Lidl Great Britain Limited v Closed Circuit Cooling Limited (t/a 3CL) [2023] EWHC 3051 (TCC) addressed the tension between the statutory right to adjudicate ‘at any time’ under Section 108 of the Construction Act and the immediate payment obligations mandated by Section 111. In determining whether the “Grove principle” creates a blanket jurisdictional bar, HHJ Stephen Davies ultimately rejected this broad prohibition, refining the principle to focus on whether the substance of the true value dispute fell within the original payment cycle and severing the adjudicator’s decision accordingly.

Background to Dispute

Lidl had employed 3CL to undertake certain refrigeration works and the parties became engaged in several payment disputes, with Lidl alleging that 3CL had carried out defective works and caused delays. 3CL commenced ‘Adjudication 1’ in April 2023 claiming ‘AFP 19’ as the notified sum and the adjudicator agreed. Lidl failed to make payment and, in September 2023, 3CL enforced the decision in the TCC (Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (t/a 3CL) [2023] EWHC 2243 (TCC)).

However, before Lidl paid the notified sum, it had commenced two further adjudications. ‘Adjudication 2’ concerned a breach of contract claim in respect of defects and ‘Adjudication 3’ concerned 3CL’s entitlement to an extension of time. Lidl was successful in both adjudications.

In the TCC, 3CL contended that both decisions were unenforceable because they were each made without jurisdiction and/or in breach of public policy on the grounds that Lidl commenced Adjudication 2 and Adjudication 3 before it had made payment of the notified sum set out in AFP 19, in contravention of the Grove principle.

The ‘Pay Now, Adjudicate Later’ Regime

The hierarchy of obligations in modern construction law stems from S&T (UK) Limited v Grove Developments Limited [2018] EWCA Civ 2448. This landmark ruling established that the Section 111 obligation to pay a notified sum is of “direct effect” and cannot be circumvented by a preemptive ‘true value’ adjudication. Under this regime, the right to adjudicate a valuation dispute is temporarily subordinated to the immediate necessity of discharging the payment obligation. Sir Rupert Jackson stated:

“The Act cannot sensibly be construed as permitting the adjudication regime to trump the prompt payment regime. Therefore, both the Act and the contract must be construed as prohibiting the employer from embarking upon an adjudication to obtain a re-valuation of the work before he has complied with his immediate payment obligation.”

‘Any Adjudication’ vs. ‘True Value’ Prohibition

Defining the breadth of the Grove jurisdictional bar is of immense strategic importance. A bar that is too wide stifles the statutory right to resolve disputes, while one that is too narrow invites payers to sidestep their obligations.

3CL arguing for the wider ‘any adjudication’ prohibition, highlighted the financial prejudice of defending a claim while being deprived of the notified sum. However, the court rejected this wider interpretation. HHJ Stephen Davies reasoned that the right to adjudicate is a “valuable right” and that the existence of speedy enforcement procedures for unpaid sums sufficiently ameliorates any prejudice.

Significantly, the court also rejected a subjective intent test and instead favoured an objective assessment: “If the subsequent adjudication sought to be commenced does in fact seek to achieve a true valuation of matters which could have been the subject of a payment notice or a payless notice then that is the objectionable feature. If it does not, the fact that the referring party is seeking to achieve a position where it can contend for a deduction or set off against its liability to pay a notified sum is neither here nor there.”

The ‘Payless Notice’ Test

To provide practitioners with a predictable standard, the court established a precise dividing line for jurisdiction based on the payless notice window. The court held that the Grove principle only applies to claims involving matters that could have been the subject of a payless notice for the specific notified sum in question.

Taking a “purposive approach” to the Act, the court clarified that this principle is not strictly limited to the same payment cycle. As established in Broseley London Ltd v Prime Asset Management Ltd [2020] EWHC 944 (TCC), the Grove principle extends to any subsequent adjudication—including final account disputes—that seeks to re-value matters that were fundamental to an earlier, unpaid interim notified sum. If a payer failed to serve a valid payless notice for defects or liquidated damages known at the time, they cannot adjudicate those specific issues until the debt is paid.

Conversely, if a dispute involves defects or delays “which could have been the subject of a payment notice or a payless notice,” the Grove principle does not apply. This distinction is strategically vital as it prevents tactical referrals of peripheral items designed to circumvent the statutory prohibition and it ensures the right to resolve independent, subsequent disputes remains intact, provided they do not objectively overlap with the unpaid interim payment.

Jurisdictional Severance

The court applied this ‘payless notice’ test to the two adjudications Lidl commenced while the £781,986.22 debt from AFP19 remained unpaid:

Adjudication 2 (Defects): Lidl sought to recover costs for snagging and defects, 3CL argued this duplicated items Lidl tried to withhold in its purported but invalid payless notice. The court found that while many defects were notified post-practical completion, a portion of the claims duplicated items Lidl had unsuccessfully sought to withhold in the AFP19 cycle. It granted summary judgment for £496,946.02 but severed and refused to enforce £260,899.61.

Adjudication 3 (EOT): Lidl sought a declaration regarding 3CL’s entitlement to an EOT, arguing this was a non-monetary declaration. The court disagreed and severed the adjudicator’s decision. It ruled that determining an EOT from 18 June to 29 September 2022 was, in substance, a re-valuation of the £765,000 in liquidated damages Lidl tried to deduct in its invalid payless notice, thus the adjudicator had no jurisdiction for that period. However, the adjudicator did have jurisdiction for the period of 29 September to 26 October, as this fell outside the specific payless notice window for AFP19.

Practical Implications

The judgment confirms the Court’s commitment to ensuring cash flow while preventing the adjudication regime being used as a tool to undermine statutory payment obligations. Parties should be mindful that before seeking a true valuation of any matter that could have been included in a payer’s notice, the notified sum must first be paid. Any failure to make that payment may result in severance of any overlapping issues that could have been included in a payer’s notice.