Lidl Great Britain Ltd (Lidl) v Closed Circuit Cooling Ltd (3CL)

The Grove principle is that a paying party which is subject to a ‘smash and grab’ adjudication (where it fails to comply with its obligation to submit payment notices), must pay the notified sum (usually in this case it will be the sum applied for by the non-paying party) before it can commence what is referred to as a true value adjudication (S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448).

Lidl Great Britain Ltd v Closed Circuit Cooling Ltd t/a 3CL [2023] EWHC 3051 (TCC) provides exceptions to the Grove principle where the unpaid sum from a smash and grab adjudication does not relate to the issues raised in a subsequent adjudication.

Background 

Lidl was the employer and 3CL the contractor.

Adjudication 1 (April 2023)

3CL was successful in a smash and grab adjudication against Lidl.

This was based on an IPA submitted by 3CL where Lidl refused to pay and instead relied on a document it had issued on 6 October 2022 confirming no payment was due and stating the work was incomplete and deducting £765,000 for delay damages against 3CL. 

The Adjudicator found that Lidl’s document was not a valid payment notice and ordered Lidl to pay the sum applied for in the IPA. 

Following this, Lidl did not make payment, but, in what seemed to contravene the Grove principle, commenced two further adjudications. 

Adjudication 2 (July 2023)

This concerned Lidl’s claim against 3CL for costs incurred by Lidl in appointing a third party to rectify alleged defects in 3CL’s works after completion. 

The Adjudicator found in favour of Lidl and that Lidl was entitled to make a deduction  from any monies due or which may become due to 3CL. 3CL  issued court proceedings that this decision was unenforceable because  Lidl had not paid the sums due under Adjudication 1.

Adjudication 3 (August 2023)

This concerned Lidl’s adjudication that 3CL’s had no entitlement to an extension of time. The Adjudicator again found in Lidl’s favour. 

Legal Arguments

3CL argued that, under the Grove principle, adjudications 2 and 3 were unenforceable because Lidl commenced them before complying with its payment obligation in regard to Adjudication 1.  

Lidl argued that the Grove principle only applied where adjudications 2 and 3  were seeking a decision as to the true value of the dispute which had been addressed in adjudication 1 and that neither adjudication 2 or 3 were true value adjudications. 

Court Decision 

The Court agreed substantially with Lidl’s position and found as follows; 

1. Adjudication 2,  the adjudicator did have jurisdiction because it related to snagging  and defects arising after practical completion, so clearly could not have been included in payment notices relating to a payment which pre dated completion; but  
2. Adjudication 3,   the adjudicator had no jurisdiction because it was essentially for a true valuation relating to issues that could and should have been included in a PLN in regard to the payment claimed in Adjudication 1 ( and, as such, was prohibited by the Grove principle). 

Comment

This case provides further emphasis on the “pay now, argue later” principle and that the payer should seek to pay the notified sum prior to challenging the same as it may be caught by the Grove prohibition.