In our latest update, we review the Technology and Construction Court (TCC)'s approach in Croda Europe Limited v Optimus Services Limited [2021], a dispute centring on the interpretation of Secondary Option W1 of the NEC3 Professional Services Contract 2013. Option W1 provides a consensual adjudication process for dispute resolution where the project is not covered by the Housing Grants, Construction and Regeneration Act 1996, as amended (the Construction Act).

Background

  • Croda owns a site in Hull where it manufactures speciality chemical products. Optimus is an engineering and design company and was appointed by Croda in relation to expansion works on the Hull site, using an amended NEC3 Professional Services Contract 2013 (the Contract).
  • Due to the nature of the works, the statutory adjudication regime under the Construction Act did not apply to this dispute, but the parties agreed a consensual adjudication process under Option W1. (Option W2 is applicable where statutory adjudication applies.)
  • A dispute arose over the sum due to Optimus and two adjudications followed relating to:
    1. an assessment of the sum due - the adjudicator decided in favour of Croda that Optimus had been overpaid by around £343,500;
    2. the correction of particular Optimus invoices, and to an order that the sum assessed as due to Croda in adjudication one be paid to Croda, plus VAT and interest. Croda was again successful.

In the TCC, Croda now sought to enforce the adjudicator's decision in the second adjudication.

TCC proceedings

By the time of the hearing, the issues being pursued as grounds for resisting enforcement by Optimus were as follows.

  1. Clause W1.3(5) of the Contract gave the adjudicator power to "review and revise any action or inaction of the Employer related to the dispute" but did not give the power (or jurisdiction) to revise an invoice.
  2. The Contract did not provide for negative interim payments and therefore, the adjudicator did not have jurisdiction to make the award in the second adjudication of the payment of the overpaid sum to Croda.

TCC decision

Clause W1.3(5)

The full text of W1.3(5) is as follows:

"The Adjudicator may

  • review and revise any action or inaction of the Employer related to the dispute and alter a quotation which has been treated as having been accepted,
  • take the initiative in ascertaining the facts and the law related to the dispute,
  • instruct a Party to provide further information related to the dispute within a stated time and
  • instruct a Party to take any other action which he considers necessary to reach his decision and to do so within a stated time."

Optimus argued that the adjudicator did not have jurisdiction beyond the powers expressly set out in W1.3(5) and therefore did not have the power to revise Optimus' invoice.

The wording of W2.3(4) of Option W2 is identical to W1.3(5) in Option W1.

Croda's position was that the proper construction of the Contract required a consistent approach to be taken to similar or identical wording in Options W1 and W2 of this NEC3 form of contract. The Judge agreed, meaning that Optimus failed on issue 1. Looking at W2.3(4), the powers listed cannot be an exhaustive list as, in order to comply with the Construction Act, the parties must be able to refer any dispute under the contract to adjudication.

If Optimus' position was correct, then there would be a clear divergence between the effect of W1 and W2 in that W2.3(4) would list powers available to the adjudicator without restricting the adjudicator's powers, whereas W1.3(5) would be "a closed list of powers". The Judge stated that this was "an improbable and uncommercial interpretation of the Contract".

Another consideration was that the approach adopted by Optimus would mean that:

  • where a dispute falls within W1.3(5), a party must adjudicate before arbitration; but
  • for any other dispute under the Contract, adjudication is not available and a party has to go straight to arbitration.

The Judge did not consider this a "sensible construction" of W1 and "it simply is not what it says" – he referred to Clause W1.1 which provides: "[a] dispute under or in connection with this contract is referred to and decided by the Adjudicator".

Negative payments

Optimus argued that in directing a negative interim payment from Optimus to Croda, the adjudicator "fundamentally re-wrote the bargain struck by the parties" which was not within his jurisdiction.

The TCC rejected this submission. Even if that was true (if the Contract does not provide for negative interim payments), this is a matter of contract construction that was open to the adjudicator (i.e. a matter of law) and is not therefore a proper ground to resist enforcement.

Had Optimus waived its right to challenge jurisdiction in any event?

The TCC held that, in any event, by confirming payment of the adjudicator's fees at the same time as asking the adjudicator to correct his decision under the slip rule without reserving its position to raise a jurisdictional challenge, Optimus had waived any right to challenge enforcement of the decision.

Commentary

Whilst the TCC's view in this decision is not unexpected, there are still relatively few judgments on NEC forms of contracts. The clear judgment on the correct construction of the wording that requires a consistent approach to similar or identical wording in W1 and W2 may encourage more use of Option W1 going forward.