The case of DC Community Partnerships Limited v Renfrewshire Council confirms that a failure by an adjudicator to address a material defence which a party is entitled to state is a failure to exhaust its jurisdiction.

Case overview

Renfrewshire Council (the Council) contracted with DC Community Partnerships Limited for the construction of a new special needs school. The contract was a construction contract in terms of Section 104 of the Housing Grants, Construction and Regeneration Act 1996 as amended (the 1996 Act). However, a dispute arose between the parties as to the sum that the Council was liable to pay in respect of Payment Certificate No. 33. DC Community Partnerships’ application for payment claimed a price for the work done to date of £18,971,857.23. The Project Manager assessed the price for the works done to date at £15,608,788.70, and issued Certificate No 33 to that effect. After the deduction of previous payments of £15,059,227.92, and the retention of £200,000, the amount due was £287,075.07. No Pay Less Notice was issued by the Council and it paid to DC Community Partnerships the sum of £287,075.07 as notified in terms of the Certificate.

DC Community Partnerships then served a Notice of Adjudication intimating an intention to refer three aspects of Payment Certificate No. 33 to adjudication. The Adjudicator found that Payment Certificate No. 33 should be opened up, reviewed and revised so as to increase the amount due by the Council to DC Community Partnerships by £820,425.76. DC Community Partnerships raised proceedings seeking payment of the sums which the Adjudicator found due. The Council defended the proceedings on the basis that the decision of the Adjudicator should be reduced as the Adjudicator failed to exhaust his jurisdiction by failing to address a material defence. In particular, it submitted that the adjudicator failed to address its defence of set-off of delay damages.

The Parties’ Submissions

DC Community Partnerships submitted that the only defence disclosed was that the Adjudicator had failed to exhaust his jurisdiction but that such a defence was irrelevant and bound to fail. On a proper reading of the Adjudicator’s decision he had not failed to consider the Council’s submission that it was entitled to set off delay damages against any additional sum which the Adjudicator might assess as being due. The Adjudicator had considered this defence but rejected it. DC Community Partnerships also contended that it was not a defence to payment to which the Council was entitled to make because it had not issued a Pay Less Notice in response to Payment Certificate No. 33. It was open to the Council to do so, thereby entitling it to set off delay damages against the sums due under the Certificate. In this regard Section 111 should be construed purposefully so as to prevent a payer such as the Council, who had not given a Pay Less Notice, from seeking to set off delay damages against any additional sums claimed in an adjudication.

The Council submitted that a failure to address a material defence was a failure to exhaust jurisdiction. It was clear that the defence of set off of delay damages fell within the scope of the Adjudicator, that the Adjudicator failed to address it, and the omission was a failure to exhaust his jurisdiction. The Adjudicator was under an obligation to provide adequate, intelligible reasons and deal with all material matters. f he had rejected the set off defence, he had not explained the basis upon which he had done so. Further, in terms of the Contract, the Council had not required to give a Pay Less Notice as a precondition to advancing the set off claim which had been made in the adjudication. On a proper construction of the contract terms and Section 111 of the 1996 Act it had not been necessary for the Council to issue a Pay Less Notice in response to the Payment Certificate in order to advance its claim to set off in the adjudication.

Decision

Lord Doherty stated that the scope in adjudication is defined by the Notice of Adjudication together with any ground founded upon by the responding party to justify its position in defence of the claim made. A failure by an Adjudicator to address the material defence which a party was entitled to state is a failure to exhaust jurisdiction. Lord Doherty was not persuaded that the Adjudicator addressed the set off defence. No explicit reference to it was made in the decision. Whilst it is well established that the reasons given by an Adjudicator need not be elaborate or deal with every argument, they do require to give at least some brief, intelligible explanation of why the defence of set off was being rejected. Lord Doherty was also of the opinion that it is clear on an ordinary reading of Section 111 that a Pay Less Notice need only be given if the payer intends to pay less than the notified sum. The provisions of that section focus on the sum specified in the Notice, and any Pay Less Notice must specify the sum the payer considers to be due on the date the Notice is served. The provisions clearly distinguish “the notified sum” and the “additional amount” which an Adjudicator may decide is due and, ordinarily, liability for payment of each of those sums will arise on different dates. Therefore, on a proper construction of the contract terms, there was no requirement to give a Pay Less Notice unless the Council intended to pay less than the notified sum.

The Court therefore refused DC Community Partnerships’ application for summary decree.

Conclusion

The case is perhaps not unsurprising in its outcome, and acts as a reminder to Adjudicators to be careful when considering parties’ submissions to ensure that they have addressed all of them.