The importance of a valid notice of dissatisfaction after adjudication

Key Points:

Under option W2 of the NEC3 and NEC4 Engineering and Construction Contract (ECC), which is intended for contracts subject to the UK Housing Grants, Construction and Regeneration Act 1996, disputes must be referred to adjudication before they can be referred to a tribunal (i.e. court or arbitration).

The March 2021 decision of the Technology and Construction Court in Fraserburgh Harbour v. MacLaughlin confirmed that, under ECC option W2, adjudication is mandatory before referring the dispute to a tribunal.

It is also important to remember that under clause W2.4, the adjudicator’s decision becomes final and binding unless a party serves a notice of dissatisfaction within 4 weeks of notification of the adjudicator’s decision. The decision highlighted the need to get that notice right and check what the contract requires.

What happened
Client Transport for Greater Manchester engaged contractor Kier Construction Ltd under an amended NEC3 ECC to design and build a bus interchange in Bolton. The works were delayed and the project manager retained delay damages. The contractor disagreed with this deduction and started an adjudication, seeking an extension to the completion date and repayment of delay damages.

The adjudicator decided in the contractor’s favour. Within the 4 week timeframe, the client’s lawyer sent an email and letter to the contractor’s lawyer stating that the adjudicator had made an error in law and interpretation of the contract. Further, it reserved the client’s right and intention to seek formal resolution to reverse the outcome of the decision.

The client then issued a claim in the courts seeking final determination of the dispute and a reversal of the adjudicator’s award. The contractor resisted, arguing that the court lacked jurisdiction to hear the claim because the client had not served a valid notice of dissatisfaction as required under ECC clause W2.4. In particular the contractor said the notice was not sent to the correct address, was not sent separately from other communications and did not state that the client intended to refer a specific matter to court.

Correct address
ECC clause 13.2 provides that a communication is effective when it is received at the last address notified by the recipient for receiving communications or, if none is notified, at the address of the recipient stated in the contract data. The contract data specified the contractor’s registered address as the address for communications under the contract. Further, the contract stated that all communications had to be made using the project extranet. The contractor argued the notice of dissatisfaction was invalid because it was sent to its lawyer rather than to its registered address or project extranet.

In response, the client argued the notice was valid because the contractor had authorised communications in relation to the adjudication through its lawyer. Importantly, the contractor’s notice of adjudication and referral notice gave the contact details of its lawyer for the purposes of the adjudication. The client’s lawyer did the same, and neither party raised any objection.

Technology and Construction Court judge Finola O’Farrell rejected the contractor’s argument and found that, for the purposes of the adjudication, the details exchanged between the parties’ respective lawyers became the ‘last address notified’ under clause 13.2.

Substance of notice
The contractor argued that the client’s notice did not meet the requirements of clause W2.4 as it was not specific enough. Again, the court disagreed with the contractor and found that the client’s notice was a valid notice of dissatisfaction for the purposes of clause W2.4.

The words in the notice, ‘it is clear that he has erred in law and in his interpretation and application of the express terms of contract between the parties in a number of fundamental respects,’ were sufficient to make clear that the client did not accept, and was dissatisfied with, the adjudicator’s decision. Further, the words, ‘TfGM’s…intention to seek formal resolution to reverse the outcome of the decision,’ were sufficient to inform the contractor that the client intended to refer the disputed adjudication decision to the court.

The court concluded that a valid notice had to be clear and unambiguous so as to put the other party on notice that the decision was disputed, but did not have to explain or set out the grounds on which it was disputed.

Separate communications and other issues
ECC clause 13.7 provides, ‘A notification which this contract requires is communicated separately from other communications.’ The court quickly dismissed the contractor’s argument that the client’s notice included other matters and therefore did not comply with this clause.

The letter was only three paragraphs, each dealing with the disputed adjudication decision. The fact that the client referred to its intention to pay the disputed sums awarded by the adjudicator was not a separate notification requiring a separate communication.

There were other issues that the court had to decide. The court rejected the contractor’s further argument the notice was invalid because it did not refer to the relevant clause under which it was sent.

In addition, a few days following the notice of dissatisfaction, the client sent a separate email directly to the contractor containing much the same substance as its lawyer’s notice. The court found this was not a valid notice because it had been sent to the contractor’s commercial team directly, rather than the project extranet or to the lawyer.

Conclusion
Overall, the judge took a pragmatic approach when addressing the validity of the notices, but the case highlights the importance of ensuring notices are served as required under the contract. Notices are an important part of the contractual processes in NEC and parties need to be familiar with the procedural and substantive requirements.