In this eagerly awaited case Grove Developments Ltd employed S&T (UK) Ltd under an amended JCT Design and Build Contract 2011 to design and build a new hotel at Heathrow Airport. On April 18th 2017 Grove issued to S&T a payless notice. S&T adjudicated on the basis that the payless notice was invalid. The adjudicator agreed with S&T’s argument and declared the payless notice invalid.

S&T’s interim application requested a payment of over £14m whereas the amount claimed as due by Grove in their payless notice was £1.4m.

Grove asked the Technology & Construction Court to rule on two question 1. the payless notice valid and 2. that they could commence an adjudication to establish the ‘true value’ in respect of the interim application.

On the first question S&T argued that the payless notice was invalid because it did not contain the basis of the lower valuation. The calculation had been issued days earlier by Grove but was not attached to the payless notice, thereby S&T argued the notice failed to specify the basis on which the sum had been calculated. The Court stated that these notices need to be looked at objectively and through the eyes of a reasonable person. It argued that a reasonable person would have known what sum was being deducted and how that sum had been calculated and therefore found the notice to be valid.

On the second point as to whether an employer can adjudicate to ascertain the true value of the same application which formed the basis of the smash and grab claim the judges summing up gives clear direction ‘can an employer, whose payment notice or pay less is deficient or non-existent, pay the contractor the sum stated as due in the contractors interim application and then seek, in a second adjudication, to dispute that sum paid was the ‘true value’ of the works for which the contractor has claimed? In my view the answer is yes.’

In the subsequent Court of Appeal hearing the Court upheld the previous decision that the payment notice was valid, and Grove could adjudicate to ascertain the true value of the application which formed the basis of the smash and grab claim. It also noted that Section 111 of the Construction Act 1996 created an immediate obligation to pay the notified sum and went on to say that this does not ‘transmute the sum notified … into a true valuation of the work done’ there again confirming that the parties can challenge a notified sum by adjudication.

These rulings do not prevent smash and grab claims, but it does enable the employer to determine the true value of the interim application without having to wait for the next valuation or final account.

Care should be taken to ensure that project staff are aware of their payment obligations, the timeframes and relevant notices that should be issued. Urban Project Services can assist you in reviewing and identifying your contractual obligations and setting up robust payment procedures as well as offering strategic advice should the need arise. 

This article contains information of general interest about current legal issues and does not provide legal advice. It is prepared for the general information purposes only. This article should not be relied upon in any specific situation without appropriate legal advice.