The adjudicator decided that the milestone payment provisions did comply with the Act. CIMC now brought a Part 8 claim for declaration that milestone stages 2, 3 and 4 did not comply with the Act as there were no criteria for determining whether sign-off had occurred and therefore it was impossible to ascertain the due dates or final date for payment. CIMC also relied on the fact that P and K were involved in the payment process though they were not parties to the subcontract. Waksman J decided: 1. S.110(1)(a) was intended to do away with uncertainty 21 . The payment provisions were to be construed in the context of the subcontract as a whole and the Court could not re-write the subcontract in order to avoid the effects of non-compliance with the payment section. It was not clear what the sign-off process involved. The term “sign-off” appeared in both payment and non-payment terms and was not capable of being given a single meaning. In particular in the context of milestone stages 2 and 3 it was impossible to say what the due date for sign-off was. 2. The fact that the sign-off involved third parties was not of itself objectionable. By analogy with a surveyor’s certificate there had to be criteria and a particular time for sign-off, to enable any failure to sign-off to be challenged 22 . Milestone stages 2 and 3 did not comply with s.110(1)(a) because the criteria and date for sign- off were not clear. 3. Milestone stage 4, did comply with s.110(1)(a) as it could be construed as referring simply to delivery of the units at Southampton. 10. Set-off of claims not in pay less notice—contract terms—compliance with Act MI Electrical Solutions Ltd v Elements (Europe) Ltd 23 The Claimant subcontractor (“MI”) and Defendant contractor (“Elements”) entered into a subcontract for the supply and installation of mechanical and electrical works for apartments being constructed by Elements. MI’s payment application was met with a pay less notice in which Elements relied on alleged delay by MI as a grounds for non-payment. The dispute was referred to adjudication. The adjudicator decided that the ground relied on by Elements was not a justification for non-payment. Elements then sought to argue that it was entitled by reason of two clauses of its subcontract to set-off a cross claim for the cost of rectification of defects which it alleged were caused by MI. The adjudicator decided that since the claim for rectification costs was not the subject of the pay less notice, then, whatever might be the merits of the claim, it did not provide a defence to the claim for payment. He ordered Elements to pay £179,931.57. Elements paid £11,479.24 having deducted a sum of £168,452.33 for rectification
costs contending that the subcontract also entitled it to set-off such costs against the sum awarded. The issue for the Court was whether the subcontract entitled Elements to a set-off either against the application for payment despite the absence of a pay less notice on that ground, or as a set-off against the sum of the adjudicator’s award. This required the Court to consider the purpose of the payment provisions of the Act and the effect of terms that might defeat the provisions. As part of the issue, the Court also had to decide whether the defence of set-off was effectively left open by the adjudicator’s decision so as to be potentially available at the enforcement stage. The Court decided that: 1. The defence of set-off had effectively been determined by the adjudicator’s finding that MI was entitled to payment. To reach that conclusion it was necessary for the adjudicator to determine, as he had, that as a matter of law, Elements was not entitled to its cross claim for the cost of rectification of defects which had not been included in the pay less notice. He had therefore determined the issue and the parties were contractually bound by that decision. 2. Neither of the clauses in the subcontract permitted a set-off against the adjudicator’s decision. First, neither of the exceptions to the general rule preventing set-off applied i.e. the cross claim for defects did not follow as a logical consequence of the adjudicator’s decision and it was not a natural corollary of the decision 24 . Second, the set-off provisions were to be read subject to and consistent with the effect of the Act. Otherwise they would not comply with the Act and would be struck down 25 . The Court would attempt to construe the clauses as being consistent with the Act. That could be done by construing them as not applying to monies due under an adjudicator’s decision or alternatively to treat the set-off clauses as being subservient to the obligation to comply with the adjudicator’s decision and therefore only effective if the set-off was connected with or flowed from that decision. If that was wrong, the clauses were inconsistent with the policy of the Act and would be unenforceable. 3. The Court distinguished the case of Parsons Plastics 26 on the grounds of the explicit wording of the contractual clause in that case making the decision subject to a set- off and counterclaim. The Court also noted that Parsons Plastics was distinguished by the appellate court in Ferson 27 , because the former had not considered the effect of the contractual provisions on s.108 of the Act and the right to adjudicate at any time – a material distinction which applied in this case also. It also did not go unremarked that Parsons Plastics had been distinguished in all subsequent cases to which the Act applied, and was rightly to be seen as a rare exception.
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