REUTERS | Guglielmo Mangiapane

Scottish court reminds us that you must adjudicate first under NEC3

Back in February 2021, I wrote a blog entitled, You must adjudicate before you can arbitrate, where I discussed Lady Wolffe’s judgment in Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd. At the time, I said that if parties have a tiered dispute resolution clause in their contract, one thing they shouldn’t do is jump in at the deep end, missing out a step or two on the way, because we know the judges don’t like this (as was proved by Lady Wolffe’s dismissal of the court proceedings in that case).

It seems events have moved on a bit, as not only has there been an appeal in the Fraserburgh dispute (which I’ll come to), but we have another example of parties not complying with the NEC3 dispute resolution clause before the Scottish courts. I have Len Bunton to thank for flagging this week’s case to me, Greater Glasgow Health Board v Multiplex Construction Europe Ltd and others. I had been wondering what to write about …

Appeal in Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd

Before I discuss the Greater Glasgow Health Board case, it’s worth mentioning this appeal, which was published at the end of October. In a nutshell, Lord Carloway held that Lady Wolffe should not have dismissed court proceedings, she should have stayed them (it’s called sist in Scotland) under section 10 of the Arbitration (Scotland) Act 2010 (which is like section 9 of the Arbitration Act 1996).

One of the points I found interesting was Lord Carloway’s discussion about how the court’s jurisdiction cannot be entirely ousted, even where there is an express arbitration clause. In those circumstances, the court may not “entertain the merits of the dispute” but it remains competent to deal with other matters, such as enforcing the parties’ agreement. That is why a stay (or sist) was more appropriate than a dismissal of the court proceedings.

Greater Glasgow Health Board v Multiplex Construction Europe Ltd and others

This is a dispute about defects in the Queen Elizabeth University Hospital in Glasgow. The claim is put at £72.8 million and has been brought against the contractor (Multiplex), the lead consultant (Currie & Brown UK Ltd), the project supervisor (Capita Property and Infrastructure Ltd) and the guarantor of Multiplex’s obligations and liabilities (the company formerly known as Brookfield Europe GP Ltd). However, only the contracts between the Health Board and Multiplex and the Health Board and Capita contained adjudication clauses – both were based on NEC3 and included clause W2.

Although there are more details in the judgment about the nature of the claims against each party, I don’t think that it is necessary to set that out. Suffice to say, the Health Board started court proceedings without going through the steps in W2, namely starting an adjudication, and three of the defenders sought to have those proceedings dismissed pending the outcome of any adjudication (Currie & Brown seemed to be happy to allow the court proceedings to continue).

What does W2 say?

As we all know, clause W2 provides that parties will refer a dispute to adjudication before referring it to the tribunal, which can be arbitration or the courts (here the parties had opted for the Scottish courts). A party also has to serve a notice of dissatisfaction within a set period after the adjudicator’s decision before doing so. It is a simple tiered dispute resolution clause.

Here, as there had been no adjudication, there was no notice of dissatisfaction and so there could not be a referral to the tribunal, at least that is the position the three defenders adopted. It is the same position that McLaughlin & Harvey had adopted previously, when it also argued that there was a contractual bar to court proceedings.

What did Lord Tyre decide?

Lord Tyre had the benefit of the appeal in Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd, and so knew that if he was persuaded by the defenders’ position, he should sist rather than dismiss the Health Board’s claim. And that is precisely what he did, making the point that it was the “appropriate and usual course” in Scotland and England, and that there was no material distinction between an arbitration clause and the adjudication provisions of W2.

It is how he arrived at that point that I think is interesting, since the Health Board sought to persuade him that there are some disputes – like this one – that are are too large, too complicated or raised too late to be suitable for adjudication. It made the point that to require adjudication in this case might mean as many as 22 adjudications having to take place, making adjudication an “obviously inappropriate means of dispute resolution”. There were also submissions on the meaning of “dispute” in W2, which meant no one adjudication could “embrace all of the issues”.

However, Lord Tyre was not persuaded by these arguments and was not persuaded that “clause W2 ought to be construed as impliedly excluding complex disputes”. He made the point that if the parties had wished to exclude complex disputes, they could have done so, since it was foreseeable at the time of contracting that in a project of this scale, disputes might arise. They had not done this. Instead, the contract provided for “any dispute” to be referred to adjudication “at any time” (standard Construction Act-compliant wording).

Lord Tyre accepted that there may have to be multiple adjudications and some of those may be complex, such that issues may arise regarding whether or not the adjudicator could decide the dispute in the time allowed under section 108 of the Construction Act 1996. However, it was premature to try and pre-judge how that might play out, since no referrals to adjudication had been made. Just like it wasn’t possible to say whether all of the 22 adjudications that had been suggested would have to take place.

Lord Tyre was also not persuaded by the Health Board’s reliance on the judgment in Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd, where Lord Malcolm had held that enforcement of an adjudicator’s decision was an unjustified interference with the peaceful enjoyment of possessions under Article 1 of the First Protocol (peaceful enjoyment of possessions). He thought it could be distinguished from the present case, since he was being asked to form a view about the Health Board’s claims and whether adjudication would be “impossible or at least so impracticable” that they fell outside the adjudication clause. He said there was no general proposition that some disputes were:

“… too large and/or too complicated and/or raised too long after completion to be suitable for adjudication.”

Having seemingly addressed all of the Health Board’s arguments, Lord Tyre was equally unimpressed with the defenders arguments regarding a contractual bar to pursuing the dispute through the courts, despite the fact that they sought to persuade him of this because the parties had expressly agreed to clause W2 (rather than having it implied by the Construction Act 1996 or under the Scheme for Construction Contracts 1998).

My reading of the judgment is that Lord Tyre was not persuaded that referring the dispute to adjudication was a condition precedent to bringing a court action. However, this section of the judgment is caught up in his discussion about competency (which I assume is a uniquely Scottish concept), so I’m not clear whether this finding is limited to the competency debate, or is of wider application. Either way, it may surprise some to find that there may not be a condition precedent in W2 (even if only in Scotland).

But I wonder if that matters at all, since Lord Tyre seems to be saying that W2 operates as a contractual bar to bringing a dispute to court unless the dispute has been decided by an adjudicator. The parties can waive that bar but, unless they do so, or the adjudicator has made a decision (or presumably resigned because they can’t reach a decision in the time allowed), the court cannot entertain the dispute. It seems to me that that is the same outcome, regardless of what we call it.

Take aways

This case is another example of how far adjudication has progressed and developed from perhaps what was envisaged 25 years ago. That is the point that Lord Briggs was making in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd when he talked about adjudication being a mainstream dispute resolution process in its own right and not merely a mechanism for solving cash flow problems, and how the adjudicator’s decision often achieves a final resolution because neither party challenges it.

It is also something that Coulson LJ said more recently in John Doyle Construction Ltd (In Liquidation) v Erith Contractors Ltd, when he noted that adjudication “has generally been regarded as a great success”. He went on:

“It is one of the reasons why, speaking personally, I rather cavil at the suggestion that construction adjudication is somehow ‘just a part of ADR’. In my view, that damns it with faint praise. In reality, it is the only system of compulsory dispute resolution of which I am aware which requires a decision by a specialist professional within 28 days, backed up by a specialist court enforcement scheme which (subject to jurisdiction and natural justice issues only) provides a judgment within weeks thereafter. It is not an alternative to anything; for most construction disputes, it is the only game in town.”

It has been a great successful and, as an adjudicator, I would say there are, in essence, two types of disputes that are referred to adjudication – those which readily lend themselves to a 28-day process and those that don’t. In complex cases, the requirement for speed is subordinate to the principles of natural justice, with the adjudicator being given the ultimate say in whether or not to proceed if they deem the dispute incapable of being fairly decided within the time period agreed to.

Judgments like this also remind me that we have still not seen a reported case of a dispute being too large, too complicated or raised too late for adjudication. The NEC contract effectively forces the parties’ hand to adjudicate prior to litigation/arbitration unless they agree otherwise but, as we see so often, by the time a dispute arises the parties rarely agree on anything!

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