A Project Manager under NEC3 issued a payment certificate and the notified sum was paid. No pay less notice was issued. The payee disputed the certificate in adjudication and the adjudicator opened it up and increased the amount due. The payee brought proceedings in the Scottish courts to enforce the decision but the council employer under the construction contract claimed that the adjudicator had failed to address its defence of set off for delay damages. The payee said that the council was not entitled to raise that defence in the adjudication because it had not issued a pay less notice, in response to the payment certificate, to set off the delay damages. Was that right?

The Scottish Court was not persuaded that the adjudicator had addressed the set off defence. He was obliged to give written reasons for his decision. They need not be elaborate or deal with every argument but he had to give at least some brief, intelligible explanation of why the defence of set off was being rejected, which he had not.

A failure by an adjudicator to address a material defence which a party was entitled to state is a failure to exhaust jurisdiction. A court should only hold that there has been such a failure in the plainest of cases: but this was such a case. The claim had a substantial potential value and it was not a prerequisite of relying on the defence in the adjudication that a pay less notice should have been given in response to the payment certificate. On an ordinary reading of s111 a pay less notice need only be given if the payer intends to pay less than the notified sum. If, however, the payer is content to pay the notified sum, there is no basis for a pay less notice. The words “the notified sum” in s111(3) could not sensibly be construed as meaning the sum specified in the payment notice or such other sum as an adjudicator may eventually decide is due. Any pay less notice must specify the sum the payer considers to be due on the date that 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.

DC Community Partnerships Limited v Renfrewshire Council at:

scotcourts.gov.uk/docs/default-source/cos-generaldocs/pdf-docs-for-opinions/2017csoh 143.pdf?sfvrsn=0