In Lidl Great Britain Limited v Closed Circuit Cooling Limited t/a 3CL [2023], the TCC TCC was asked to consider whether the Construction Act operated to prohibit any adjudication while a notified sum remained unpaid, even where the subject matter of the adjudication has no relation to that notified sum.

The Court held that it did not, and as a result accepted the Employer’s further claims in part.

Background

Lidl and 3CL entered into a framework agreement which enabled the parties to enter into a series of individual work orders for refrigeration and air-conditioning works across Lidl’s premises.

In April 2023, 3CL referred a dispute over its entitlement to payment under 3CL’s application for payment 19 (“AfP19”) to adjudication. In response, Lidl had sought to rely on a purported payment notice (“Pay-7”). By a decision dated 1 June 2023, the adjudicator rejected all of Lidl’s submissions.

Lidl failed to pay and went on to issue a Part 8 claim seeking declarations in respect of the underlying issues. In response, 3CL issued a Part 7 claim and a summary judgment application seeking enforcement of the first adjudication decision.

Having declined to grant the declarations sought by Lidl, and in the absence of any substantive defence to enforcement, the court gave judgment in favour of 3CL.

Lidl, however, went on to commence a second and third adjudication, with considerable success. Following 3CL’s failure to pay, in accordance with the second adjudication decision, Lidl brought a Part 7 claim to enforce the decision.

In response, 3CL issued a Part 8 claim seeking a declaration that both the second and third adjudication decision were unenforceable. 3CL contended the adjudicator lacked jurisdiction because Lidl had not yet satisfied their payment obligations under s.111 of the HGCRA in respect of AfP19 before commencing both the second and third adjudication.

What did the Court Decide?

The judge had to determine whether the principle set out in the earlier case of S&T(UK) Ltd v Grove [2018] (the “Grove Principle”) was only applicable to true value adjudications where the dispute referred was limited to a valuation of the same payment cycle as the subject of the notified sum, or if it extended to any adjudication arising under the contract. To the extent the adjudications fell within the Grove Principle, properly determined, the adjudicators would lack jurisdiction because the adjudications had been commenced before payment of the notified sum had been made.

The judge rejected the wide no adjudication prohibition contended for by 3CL and found 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.

The judge nevertheless determined that a party’s true value claims would be 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.

Conclusion

Applying these principles to the facts of adjudications 2 and 3, the Judge was satisfied that 3CL had demonstrated that of the £757,845.63 awarded to Lidl in adjudication no.2, at least £260,899.61 was awarded in circumstances outside the Adjudicator’s jurisdiction, because of duplication of those items with items in invalid Pay-7. Accordingly, Lidl’s enforcement claim succeeded, but only to the tune of £494,946.02.

In relation to adjudication no.3, the Adjudicator had no jurisdiction to re-visit 3CL’s extension of time for the period 18 June – 29 September 2022, as that was in substance seeking to undertake a true valuation of that issue which if successful would inevitably lead to a claim for liquidated damages in respect of that period. As such, this had been prohibited under the Grove principle.

In contrast, the adjudicator did have jurisdiction over the periods before and after that prohibited period, and to that extent 3CL’s claim to relief was rejected.

The case thus provides welcome clarification of the scope of the Grove principle and the circumstances in which payers can be confident of subsequent adjudication decisions being enforced.

 

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David Spires 

Partner

E-mail: DSpires@hklegal.co.uk

 

This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

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