Defects and payment disputes must be separated with precision.
Payment disputes are often treated as a single commercial argument: what has been applied for, what has been certified, what has been withheld, and what defects are alleged in response. That approach can be too loose. In adjudication, the route matters. A notified-sum dispute, a true value dispute, a defects claim, a set-off argument and a later damages claim may arise from the same project history, but they are not necessarily the same dispute. Each has its own timing, jurisdictional and evidential consequences.
The disputes in Lidl Great Britain Ltd v Closed Circuit Cooling Ltd t/a 3CL arose from interim payment applications, alleged defects, notified-sum adjudication and later adjudications concerning valuation and defects-related claims. The first judgment concerned enforcement of an adjudicator’s decision requiring payment of a notified sum. The later judgment considered how far Lidl could pursue further adjudications relating to alleged defects and deductions notwithstanding the earlier notified-sum position. That made the cases commercially important because they showed how payment, valuation, defects and set-off may overlap in practice, but still need to be separated with precision for adjudication strategy.
Why the case matters
The significance of Lidl v 3CL lies in the interaction between payment machinery and later attempts to raise defects and valuation issues. The first judgment, [2023] EWHC 2243 (TCC), concerned enforcement of an adjudicator’s decision requiring Lidl to pay a notified sum following 3CL’s interim application. It also considered payment mechanism issues, including the final date for payment and whether the contractual machinery complied with the Housing Grants, Construction and Regeneration Act 1996.
The later judgment, [2023] EWHC 3051 (TCC), considered the extent to which Lidl could pursue further adjudications relating to alleged defects and deductions notwithstanding the earlier notified-sum position. The issue was not simply whether defects could ever be raised. The sharper question was how far the restriction associated with S&T (UK) Ltd v Grove Developments Ltd prevented a paying party from commencing further adjudications before the notified sum had been paid.
That distinction matters commercially. The notified-sum regime, true value adjudication and defects recovery may interact, but they do not collapse into one general payment dispute. A paying party that has failed to serve the necessary notices may be prevented from using a true value adjudication to avoid the immediate payment consequences. But that does not mean every later defects claim, set-off argument or damages claim is automatically barred simply because a notified-sum issue exists.
For contractors, the practical lesson is clear. A payment dispute should be analysed by route, not just by amount. The question is not only whether money is due. The question is whether the party is relying on the payment notice regime, a true valuation, a defects claim, a contractual deduction, a set-off, or a later cause of action outside the immediate payment cycle.
Payment, valuation and defects are different risk streams
One of the main risks in payment disputes is that parties treat all payment-related issues as if they belong in the same procedural category. They do not. A notified-sum dispute asks whether the payment machinery has produced a sum that must be paid. A true value dispute asks what the works are properly worth. A defects claim may involve separate questions about breach, causation, remedial scope, cost, responsibility and timing. A set-off or deduction may depend on whether the contract and the statutory payment regime permit the payer to withhold or deduct the relevant amount at that stage.
For contractors, that distinction can decide the strategy. A payer may seek to resist payment by raising defects. The contractor may respond by arguing that the defects issue is too late, outside the notice cycle, or an impermissible attempt to avoid a notified sum. The answer will depend on how the dispute is framed, what relief is sought, whether the notified sum has been paid, whether the issue is truly a valuation dispute, and whether the alleged defects claim arises independently of the payment cycle.
That is why issue separation matters. It is not enough to say that a dispute is “about payment” or “about defects”. The adjudication must identify the legal route being used, the decision being sought, and whether that route is available at that stage. Without that discipline, the dispute may become vulnerable to jurisdictional challenge, enforcement resistance or strategic confusion.
The Grove principle is not a general shield
The Grove principle remains commercially important because a paying party that has failed to pay a notified sum may be restricted from commencing a true value adjudication before first paying that sum. The principle protects the cashflow purpose of the statutory payment regime. It prevents a payer from ignoring the notice machinery and then immediately using true value adjudication to defer or avoid the payment consequences.
But Lidl v 3CL shows why the principle must be applied carefully. It is not a general answer to every later adjudication. It does not automatically prevent all defects claims, all set-off arguments or all later claims for damages. The court’s task is to identify the real substance of the dispute being referred and whether it is an impermissible true value adjudication in disguise, or a distinct claim that can properly be advanced.
That distinction affects both sides of the strategy. A contractor enforcing a notified sum should not assume that the payer has no route to raise any other issue. Equally, a payer should not assume that defects allegations can be used casually to neutralise a notified-sum liability. Both parties need a disciplined analysis of the payment chronology, the dispute referred, the relief sought and the evidential basis of any alleged defects or deductions.
Defects allegations require their own evidential foundation
Defects allegations should not be treated as generic valuation pressure. If a payer seeks to rely on defects, it should be able to identify the alleged defect, the contractual obligation breached, when the issue was identified, who was responsible, what notice was given, what remedial works were required, what costs were incurred, and how the alleged defect affects the payment or recovery route being pursued.
From the contractor’s perspective, that creates both risk and opportunity. A poorly evidenced defects allegation may be resisted as vague, premature, outside the payment cycle or procedurally misplaced. But a properly evidenced defects claim may still have commercial force, even where an earlier notified-sum issue exists. The contractor therefore needs to avoid treating the notified-sum position as the whole answer if defects are likely to be pursued separately.
This is particularly important on live projects where alleged defects, incomplete works, contra charges and payment applications often move in parallel. The parties may be dealing with interim applications, pay less notices, snagging, completion disputes, defects notices, replacement contractor costs and final account issues at the same time. Unless each issue is separated, the adjudication strategy can become confused and the strongest route to recovery may be weakened.
Practical message for contractors
Contractors should build a clean issue map before commencing or responding to adjudication. That map should identify the relevant payment cycle, the application relied upon, the sum notified, whether the sum has been paid, whether a valid payment notice or pay less notice was served, what valuation dispute exists, and whether any defects allegation is being advanced as a valuation defence, a set-off, a separate claim or a later deduction.
The purpose of that exercise is practical, not academic. It determines jurisdiction, enforcement risk and commercial leverage. A contractor pursuing a notified sum will want to preserve the clarity of the payment route and avoid allowing the dispute to be reframed as a general valuation or defects argument. A contractor responding to defects allegations will need to test whether those allegations are properly connected to the payment dispute, or whether they belong in a different procedural route.
This discipline also matters for record-keeping. Payment records, notices, valuation material, defects correspondence, photographs, inspection records, remedial cost evidence and contractual correspondence should be organised so that each issue can be proved without confusion. If the record merges payment, defects and negotiation correspondence into one general dispute file, the contractor may weaken the precision needed for adjudication.
Legalbuild’s view
For Legalbuild, Lidl v 3CL reinforces the importance of adjudication strategy before referral. A payment dispute is not just a number. It is a sequence of statutory and contractual steps, and each step may affect what can be adjudicated, when it can be adjudicated and what relief can properly be awarded. The Legalbuild view is that payment, defects and set-off issues should be analysed as connected but distinct risk streams. Where the payment machinery creates a notified-sum position, that position should be protected. Where defects are alleged, the allegation should be tested on its own contractual and evidential foundation. Where true value is pursued, the timing and scope of that adjudication must be controlled.
The strongest contractor position comes from understanding how these issues interact without allowing them to become confused. Contractors who separate the issues clearly can decide whether to pursue notified-sum adjudication, resist a true value adjudication, respond to defects allegations, preserve final account recovery, or challenge a set-off route. Contractors who merge those issues into a general dispute may weaken their own enforcement position and give the other side room to challenge scope, jurisdiction or timing. Lidl v 3CL is therefore a reminder that adjudication strategy depends on precision. The party that frames the dispute correctly is better placed to protect cashflow, resist overreach and preserve recovery options.
Case references: Lidl Great Britain Ltd v Closed Circuit Cooling Ltd t/a 3CL [2023] EWHC 2243 (TCC) and Lidl Great Britain Ltd v Closed Circuit Cooling Ltd t/a 3CL [2023] EWHC 3051 (TCC).
