A recent decision of the Scottish Court of Session has considered whether court proceedings could validly be raised before the dispute under an NEC contract was dealt with in adjudication. The question was of importance in this case because the action was raised shortly before the expiry of the 5-year prescriptive period. The court also considered a separate argument that the complexity of the dispute between the parties meant that it fell outside the ambit of the adjudication provisions.

Greater Glasgow Health Board v Multiplex Construction Europe Limited and Others

Greater Glasgow Health Board (the “Health Board”) raised an action in the Scottish Court of Session against the four Defenders in relation to alleged defects in the construction of a hospital. The Health Board’s contract with two of the Defenders included standard clauses from the NEC3 form of contract requiring disputes to be referred to adjudication before court proceedings:

“W2.1 (1) A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator. …

W2.4 (1) 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.”

The Health Board had not taken any part of the dispute to adjudication, nor was there any agreement between the parties to waive the requirement to adjudicate. As a result, the two defenders argued the court action was incompetent and should be dismissed.

The Health Board argued that the action should be allowed to proceed without adjudicating. This was on the basis that the complexity of the issues involved in the dispute and the fact it concerned multiple issues and multiple parties said to be jointly and severally liable took it outside the scope of the adjudication clauses. Alternatively, it said that the action should be sisted (the Scottish equivalent of stayed) to allow any adjudication to take place.

The position taken by the defenders was that the contract required each step of the dispute resolution procedure to be followed in turn. It was therefore not competent to raise a court action before first adjudicating.

Adjudication applies, but stay granted

The court did not accept the Health Board’s primary position. It supported the comments by the Supreme Court in Michael J Lonsdale v Bresco Electrical that adjudication is designed to be a mainstream dispute resolution process in its own right. There was nothing about the claims in the action which made them inherently unsuitable for adjudication or which took them outside the general words of the adjudication clauses.

The court noted that “if the parties to the respective contracts had wished to exclude complex disputes [from adjudication], including disputes in which joint and several liability was asserted, they could have done do. It was foreseeable at the time of contracting that in a project of this scale disputes might arise, but the parties have not seen fit to make any special provision for disputes of any particular complexity. Instead they have entered into contracts in terms of which “any disputes” may be referred “at any time” for adjudication”.

It was recognised that could lead to multiple adjudications but was not accepted that the issues were so complex that an adjudication process would be bound to fail.

On the competency point, the court drew parallels with arbitration: pending any reference to arbitration being concluded, the court’s jurisdiction to determine the dispute was “in the meantime” ousted. The court was therefore prevented from dealing with the dispute while it was still to be decided by an adjudicator. That did not make the action incompetent. It simply meant the court could not entertain the dispute until the adjudication process was concluded.

This position is in line with the position taken by the Inner House (Scottish appeal court) in The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Limited. In relation to arbitration proceedings, it held that “the procedure to be followed is to sist the cause in the meantime”.

Both this case and Fraserburgh confirm the same approach will be taken where there is an arbitration clause (as in Fraserburgh) or where adjudication is required before court as in the NEC procedure.

Comment

This case is likely to be of broad application given its consideration of the standard adjudication wording of the NEC3 form, which remains unchanged in the NEC4. The issue was also of importance to the Health Board in this case. Proceedings had been commenced shortly before the expiry of the statutory prescription time limit meaning that dismissal of the action may have left the Health Board without a route to recovery.

This type of question often arises in the context of escalating dispute resolution provisions which contain a series of steps to try to resolve disputes arising before resorting to court or arbitration. Those can be useful in focussing issues or reaching resolution. However, where there are issues of prescription or limitation meaning the pursuer is under time pressure to take action to stop the clock, they can be problematic. The decision therefore provides comfort to pursuers that a court action can be raised to protect their position on prescription or limitation, without first needing to adjudicate in accordance with the contract.

The case also highlights the courts’ readiness to enforce adjudication clauses like that in NEC even in the context of complex multi-party disputes. As noted by the Health Board, this can create practical difficulties where a mandatory adjudication regime is agreed upon as a prerequisite to court or arbitration as multiple adjudications against different parties may be needed before court proceedings can properly be commenced.

Parties involved in complex projects entering into NEC based contracts ought therefore to give careful consideration as to whether the NEC’s mandatory adjudication provisions should be retained and, if so, whether bespoke multi-party or conjoining provisions should be included.

References:

Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2020] UKSC 25

Fraserburgh Harbour Commissioners v McLaughlin & Harvey [2021] CSIH 58

Greater Glasgow Health Board v Multiplex Construction Europe Limited [2021] CSOH 115