We would like to thank you for your custom in 2018 and look forward to an exciting and prosperous New Year. Our offices will be closed from Midday on the 24th December to the 2nd January. If you require any immediate assistance then please get in touch with one of our directors and we will be pleased to help. 

Paul Saggers our Architectural Director is seen here relaxing after running another half marathon and raising over £1,000 for the Alzheimers Society. Well done Paul; we are very proud of you

GROVE DEVELOPMENTS V S&T: APPEAL ON SMASH AND GRAB

INTRODUCTION

The case of Grove Developments Ltd v S&T (UK) Ltd [2018 EWHC 178(TCC) is due to go before the Court of Appeal shortly and hopefully the Court will be able to put to rest the long running debate about the enforcement of “smash and grab” or “Statutory” Valuations. The right to smash and grab has been widely debated since the 2014 decision in ISG Construction Limited V Seevic College which decided that a default valuation could not be subsequently adjudicated by the Employer who had failed to issue either a Payment or Payless Notice.

At the heart of the issue in Grove is the dilemma between the requirement to pay a Notified Sum as is set out in Section 111 of the Construction Act and the right to be paid for Works that have been properly completed under a Construction Contract. The Court of Appeal will have a difficult decision to make when interpreting the intention of Parliament which appears to conflict with the express drafting of many contracts for Works.

It is worthwhile reminding ourselves of some of the issues that arose before HHJ Coulson when the matter was argued before him in January of this year.

BACKGROUND

The facts of this matter are that S&T were a Contractor engaged by Grove Developments Limited to carry out the design and construction of a hotel at Heathrow Airport. The Contract was a JCT Contract with a Contract Sum of £26M. The date to complete was 10^thOctober 2016. The Project fell into delay and dispute and 3 Adjudications followed.

The First Adjudication was concerned with whether or not a Schedule of Amendments prepared by the Grove had been incorporated into the Contract. The Adjudicator, Mr Piers Stansfield QC, decided that they had which in turn meant that the notice period for the giving of a Payless Notice was reduced from 5 to 3 days before the Final Date for Payment. The Award in that Adjudication was binding on the Parties and was not challenged in the Court.

The Second Adjudication was concerned with extensions of time under the Contract and the Adjudicator Mr. Philip Eyre awarded an extension of time for completion of the Works upto the 9^thJanuary 2017. The Award in this second Adjudication was also binding and not challenged in the TCC.

The Third Adjudication was concerned whether a valid Payless Notice had been issued against an Interim Application that was issued by S&T around the date of practical completion of the Works. The Application was for £39,707,085.90; whereas the previous Interim Certificate issued for Grove had been for £25,000,000. The Payment Notice had stated that a sum of £1,407,748 was to be paid to S&T, whereas the Payless Notice had deducted £2,506,857 of liquidated damages meaning that the sum of NIL was to be paid. The matter went to Adjudication.

Mr. Eyre was again appointed as Adjudicator and he decided that the Payless Notice that Grove had issued was invalid because it had been prepared by making reference to detailed valuation documents in excel format that were contained within a Payment Notice that had been sent. These documents were not specifically included with the Payless Notice; but were just incorporated by reference to the valuation that had been issued. On that basis S&T was entitled to the sum of £1,407,748 that had been certified.

ISSUES BEFORE THE COURT

The Court was invited to consider 4 issues, as follows: –

Issue A

Did the Payless Notice comply with the requirements of the Contract as regards the content of the same?

Issue B

Should the Award in the Third Adjudication be enforced?

Issue C

Was Grove in principle at this stage entitled to commence an Adjudication to establish the true value of the Works rather than allowing S&T to rely on the Default Valuation?

Issue D

Were notices issued under Clause 2.29 of the Contract properly served thereby allowing Grove to deduct liquidated damages? This last issue was separate and distinct from the “Smash and Grab” issues in this case.

THE COURT’S FINDINGS AT FIRST INSTANCE

In relation to Issue A the Court decided that the Payless Notice was valid despite the fact that it had referred to documents contained within the Payment Notice. The Judge made it clear that both Parties knew what documents were being referred to and that a reasonable and practical approach had been adopted by Grove. He thereby over-ruled the Adjudicator’s Award on that point.

The natural consequence of the A was that the Award in the Third Adjudication should be not be enforced and so Issue B was decided in favour of Grove.

When it came to Issue C the Judge looked at the matter from first basic principles and decided that the Court had jurisdiction to determine the true value of the Works that had been performed up to Payment Application 22. Secondly Section 108(1) of the 1996 Act provided as follows: –

“A Party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section”.

The dispute over the Statutory Valuation was different to the one over the Contractual Valuation and Grove was not offending the rule against re-Adjudicating a dispute.

Thirdly the dispute that had been, in effect determined in the Third Adjudication was whether or not the Payless Notice was deficient or out of time and in that regard, Mr. Eyre had determined that it was insufficient in form and on that basis was not a proper Payless Notice. What he had not done was look at the true value of the Works that had been undertaken by S&T and therefore that matter had not been determined as to the true value of the Works.

Fourthly and most importantly he drew a distinction between the words in Clause 4.7.2 of the JCT Contract, that talked about the “sum due” and the words in Clause 4.9 that talked in terms of “the sum stated to be due”. He went on to explain that the sum due is the actual valuation of the Works whereas the default valuation relies on “the sum stated to be due”. The latter of these is an artificial valuation and one that cannot override the actual amount due.

Fifthly he decided that it would be simply unfair; in circumstances where the Contractor was able to challenge a Payment Notice that had been issued in order to establish a true valuation, and that right was denied to the Employer.

Finally, and laying to bed the mantra “that it doesn’t matter what the true valuation is as it all gets sorted at Final Account Stage”; he held that this is not how a Contract was drafted. The Contractor was only entitled to be paid for the true value of the Works that it had undertaken and not some other artificial figure. This of course conflicts with the express wording of Section 111 of the Construction Act and the requirement to pay a “notified sum”.

In relation to Issue D the Court held that because 2 notices issued under Clause 2.29 were sent seconds apart did not invalidate them.

CONFLICT BETWEEN STATUTORY AND CONTRACTUAL VARIATIONS

The Court of Appeal will need to decide between the inherent conflict between a Statutory Valuation (payment of the “Notified Sum”) and a Contractual Valuation (based on a proper valuation of the Works). It seems that if the Parties have contracted to be paid on one contractual basis then, even if there is a default valuation, the Employer should only be required to be pay, and the Contractor to be paid, on that basis.

It will be interesting to see the Court of Appeal’s decision on this matter. When logic is applied to the situation it appears that HHJ Coulson (as he then was) got it right. We await the Court’s Judgment on this issue with interest.

PRACTICAL ADVICE

From a practical perspective surveying teams should always check that against each Interim or Final Account that a Payment Notice/Valuation Certificate is issued. If a Contractor/Sub-Contractor submits a Payment Application; check the terms of the Contract for Payment particularly around, and after, the Date of Practical Completion.

If a Statutory Valuation arises then the Employer should immediately issue a Contractual Valuation and Adjudicate it. Should the Contractor seek to enforce the Statutory Valuation then a true Contractual Valuation will probably have been established at that point in time, thereby overcoming the Statutory one.

Many forms of Construction Contract now allow for Interim Payments at monthly or bi-monthly intervals up to the end of Making Good Defects rather than the old system of one at Practical Completion and then a Final Certificate. Make sure that appropriate certificates are issued throughout this period of time.

Finally make sure that if any Final Certificates are issued that they do not become final and binding in accordance with the Contract.

Its been a busy summer here at Wellesley, with us involved in a number of different Education Projects; and which saw our teams complete the refurbishment of 55 student accommodation units for St Mary’s University in Twickenham, completion of a Children’s Care Unit in Marylebone and a family health centre in Pimlico for Westminster Council, and the refurbishment of an office facility of 20,000 square feet for the Capital and City Colleges Group.

We also completed works for 2 local academy schools:-

At Gateway Academy, Lisson Grove, London.

Replacement windows to an office and toilet block, external redecorations of the Victorian Old School. Security upgrade, including electronic gates, fences, turnstiles and CCTV

For Hallfield School, Bayswater, London. Grade II Listed

Complete replacement of heating services, refurbishing listed radiators and all works in malleable iron. Re roofing of existing flat roofs, using a Kemperol membrane system.

If you would like to discuss a refurbishment project with us then please contact either Paul Saggers who leads our Design Team or Alan Barclay who runs our Project Management Business.

With the 2018 World Cup about to start we thought that it would be fun to have a Client Sweepstake.

The draw is as follows:-

Prizes for the competion are:-

World Cup Winner gets a week’s holiday at Mike’s holiday cottage in Cornwall. Full details can be found at www.lanavalecottage.com. Dates to be agreed sometime over the next 12 months.

Runner Up wins a mixed case of wine from Berry Brothers and third place wins a bottle of champagne.

It’s free to enter the Sweepstake, but we have created a Wellesley Just Giving Page to raise money for Cancer UK so if you would like to donate please visit and make a donation.

https://www.justgiving.com/fundraising/mike-tiplady

We hope that you enjoy the footballing festivities over the next month and let’s hope that “football’s coming home” and we see Harry Kane lift the Jules Rimet Trophy on the 15^thJuly.

Finally, we would like to thank you all for your continued support and business.

All the best and Go England!

Legal Services Director Mike Tiplady spoke at the RICS CPD day at the Holiday Inn Guildford on the 6th June. His talk covered issues surrounding collateral warranties and third party rights as well as looking at recent cases dealing with smash and grab adjudications.