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Clarity is key when contract drafting and picking your ANB

It is ironic that in a judgment commenting on poor contract drafting (Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd), the judgment is particularly poor in explaining how the contract was put together and which amendments were made when. However, I guess that happens sometimes. Obviously, if the parties had been clearer about which adjudicator nominating body (ANB) and which adjudication rules applied to disputes under their contract, they wouldn’t have found themselves in the pickle they did. 

Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd

This is a case dating back to October last year. It involves Merit Merrell Technology Ltd (the contractor), who entered into an amended NEC3 ECC with Imperial Chemical Industries Ltd (the employer) to carry out works at the employer’s new paint processing plant in Ashington, Northumberland. Although the initial contract sum was said to be just under £2 million, extra works were instructed, which the contractor valued in excess of £23 million. That’s a lot of extras!

A dispute arose over the quality of the contractor’s welding and the value of its works. In early 2015, the contractor’s employment under the contract was terminated. Cue a referral to adjudication and issues over which ANB and which adjudication rules applied.

The confusion over these arose because of the way the parties had set up the amendments to their contract. There was:

  • The contract data, which identified the Chartered Institute of Arbitrators (CIArb) as the ANB.
  • Secondary option clauses, which identified the NEC’s Option W2 as the adjudication rules.
  • Schedule 1, which amended Option W2 with the wording:

    “Delete and replace with… all Disputes shall be resolved in accordance with Appendix 2.”

  • Appendix 2, which identified the “[Technology and Construction Solicitors’ Association]” (TeCSA) adjudication rules. The ANB was identified as “the [Royal Institution of Chartered Surveyors]” (RICS).

Obviously, in the absence of Appendix 2, the applicable rules  would have been those set out in Option W2 and the nominating body would have been CIArb. With Appendix 2, and all those words in square brackets, it was less clear which ANB and which rules applied.

To add further to the confusion, in February 2013, the parties entered into a “memorandum of agreement”, which included more amendments, including the wording:

“Option W2 – Add new sentence ‘Notwithstanding any provisions to the contrary, this contract is deemed to be a “construction contract” within the meaning of Part II of the Housing Grants, Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009’.”

The three adjudications

In January 2015, a dispute was referred to adjudication. CIArb nominated an adjudicator and the adjudication proceeded under Option W2. Interesting, at the time, the contractor highlighted the inconsistency over the ANB (CIArb or RICS). Although the employer responded by saying TeCSA was the ANB, it did not challenge CIArb’s appointment. Neither party objected to the adjudicator proceeding on the basis of Option W2. The adjudicator decided that the contractor was entitled to some £7.5 million as the employer had not served a valid payment notice.

It was therefore no surprise that when a second dispute was referred to adjudication (and then a third), CIArb nominated the same individual and both adjudications proceeded under Option W2.

However, the contractor was unhappy with the outcome of the second adjudication. The employer sought to enforce the second adjudicator’s decision and also sought an order for delivery up of certain documents. In response, the contractor argued that the adjudicator had no jurisdiction as he was nominated by the wrong ANB.

Which ANB and which adjudication rules applied?

Edwards-Stuart J enforced the second adjudicator’s decision. In doing so, he had to decide which ANB and which adjudication rules applied. He concluded it was CIArb and Option W2. Interestingly, he held that:

  • The amendment in the memorandum of agreement had the effect of restoring the original Option W2 clause because, otherwise the new wording could not be added to it. Thus, the ANB named in the contract data (CIArb) also applied.
  • Alternatively, the square brackets around RICS meant that RICS was to be the ANB unless another ANB was specifically identified elsewhere in the contract documents. This was because it was common to put words in square brackets when drafting documents, which indicated a provisional position or something that was to be negotiated further. The clear choice of CIArb in the contract data overrode the reference to RICS in square brackets.

Both of these points meant the second adjudicator was validly appointed.

What would I do?

Edwards-Stuart J’s interpretation of the contract is helpful when it comes to looking at the priority of certain documents and deciding which of two conflicting rules to choose from.

As I said when I looked at HHJ Havelock-Allan QC’s judgment in Ecovision Systems Ltd v Vinci Construction UK Ltd, when I have been faced with this sort of issue, I have tried to conduct the adjudication in a manner that does not offend either set of rules. That is something the adjudicator did in Ecovision too. (At one point the judge described the adjudicator as putting forward a neutral proposal when he was considering an extension of time for his decision.)

Obviously, this may not always be possible. For example, in Imperial Chemical v Merit, there was a power that was exclusive to one set of rules (the power to award party costs). I guess one option the adjudicator has then is to deal with the issue, but hopefully write his decision in such a way that the decision is severable. Ultimately it may not help, but you never know what will happen on enforcement. Better still, the parties should get the ANB and rules stuff sorted at the outset. We adjudicators have enough things to do in the time allowed, without trying to sort out that type of contractual mess as well!

MCMS Ltd Matt Molloy

One thought on “Clarity is key when contract drafting and picking your ANB

  1. The other question is “What should a contract drafter do?”

    Clearly, checking a contract for ambiguity and inconsistency is a process which is tedious when there are numerous documents involved. So if that is too much like hard work, writers should avoid amending the standard forms unless it is really critical to the success of the project. The ANB is not critical as it only comes after the parties are in dispute.

    Another case encouraging us to keep it simple.

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