April 2009

IN THIS EDITION OF THE MDA REPORT:

NEC 2 adjudication breakdown

Core Clause 9 of the NEC 2 contract deals with dispute and termination. In the subsequent edition of this form (NEC 3), these issues have been separated and dealt with slightly differently.
In accordance with Clause 92.1 of NEC 2, the adjudicator settles the dispute as an independent adjudicator and not as arbitrator. Furthermore, the adjudicator’s decision is enforceable as a matter of contractual obligation and not as an arbitral award.
Accordingly, the nature of the submissions to the adjudicator and the process to be followed is not litigious by nature but follows the normal processes that would be expected in the administration of a contract. There is ample authority outside of the provisions of the NEC, which support these principles to be applied in the adjudication process contained in the NEC. The Construction Industry Council’s Modern Adjudication Procedure provides “the object of adjudication is to reach a fair, rapid and inexpensive decision upon a dispute arising under the contract and this procedure shall be interpreted accordingly”.
The rules of natural justice are required to be applied to the adjudication process and these consist of the following basic principles:
• No man should be judge in his own cause (the first rule).

• No man should be condemned unheard (the second rule).

Two distinct rules
The two rules are quite distinct conceptually. The first rule requires a tribunal is, in fact, and be seen to be, unbiased. The second rule requires every party to a dispute must be given a fair opportunity to present its case and to answer its opponent’s case. Although the principles relating to bias are generally understood, it remains a problem for adjudicators as to how they can ensure, procedurally, both parties are given a fair opportunity to present their case or defence when the process is confined to a relatively short time period.
Guidance can be found in the judgement by Jackson J in Midland Expressway Ltd v Carillion Construction Ltd (No 3) at paragraph 105, which states: “In my view, both the adjudicators and the courts should approach procedural issues in a manner which accords with fairness and common sense… Adjudication should not become a game of chess… in which the tactical skill of the players determines the outcome”.
Although Clause 90.1 requires the matter in dispute be submitted for adjudication within a specified time from when the disputing party becomes aware of the dispute and the submission to the adjudicator after the notice of dispute must equally be submitted within a specified time, this clause contains no sanction for late compliance with the time-line stipulations. It is neither a condition precedent nor a time-bar to the contractor participating in the adjudication process
If, for sake of argument, the interpretation placed on Clause 90.1 is that this is either a condition precedent or a time bar, what would be the outcome? Is the intention that the contractor foregoes the rights to proceed to the review by a tribunal? This cannot be so as this, at the very least, flies in the face of the second law of natural justice referred to above and, perhaps, the parties constitutional right to have their day in Court.

Adjudication mandatory
Alternatively, if the interpretation is only that the contractor forfeits entitlement to have the matter settled by the adjudicator, this surely must be contrary to the stated intention of the NEC, which is explained in the guidance notes. This states it is the intention that all disputes, in the first instance, should be resolved by the adjudicator. Only once the adjudicator has pronounced his decision, and either party is dissatisfied with such, can the dispute proceed to the tribunal. As such the decision of the adjudicator and the adjudication process is interim.
For this reason, the adjudication process is mandatory. There is no discretion conferred on either party to follow another dispute-resolution process or that the adjudication process will be avoided or fall away. Further there is no express or implied term (or wording), which indicates the nature of this clause is either a condition precedent or a time bar.
In order for a clause to be interpreted as a time-barring or condition-precedent provision, the following is required: • The purpose of the time-stipulation clause. Generally, the greater the practical prejudice likely to result from a failure to meet the procedural requirements, the more likely a condition-precedent interpretation, while absence of any real prejudice may suggest the contrary.
• Whether the procedural requirements of the time-stipulation clause provide a carefully-regulated regime. If so, this points to a time-bar interpretation.
• Whether or not the procedural requirements of the time-stipulation clause are mandatory terms, for example, the contractor “shall notify” the principal within 14 days. If so, this points to a time-bar interpretation.
• Whether or not the contract specifically provides the contractor will not be entitled to recover if it fails to comply with the procedural requirements (although this is certainly not a mandatory requirement of the Courts). If this is the case, a contractor will find it very difficult to argue the time-stipulation clause is not a time-bar.
• Whether or not damages would be an adequate remedy for the principal where the contractor has failed to meet the procedural requirements. If not, this may strengthen a time-bar interpretation.
Refer to IN Duncan Wallace Hudson’s Building and Engineering Contracts, 11th Edition, 1st Supplement 2004, 111.

Late submissions
The late delivery of submissions is a recurring feature of adjudications. Some authorities have suggested an adjudicator may safely reject a submission as out of time where, having afforded both parties reasonable opportunity (in the particular circumstances of each adjudication), present their respective cases “he brings the shutters down and indicates he will proceed to make a decision based on the information which he has”.
Clearly, if only one side has made a submission, the adjudicator, under these circumstances, would be incorrect procedurally in ruling only on the submission of one of the parties.
Our conclusion is, under the NEC 2 Clause 9, the requirement to proceed and complete the adjudication process as an interim dispute-resolution process is mandatory. Failure to comply with the time stipulations is not prejudicial to the employer and is most certainly not fatal to the contractor’s cause. Clause 90.1 of NEC 2, accordingly, contains no sanction on the party referring the dispute late or a failure to adhere to the stipulated time periods.
It is, perhaps, significant to note, in the third edition (NEC 3), the provisions of sub-clause W1.3 (2) provides a time bar for matters not notified and referred within the times set out in the contract.