered by PAY-7, Lidl was effectively seeking a true valuation of that issue. It “…would inevitably lead to a claim for liquidated damages in respect of the same period to the extent that it succeeded and, hence, to that extent was prohibited under the Grove principle until Lidl paid the notified sum due under AFP19 and decision no 1”⁷. 
• The adjudicator in the third adjudication had no jurisdiction to determine whether 3CL was entitled to an extension of time between 18 June 2022 and 29 September, but did have jurisdiction in relation to the earlier and later periods. 

Comment

Regardless of what you think of the merits of the Grove principle, it is clearly here to stay for the foreseeable future. It is therefore welcome to have some clarification from the courts on the scope of the principle. 

However, in my view, there are some difficulties with how the Grove principle has been interpreted in Lidl. For example:

• Extending the scope of the Grove principle to matters that could have been raised in a payless notice is likely to lead to satellite arguments about what could have been raised but was not. 
• More fundamentally, it impedes the ability to obtain a true valuation of the works in an adjudication in relation to a subsequent payment cycle. The purpose of the Act was to promote cashflow in the construction industry, and that purpose was at the forefront of the court’s reasoning in Grove. But I think that purpose could have been met in Lidl in a way that was less restrictive of the right to adjudicate. The court could have decided that, to the extent that there is or should have been overlap with an earlier ineffective payless notice in a true value adjudication in relation to a subsequent payment cycle, that is not a defence to enforcement of a notified sum adjudication. That would be less restrictive of the parties’ right to adjudicate than depriving an adjudicator of jurisdiction in relation to the overlap until the notified sum is paid. 

Leaving that aside, there are two practical points that arise from the judgment:

• Give notice! The easiest way for a party to avoid the difficulties demonstrated in Lidl is to comply with its contractual and statutory notice requirements (which I know is easier said than done). 
• In any true value adjudication, it would be sensible to clearly identify the constituent parts of the claim by date. If the responding party raises an argument that some of the items should have been included in an earlier payless notice, this will enable the parties and the adjudicator to sever the items that arise before the payless notice date if necessary.

¹Summarised at paragraph 22 of the judgment.
²Summarised at paragraph 23 of the judgment.
³Paragraph 36. 
⁴Paragraph 39. 
⁵Paragraph 40.
⁶Paragraph 41.
⁷Paragraph 55.