Dispute Resolution under the NEC3 Engineering and Construction Contract
In the case of Greater Glasgow Health Board v Multiplex Construction Europe Ltd and others the Court of Session in Scotland had to consider whether or not a clause in a contract, which incorporated the NEC3 Engineering & Construction Contract, acted as a contractual bar to court proceedings, where the dispute had not been adjudicated first.
The Greater Glasgow Health Board (the Health Board) had engaged Multiplex Construction Europe Ltd (Multiplex) as the main contractor in respect of the construction of the Queen Elizabeth University Hospital in Glasgow. After completion of the works, the Health Board alleged that they had suffered losses of £72M due to various defects in the works.
The Health Board sued Multiplex and others including the lead consultant and the project supervisor.
Multiplex argued that the Health Board was contractually barred from commencing the court proceedings, as the Health Board had not complied with clause W2.4 of the Contract.
Clause W2.4 of the NEC3 Contract Engineering and Construction Contract (adopted by the parties) provides that:-
“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”. (emphasis added)
The tribunal is the forum for the final resolution of disputes. The parties choose the tribunal—usually either arbitration or local courts—by an entry into the NEC Contract Data. The Contract in this case provided for the tribunal to be the courts in Scotland.
The court proceedings were served “shortly before the expiry of the 5-year prescriptive period”.
A prescriptive period is the timeframe in which court proceedings must be commenced. If the prescriptive period has expired, then a defendant will have a complete defence to a claim.
The equivalent terminology in Northern Ireland is “limitation period”. The legislation that governs limitation periods is the Limitation (Northern Ireland) Order 1989.
The Health Board argued that this particular dispute was not one that the parties had intended for adjudication. It was a complex multi-party dispute that could lead to “as many as 22 adjudications”. Adjudication was therefore an “obviously inappropriate means of dispute resolution.”
Even if the Health Board was wrong about that argument, it said that the proceedings should be “sisted” to allow any adjudication to take place. If the proceedings were sisted then they would be halted to allow for an adjudication, but could be continued.
Multiplex contended that the Health Board’s right to bring court proceedings was contractually barred as it had not complied with clause W2.4, which provided for disputes to be referred to adjudication. As such, the Health Board had agreed it would not seek refer a dispute to the courts without first referring the dispute to adjudication. There had been no adjudication and, as such, the Health Board had skipped the mandatory first step of adjudication under clause W2.4.
Multiplex wanted the proceedings to be dismissed, which would have required the Health Board to start new court proceedings after an adjudication. That may have resulted in prescription (or limitation) difficulties for the Health Board.
The Court decided that clause W2.4 “acted as a contractual bar” on resorting to court proceedings without first having referred the dispute to adjudication. It did not matter that the dispute was complex—“If resolution of the issues … required multiple adjudications, that was what the parties had agreed.”
Clause W2.4 was not, however, a “condition precedent” to starting court proceedings. It was only a bar to the court deciding on the issues in dispute until such time as an adjudicator had decided the dispute.
The proceedings were sisted, meaning that the clock had stopped ticking in respect of any prescription issues.
Carson McDowell View
Clause W2 in the NEC3 Engineering and Construction Contract (in common with other contracts in the NEC suite) was designed to comply with the Housing Grants, Construction and Regeneration Act 1996—the legislation which governs adjudication and payment in “construction contracts” in GB. It is therefore the dispute resolution option that applies in the vast majority of NEC contracts used on construction projects in the UK.
Parties working under such contracts should be aware of the process by which disputes are to be resolved and the mandatory steps to be taken before a dispute can be referred to the tribunal. A detailed knowledge of the dispute resolution process will assist a party in dispute in deciding on appropriate tactics for successful resolution of that dispute.
When choosing a form of contract for a construction project, parties should consider whether the dispute resolution mechanism is appropriate for the particular project. Whilst parties to a “construction contract” have a statutory right to refer a dispute to adjudication, not all standard forms of contract provide for adjudication as a precondition to arbitration or court proceedings.
Parties should always be cautious to allow time to complete any steps required before court proceedings, particularly when limitation periods are close to expiry.
Although the judgment was given by a Scottish court, it may be persuasive to a court in Northern Ireland tasked with determining the same issue.
If you would like further information or advice, please do not hesitate to get in touch with the Construction Law team at Carson McDowell.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.