Breaking a contractual hierarchy of dispute resolution processes
Construction contracts often provide a hierarchy of dispute resolution processes. Before a party is permitted to litigate (or arbitrate), it is often required to attempt to resolve the dispute through another method (or methods) of dispute resolution. Structured negotiation, mediation, expert determination and adjudication are common prerequisite steps.
A difficulty arises when a disputed claim is nearing time bar (i.e. prescription or limitation). In order to interrupt time bar and preserve the claim, a party must litigate or arbitrate (unless some other relevant acknowledgment has been made). However, what if there isn’t enough time to carry out the prerequisite contractual steps first?
In practice, the approach adopted is to raise court or arbitration proceedings and then arrange for them to be immediately paused (“sisted” or “stayed”, in Scottish and English court terminology respectively). The contractual steps can then be carried out while the court or arbitration proceedings are effectively dormant. On conclusion of the contractual steps, the proceedings can go ahead (if still desired).
The competency of this approach was challenged in Greater Glasgow Health Board v Multiplex Construction Europe Limited and others.
This ongoing and high profile case concerns alleged defects in the construction of the Queen Elizabeth Hospital in Glasgow. The Health Board claims losses of £72.8 million.
The relevant contract included amended NEC3 conditions, and clause W2. Clause W2 requires (in summary) that a dispute is decided by an adjudicator in the first instance. If a party is dissatisfied with the adjudication decision, it can issue a notice of dissatisfaction and take the dispute to the contractual “tribunal” (arbitration or litigation).
In this case, the court proceedings commenced shortly before expiry of the Scottish five-year prescriptive period. Adjudication had not taken place.
The defenders argued that each step in the clause W2 process was a condition precedent to the next. As such, they argued that failure to adjudicate meant that the court proceedings were incompetent and ought to be dismissed.
The court’s decision
The court found that clause W2 does create a contractual bar on court proceedings, but the contractual bar does not amount to a condition precedent. As such, the contractual bar does nothing more than “prevent the court from entertaining the dispute so long as the bar remains unwaived and the matter has yet to be decided by the adjudicator”.
The result was that the proceedings could be brought, albeit they could not progress prior to adjudication taking place. The proceedings therefore were paused for adjudication, to be resumed at a later stage if necessary.
A separate point considered by the court was whether the dispute was too complex to adjudicate, such that the parties could not have intended clause W2 to apply. The court rejected that argument – it is possible that a dispute may be unsuitable for adjudication, but clause W2 does not impliedly exclude complex disputes, even where multiple adjudications may be necessary.
This case is helpful in confirming the effectiveness of the approach regularly taken by practitioners.
This case specifically considered clause W2 in the NEC3 conditions. While the decision will be relevant to similar clauses, the specific wording will always be considered by a court or decision maker.