High Court Clarifies Grove Principle Application in Lidl v 3CL Case

Introduction

The High Court of Justice’s recent decision in Lidl Great Britain Limited v Closed Circuit Cooling Limited t/a 3CL presents a detailed examination of the legal principles regarding the enforceability of adjudication decisions under the Housing Grants, Construction and Regeneration Act 1996 (as amended), herein referred to as ‘the Act’. Specifically, the case discusses the scope of the “Grove principle” which governs the conditions under which a party to a construction contract may commence further adjudications after an adjudicator’s decision has been made on a notified sum.

Key Facts

The dispute revolves around Lidl’s framework agreement with 3CL, under which disputes arose concerning interim payments, defects, and delays in work completion. The pertinent points include Lidl commencing two adjudications before complying with an obligation to pay a previous notified sum as established in a separate adjudication (decision no 1). Lidl sought enforcement of a decision (decision no 2) concerning defect-related costs (post-practical completion), and a no-jurisdiction ruling on a decision (decision no 3) related to extensions of time and subsequently claimed liquidated damages for delayed completion.

Legal Principals

The central legal principle discussed in the case is the “Grove principle”, derived from the case S&T(UK) Ltd v Grove [2018] EWCA Civ 2448. The principle establishes a hierarchy of obligations under the Act, where the act of undertaking an adjudication to obtain a re-valuation of work is subordinate to the payment provisions in section 111. Colloquially stated, one must “pay now, adjudicate later”, meaning an immediate payment obligation must be met before a party can seek a ‘true value’ decision through adjudication.

The discussion evolved around the scope of the Grove principle, whether it’s applicable to any adjudications or only to ‘true value’ adjudications closely related to the same payment cycle as the notified sum. The judgment referred to the Act’s prompt payment regime and the right to resolve disputes through adjudication, finding a balance not to excessively constrain the latter by the former.

The distinction between true valuation disputes and other construction contract disputes emerged as vital, with the judge reasoning that the Grove principle must apply to claims which could have been included in a payless notice contextually linked to the notified sum.

Outcomes

The judgment makes clear distinctions in applications of the Grove principle:

1. For decision no 2, the adjudication’s jurisdiction was upheld partially. The claim relating to defects after practical completion wasn’t subject to the Grove principle, thus allowed. However, parts overlapping with previous payless notices (during the notified sum’s payment cycle) fell under the prohibition, leading to partial enforceability of the decision.

2. For decision no 3, the adjudication was found to overlap with the previously contested payment cycle in PAY-7. Hence, the adjudicator lacked jurisdiction over the extension of time relating to the disputed payment period.

Conclusion

The case underscores the nuanced approach required to interpret the Act and the Grove principle’s breadth. It reiterates the “pay now, adjudicate later” concept while recognising adjudication’s essential role in construction disputes. The decision brings clarity to the scope of the Grove principle, confirming it pertains not to all valuations but those connected to the context of a specific notified sum payment cycle. This ensures the integrity of the prompt payment regime and respects the adjudicative process outlined in the Act.