Requirement to adjudicate first under the NEC contracts

Published 21 diciembre 2021

A recent decision of the Scottish Courts in Greater Glasgow Health Board v Multiplex Construction Europe Ltd & Ors [2021] CSOH 115 provides a useful reminder of the effect of clause W2 on dispute resolution under the NEC suite of contracts. 

Facts

Greater Glasgow Health Board (“GGHB”) issued court proceedings to recover £72,800,000 from Multiplex in respect of losses allegedly arising as a consequence of defects in the construction of the Queen Elizabeth University Hospital in Glasgow.  These proceedings were issued just before the end of the limitation period for the claim.

Multiplex sought to have the proceedings dismissed on the basis that GGHB had failed to first refer the dispute to adjudication, as required by the parties’ NEC contract.

The relevant clause

The NEC contract under the microscope in these proceedings was the NEC3 Engineering and Construction Contract, Option C and the NEC Professional Services Contract, both of which contained the NEC clause W2 on dispute resolution. That clause stated as follows:

(1)  A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator. A Party may refer a dispute to the Adjudicator at any time.

(11)  The Adjudicator's decision is binding on the Parties unless and until revised by the tribunal …

(1)  A Party does not refer any dispute under or in connection with this contract to the tribunal unless it has first been decided by the Adjudicator in accordance with this contract.

GGHB’s position

GGHB sought to argue that on a proper construction of its contracts with Multiplex and the other defendants, the dispute was not one that the respective parties had intended would be referred for adjudication. The limitations of adjudication were well known. Only one dispute could be referred to adjudication at a time and there could not be a number of parties to an adjudication.  GGHB said it had been foreseeable at the time of contracting that the project would give rise to multiple disputes arising at a late stage, when the advantages of adjudication would be absent.  There could in theory be as many as 22 adjudications to deal with these issues, with no possibility of consideration of joint and several liability and a risk of mutually inconsistent decisions.  In the circumstances, GGHB argued that the parties should not be taken to have agreed such an obviously inappropriate means of dispute resolution.

The Decision

The judge found that there was nothing inherent in the subject matter of GGHB’s claims that would render any of them so obviously unsuitable for adjudication that parties could not be taken to have intended clause W2 to apply to them.

Further, the judge was not persuaded that clause W2 ought to be construed as impliedly excluding complex disputes.  If the parties had wanted to exclude complex claims from the effects of clause W2 they would have done so given that it was obvious at the time of drafting that complex claims could arise.

Nor was the judge prepared to accept that it would be impossible for some or even all of the issues identified to be resolved by an adjudication process.  The fact that multiple adjudications might be necessary was of no effect.  It might be difficult to frame the disputes for adjudication and an adjudicator may also have difficulty reaching a decision within the statutory time limit, but until a reference is made and any difficulties are made out, it would be premature to conclude that it was bound to fail.

As a result, the judge found Clause W2 provides that the parties cannot not seek determination of disputes in court unless those disputes had first been take to adjudication.  Interestingly, however, the judge held that this did not make adjudication a condition precedent to court action because term does not meet the definition of a condition precedent.  Instead clause W2 operates as a contractual bar on referral of a dispute to the court unless it has first been decided by the adjudicator.  The bar may be waived by the other party to the contract, but the clause “does no more than prevent the court from entertaining the dispute so long as the bar remains unwaived and the matter has yet to be decided by the adjudicator.”  On the basis of this decision, the Court held that the action should be stayed, pending the outcome of the adjudication(s) rather than dismissed altogether.

Take away points

The case provides useful guidance on the interpretation and applicability of Clause W2 in the NEC suite of contracts. 

In a nutshell, if your NEC contract contains Clause W2, then the dispute must first be referred to adjudication, no matter the size, complexity or number of adjudications that it may require.

The key point decided, which had not previously been considered by the courts, was that clause W2 did not make adjudication a condition precedent to the commencement of court proceedings. In practice then, should limitation be an issue, it remains open to parties to issue proceedings and then seek to have them stayed pending the outcome of the adjudication process.