S&T(UK) Ltd v Grove Developments Ltd

JurisdictionEngland & Wales
JudgeSir Rupert Jackson,Lady Justice King,Lord Justice Longmore
Judgment Date07 November 2018
Neutral Citation[2018] EWCA Civ 2448
Docket NumberCase No: A1/2018/0649
CourtCourt of Appeal (Civil Division)
Date07 November 2018
Between:
S&T(UK) Limited
Appellant
and
Grove Developments Limited
Respondent

[2018] EWCA Civ 2448

Before:

Lord Justice Longmore

Lady Justice King

and

Sir Rupert Jackson

Case No: A1/2018/0649

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

Mr Justice Coulson

[2018] EWHC 123 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Anthony Speaight QC and Matthew Thorne (instructed by Trowers & Hamlins Llp) for the Appellant

Alexander Nissen QC (instructed by Macfarlanes Llp) for the Respondent

Hearing dates: Tuesday 9th and Wednesday 10th October 2018

Judgment Approved

Sir Rupert Jackson
1

This judgment is in nine parts, namely:

Part 1 – Introduction

Part 1 – Introduction

Paragraphs 2 – 12

Part 2 – The Facts

Paragraphs 13 – 27

Part 3 – The Litigation in the Technology and Construction Court

Paragraphs 28 – 32

Part 4 – The Appeal to the Court of Appeal

Paragraphs 33 – 35

Part 5 – The Interrelationship between the Legislation and the Contractual Provisions

Paragraphs 36 – 45

Part 6 – First Issue: Was the Purported Pay Less Notice Valid and Effective?

Paragraphs 46 – 59

Part 7 – Second Issue: Is Grove Entitled to Pursue a Claim in Adjudication to Determine the Correct Value of Interim Application 22?

Paragraphs 60 – 113

Part 8 – Third Issue: Were the Notices served by Grove in April 2017 Sufficient to Entitle Grove to Deduct or Recover Liquidated Damages for Delay?

Paragraphs 114 – 122

Part 9 – Executive Summary and Conclusion

Paragraphs 123 – 125

2

This is an appeal by a building contractor against a decision by Mr Justice Coulson that the contractor is not entitled to recover an interim payment of some £14 million. There are three issues in the appeal. They are:

i) Whether the employer's purported Pay Less Notice sent in response to interim application 22 complied with the contractual requirements.

ii) 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.

iii) Whether, in April 2017, the employer complied with the contractual requirements in order to maintain its claim for liquidated damages.

3

The second of those three issues is one of great importance to the construction industry. It is an issue upon which there are conflicting decisions of High Court judges. Because of my decision on the first issue, the second issue has become academic. Nevertheless, I shall deal with it, because it has been fully argued and the parties have asked the court to decide the second issue in any event. Both the profession and the industry need to know which of the conflicting High Court decisions are correct. The first and third issues, by contrast, turn on the particular facts of this case.

4

The contractor in this case is S&T(UK) Limited (“S&T”). S&T has been the referring party in three adjudications. In the subsequent litigation S&T is claimant in one action and defendant in the other. It is the appellant before this court.

5

The employer is Grove Developments Limited (“Grove”). Grove was the responding party in the three adjudications. In the subsequent litigation, Grove (like S&T) is claimant in one action and defendant in the other. It is the respondent in this court.

6

I shall refer to the Housing Grants, Construction and Regeneration Act 1996 in its original form as “ HGCRA”. This Act came into force on 1 st May 1998. I shall refer to the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, as “the Amended Act”. The Amended Act applies to construction contracts entered into on or after 1 st November 2011.

7

The payment regime and adjudication regime which that legislation introduced now play a critical role in the functioning of the construction industry. The payment rules lead to prompt interim payments by employers to main contractors and by main contractors to subcontractors. The adjudication regime leads to the early resolution of many disputes without the need for formal arbitration or litigation. Adjudications are swift. They are generally completed within 28 days. There is a limit to how much money people can spend on their disputes within that limited time frame. Overall the payment regime and the adjudication regime have been successful. At least fourteen overseas jurisdictions (including New Zealand, Malaysia, Singapore and most Australian states or territories) have adopted similar rules, with greater or lesser variations according to their local circumstances.

8

The Appendix to this judgment sets out sections 108–111 of the HGCRA and sections 108–111 (omitting section 108A) of the Amended Act.

9

I shall refer to the Scheme for Construction Contracts mentioned in sections 108(5) and 110(3) of the HGCRA and sections 108(5) and 110A(5) of the Amended Act as “the Scheme”.

10

Paragraph 20 of the Scheme under the Amended Act provides:

“20. The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may—

(a) open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive,

(b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to section 111(9) of the Act, when that payment is due and the final date for payment,

(c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid.”

11

I shall refer to the notice mentioned in section 110(2) of the HGCRA and in section 110A(1) and (2) of the Amended Act as a “Payment Notice”. I shall refer to the notice mentioned in section 111(1) and (2) of the HGCRA as a “Withholding Notice”. I shall refer to the notice mentioned in section 111(3) and (4) of the Amended Act as a “Pay Less Notice”. I shall refer to the Technology and Construction Court as the “TCC”.

12

After these introductory remarks, I must now turn to the facts.

Part 2 – The Facts

13

By a contract dated 26 th March 2015, Grove engaged S&T to design and construct a hotel at Heathrow Airport. The contract was in a standard form, namely the JCT Design and Build Contract 2011, subject to certain amendments as set out in a schedule. The contract sum was £26,393,730. The contractual completion date was 10 th October 2016.

14

The terms of the contract set out below are relevant to the present litigation. In relation to clause 4.7, the contract particulars specified that Alternative B should apply.

Clause 2.28

2.28 If the Contractor fails to complete the Works or a Section by the relevant Completion Date, the Employer shall issue a notice to that effect (a ‘Non-Completion Notice’). If a new Completion Date is fixed after the issue of such a notice, such fixing shall cancel that notice and the Employer shall where necessary issue a further notice.

Clause 2.29

2.29.1 Provided:

2.29.1.1 the Employer has issued a Non-Completion Notice for the Works or a Section; and

2.29.1.2 the Employer has notified the Contractor before the due date for the final payment under clause 4.12.5 that he may require payment of, or may withhold or deduct, liquidated damages,

the Employer may, not later than the day before the final date for payment of the amount payable under clause 4.12, give notice to the Contractor in the terms set out in clause 2.29.2.

2.29.2 A notice from the Employer under clause 2.29.1 shall state that for the period between the Completion Date and the date of practical completion of the Works or that Section:

2.29.2.1 he requires the Contractor to pay liquidated damages at the rate stated in the Contract Particulars, or lesser rate stated in the notice, in which event the Employer may recover the same as a debt; and/or

2.29.2.2 that he will withhold or deduct liquidated damages at the rate stated in the Contract Particulars, or at such lesser stated rate, from sums due to the Contractor. 1

2.29. 3 If the Employer fixes a later Completion Date for the Works or a Section, the Employer shall pay or repay to the Contractor any amounts recovered, allowed or paid under clause 2.29 for the period up to that later Completion Date.

2.29.4 If the Employer in relation to the Works or a Section has notified the Contractor in accordance with clause 2.29.1.2 that he may require payment of, or may withhold or deduct,

liquidated damages, then, unless the Employer states otherwise in writing, clause 2.29.1.2 shall remain satisfied in relation to the Works or Section, notwithstanding the cancellation of the relevant Non-Completion Notice and issue of any further Non-Completion Notice.

Clause 4.7.1

4.7.1 Interim Payments shall be made by the Employer to the Contractor in accordance with section 4 and whichever of Alternative A (Stage Payments) or Alternative B (Periodic Payments) is stated in the Contract Particulars to apply.

Clause 4.7.2

4.7.2 The sum due as an Interim Payment shall be an amount equal to the Gross Valuation under clause 4.13 where Alternative A applies, or clause 4.14 where Alternative B applies, in either case less the aggregate of:

4.7.2.1 any amount which may be deducted and retained by the Employer as provided in clauses 4.16 and 4.18 (‘the Retention’);

4.7.2.2 the cumulative total of the amounts of any advance payment that have then become due for reimbursement to...

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