Fermanagh District Council v Gibson (Banbridge) Ltd

[2014] NICA 46

Fermanagh entered into a contract with Gibson for the construction of a waste management facility. The form of the contract was the NEC2 Engineering and Target Contract. On 23 October 2012 the adjudicator decided that Fermanagh should pay Gibson £2,126,390.29 plus VAT and interest. Fermanagh believed the amount truly due was £302,156.61 plus VAT and declined to pay the amount the adjudicator assessed as due.

By a decision on 4 February 2013 Weatherup J rejected Fermanagh’s challenges to the adjudicator’s jurisdiction. As you would expect with an NEC Contract, it provided for a reference of a dispute to arbitration within four weeks of the adjudicator’s decision. On 5 February 2013 Fermanagh served a notice described as a notice of arbitration. An arbitrator was appointed. A time bar point having been taken, the arbitrator stayed proceedings pending an application to the court to extend time. By an application dated 22 April 2013 Fermanagh applied under section 12 of the Arbitration Act 1996 for an extension of time  to refer to arbitration the dispute which had arisen under the contract.

At first instance, a Judge held that where the jurisdiction of the adjudicator was in issue and the question of the adjudicator’s jurisdiction was to be considered by the court before the substantive dispute was considered by an arbitrator, the parties would have contemplated that the time provision might not apply. Here, the overall process anticipated that ultimately there would be a substantive assessment of the final value of the contract, whether achieved by arbitration or something else. A substantive hearing had not occurred in respect of the disputed value of the final work. It was therefore just to extend the time to allow the substance of the matter to be considered by arbitration. Gibson appealed.

On appeal the court noted that when the adjudicator gave his decision on 25 September 2012 it was clear to Fermanagh that the adjudicator had reached a decision with which it did not agree. It considered that a very much smaller sum was due to Gibson. There was thus clearly a serious dispute between the parties. If the adjudicator was acting within jurisdiction, the contract provided only one way to challenge its effect: by giving notice of an intention to refer the matter disputed to a tribunal.

Having decided to reject the adjudicator’s decision on the ground that he had no jurisdiction, Fermanagh adopted a high-risk strategy of ignoring the adjudicator’s assessment, contesting Gibson’s claim to enforce the adjudicator’s decision and not serving a notice of intention to refer to arbitration, notwithstanding that the contract clearly said that an adjudicator’s decision stands as binding unless taken to arbitration. All this is known to or should reasonably be appreciated by parties when they enter into the NEC contract.

Accordingly it should reasonably have been in contemplation of the parties that a situation might arise where one party’s claim might be upheld by an adjudicator in circumstances disputed by the other, both as to quantum and as to whether the adjudicator should proceed to adjudicate in the circumstances and the appeal was allowed.