NEC3 – Court action dismissed for failure to adjudicate first

The NEC3 Contract contains as an option a cascade mechanism which means that a dispute must first be heard and decided by an adjudicator before proceeding to a tribunal. Skipping over that stage completely can incur needless legal costs - and mean running out of time to seek an adjudicator's decision.

Clause W2.4 of the standard form NEC3 Engineering and Construction Contract (June 2005) (with amendments June 2006) provides that "A Party does not refer any dispute under or in connection with this contract to the tribunal unless it has first been decided by the Adjudicator in accordance with this contract."

In The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Limited [2021] CSOH 8, the Court of Session was asked to consider whether Clause W2.4 provided a mandatory cascade procedure that resulted in the Fraserburgh Harbour Commissioners ("FHC") being contractually barred from raising court proceedings in circumstances where it had not first adjudicated the dispute. Following a hearing for legal arguments before Lady Wolfe, the court found in favour of McLaughlin & Harvey Limited ("McL&H") and dismissed the action.

The contract between the parties had provided that the tribunal was to be arbitration and did not explicitly preclude the parties raising an action before the courts. Nonetheless, the court found that adjudication was a mandatory first step that must be taken before FHC was entitled to raise any further proceedings, be they before the court or arbitration. In finding that FHC was contractually barred from bringing or continuing with the action, the court rejected FHC's argument that the action should be sisted (formally paused) to allow adjudication and, if necessary arbitration, to take place.

It is notable that the court was alive to the possibility that, in the event the action was dismissed, FHC could face the prospect of its claim being prescribed (time barred). Whilst the court explicitly reserved judgement on the effect of the action being dismissed, it rejected the FHC's submissions that this was good reason for the court to continue to entertain the action.

For contractors, employers and practitioners alike, the decision in the Fraserburgh case is one with potentially serious ramifications where a party that fails to comply with the strict provisions of clause W2.4. At best, a party who fails to first adjudicate a dispute may find themselves left with needless costs from aborted court or arbitration proceedings. At worst, especially if they leave things to the last minute, they risk running out of time to obtain an adjudication decision (whether it be in their favour or not) before their claim becomes time barred.