Disputes under NEC contracts – why timing is crucial to asserting your rights

26.06.19

Although the case of Sitol v Finegold was heard in the Technology and Construction Court in mid-December last year, the decision has only recently been published. This case gives some useful and rare insight into the Court’s interpretation of the details of a standard form NEC short-form contract – and why responding to a dispute in a timely manner can be crucial.

The facts of the case

Sitol was a specialist tiling contractor carrying out works on a large private property in Hampstead, owned by Mr and Mrs Finegold. An Adjudication was raised by Sitol against the Finegolds for the payment of outstanding sums for work done. Sitol was successful and sought to enforce the decision of the Adjudicator.

The Finegolds made two main points in defence; firstly that Sitol’s contract was not with them, but instead with a company called Proman UK Limited which was in voluntary liquidation. Secondly, if they were wrong about that and were in contract with Sitol, that the dispute was referred to the Adjudicator too late, pointing to specific notification provisions in the contract.

Following an analysis of the correspondence between the parties, the court concluded that Proman’s role was Project Manager and that a direct contract, in NEC standard form, did exist between Sitol and the Finegolds.

So, the first part of the Finegolds’ defence failed, but what about the second part?

Mr and Mrs Finegold sought to rely on the terms of standard clause 93.3. in the NEC3 Short Form contract which states:-

“A Party may refer a dispute to the Adjudicator if the Party notified the other party of the dispute within four weeks of becoming aware of it”

The Notice of Adjudication was dated 25 April and the Referral dated 30 April. The Finegolds said that Sitol became aware of the dispute on 19 February when their lawyer wrote to the company, stating that there was no contract between the parties and that the sums claimed would not be paid.

Sitol in return pointed to the fact that the letters from the Finegolds’ lawyer had been caveated by a request that Sitol provide evidence of its claim for consideration. Sitol’s position was that the letter it received on 4 April rejecting its claim, after the requested evidence was provided, was the date at which it became aware that there was a dispute. Therefore the reference to the Adjudicator was in time.

The Court’s decision

The Court examined the correspondence between the parties and found that Sitol actually became aware of the dispute on 16 March when a letter was sent by the Finegolds’ lawyer to Sitol. The Court found that the only difference between the letter of 16 March and the letter of 4 April was that Sitol had produced the contract. The Court concluded that, the fact that another party may ask to see what evidence the other has of its claim does not mean that a dispute has not arisen; it simply means that that dispute may be capable of being resolved without resorting to formal dispute resolution measures.

Accordingly, the Court found, albeit reluctantly, that the referral to Adjudication came too late.

What does this mean for businesses that use NEC contracts?

This Adjudication was between a contractor and a residential occupier, therefore the terms of the Housing Grants Construction and Regeneration Act 1996 do not apply. The Act allows for Adjudication “at any time,” so if this were a statutory Adjudication, it is likely that a different conclusion would have been reached. However, this decision is useful guidance from the courts regarding NEC contacts and in particular the application of the strict wording of the contract. Businesses that use and operate NEC standard forms of contract know there are a number of time constraints placed on parties throughout the contract, particularly in relation to compensation events; these clauses often state that if the timing is not followed, the right is lost. This decision represents the first real confirmation from the English courts that those timescales will be applied strictly.