A Scottish court has upheld the NEC3 provision that makes adjudication mandatory before litigation can be sought
The NEC3 Engineering and Construction Contract document has cropped up for court guidance in the recent Scottish case of Fraserburgh Harbour Commissioners vs McLaughlin & Harvey Ltd (2021). It seems that the commissioners gave the elbow to the NEC3 adjudication clause and brought their dispute with the contractor straight to litigation. Dear me, that’s a no-no, said McLaughlin & Harvey.
Fraserburgh is way up there in the north-east corner of Scotland, north of Aberdeen, some 600 miles from London. Herring once made folks there a living. That all declined, but in its place grew demand from the oil and gas industry. Dock infrastructure went ahead apace, and McLaughlin & Harvey won the contract to deepen the harbour. It now takes cargo ships up to 100m long. The dispute is about a variety of alleged defects totting up to about £7m. Can you already see why this type of quarrel is not at first glance suited to 28-day adjudication?
The harbour commissioners, having begun their claim in Scotland’s Court of Session, were met by a block. McLaughlin & Harvey pointed to the NEC3 disputes clause. It not only says that adjudication must be the first port of call, but also insists that no party can litigate or arbitrate until the adjudication is all done. That’s not, however, in keeping with what the Construction Act provides. This NEC3 clause is a leftover from the days of the ICE standard forms, first requiring an engineer’s decision when a dispute arises. So too the bar on a direct route to the courts until the engineer did their stuff.
Mostly, by the way, engineers did sort out such disputes; it was effective and much less lawyer-driven than nowadays. The suspicion in those days was that the Institution of Civil Engineers was hell-bent on keeping the lawyer’s nose out of the engineer’s business. It even went to the extent of giving four weeks after the engineer’s decision to begin litigation or arbitration to reject that decision or else it became completely binding. All that is carried forward in the NEC3 documents. Mind you, the NEC3 document is a tad more sophisticated and calls for supercharged lawyers to fathom their way through the NEC thicket.
Adjudication is not conducted on a desert island; it is more like a traffic island. The courts are always circling the territory on watch and ready to have a say
At first, I thought McLaughlin & Harvey was simply playing at being the awkward squad in resisting a direct route to the High Court. Think again. The High Court is lawyers’ territory; adjudication is constructors’ territory. The adjudicator, more likely than not, will be a constructor. The dispute will be put to an engineer or QS; he or she is in the same business and may even know their way around harbours, ports and such complex infrastructures. The eventual decision about the alleged defects, even if rough and ready via the short timetable, just may be something that both sides can live with. Fast, furious and cheap.
An attempted block on the court being part of the dispute process never goes down well. “Ousting the courts’ jurisdiction” is an uphill task. But, said McLaughlin & Harvey, clause W2 of the NEC document says, “A dispute arising under or in connection with this contract is referred to and decided by the adjudicator.” McLaughlin & Harvey took the judge to the NEC3 guidance notes, which gently put litigation and arbitration in their place, calling those dispute modes time-consuming and expensive. Those are the ultimate means for dispute resolution.
Meanwhile, say the guidance notes, adjudication’s intermediate stage of independent dispute resolution requires the parties to put into effect the adjudication, and that’s the end of the matter, unless there is a notice of dissatisfaction in four weeks. Only then can it go to the final forum or tribunal. It’s mandatory, said McLaughlin & Harvey.
The harbour commissioners’ position was that the NEC3 disputes clause does not entirely exclude the jurisdiction of the court to entertain the dispute. It only prevents the court from deciding the merits of any dispute. But there are preliminary points, which are not the business of “private judges”. The court can still entertain an argument such as that the adjudicator has no jurisdiction because there is no dispute or no contract arose at all. Presumably the court can decide that the dispute has already been adjudicated or decide whether the adjudicator has been properly appointed or is not qualified, or has been or is acting so wrongly as to declare him or her incompetent, and more besides.
The senior Scottish judge saw the NEC clause as having limited rights and obligations. It is there to decide the merits of an NEC3 contract dispute. The Fraserburgh Harbour Commissioners could not take the substantive dispute out of the hands of an adjudicator. It is a must. McLaughlin & Harvey were wrong, however, to argue that everything by way of a dispute first goes to adjudication. In my language, the adjudication is not conducted on a desert island; it is more like a traffic island. The UK courts are always circling the territory on watch and ready to have a say. The fortunate aspect of all this is that the courts’ attitude towards high-speed adjudication has, in these 23 years of its existence, been hugely supportive. It works – and I do like the idea that a constructor decides construction disputes.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple