NEC dispute resolution procedure

Dissatisfactory notice of dissatisfaction — comment on Ravestein BV v Trant

The topic of this insight is the requirements of a valid ‘Notice of Dissatisfaction’ under the NEC contract, as highlighted in the case of Ravestein BV v Trant Engineering Ltd [2023] EWHC 11 (TCC) (9 January 2023).

First, a recap on the adjudication process. Adjudication has transformed the resolution of disputes in construction since its introduction in the Construction Act 1996 (Housing Grants Communities and Regeneration Act 1996) (as amended). It offers a swift option for dispute resolution. An adjudication decision is classed as interim and binding unless finally determined. Specifically, the decision is binding subject only to procedural irregularities — lack of jurisdiction to decide the decisions reached or breaches of natural justice — or a reference to the final dispute resolution forum — usually arbitration or litigation in the courts.

The default position is that an adjudication decision should be reached within 28 days of referral, however, this may be extended. To ensure adjudication decisions have teeth, the judiciary policy towards adjudication decisions is pay now, argue later. Therefore, adjudication is often seen as an efficient but ‘rough and ready’ alternative to arbitration or litigation.

What happens if either party is dissatisfied with an adjudication decision and e.g. refuses to pay the sum awarded or wishes to seek to overturn the decision?

1. A winning party who has not been paid by the losing party can seek enforcement of the adjudication decision through a swift court enforcement procedure
2. Subject to the contract terms (see points 3 and 4), a party may ‘appeal’ an adjudication decision by commencing arbitration or litigation within the relevant limitation period
3. Under the JCT suite of contracts, assessments of payments become final and conclusive unless proceedings are commenced within a short period of issuance of a notice of final determination of sums due
4. Under the NEC suite of contracts a Notice of Dissatisfaction may need to be issued promptly, but it needs to be valid, as the parties in Ravestein BV v Trant Engineering Ltd discovered – see below.
   

Background

In 2010, Ravestein B.V., a shipyard and construction company (the claimant), and Trant Engineering Limited (the defendant), entered into a subcontract based on an amended NEC3 form of subcontract incorporating Dispute Resolution Option W2.

Clause W2.3(11) provides as follows:

"(11) the Adjudicator's decision is binding on the Parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the Parties and not as an arbitral award. The Adjudicator's decision is final and binding if neither Party has notified the other within the times required by this subcontract that he is dissatisfied with a matter decided by the Adjudicator and intends to refer the matter to the tribunal."

Clause W2.4(2) provides as follows:

"(2) If, after the Adjudicator notifies his decision a Party is dissatisfied, that Party may notify the other Party of the matter which he disputes and state that he intends to refer it to the tribunal. The dispute may not be referred to the tribunal unless this notification is given within four weeks of the notification of the Adjudicator's decision."

An adjudication took place in 2021.

The adjudicator found against Ravestein, making it liable for defective works and ordering it to pay damages of £454,083.09 plus VAT and costs.

Ravestein did not engage in the adjudication but, once the decision was reached, asserted it did not accept the adjudicator’s jurisdiction or decision as the referral notice wasn’t received within seven days and it considered the adjudication process “null and void.”

Ravestein sought to refer the dispute to arbitration via two emails being sent to the adjudicator, with Trant in copy, alleging that the adjudicator did not have jurisdiction as Trant’s adjudication referral notice had not been received within seven days.

Ravestein did not pay the sums awarded in the adjudication and Trant sought, and obtained, a default judgment against Ravestein.

In response Ravestein issued a notice of intention to commence arbitration proceedings in October 2021. The parties agreed that first the arbitrator should determine whether Ravestein had issued a valid Notice of Dissatisfaction as required by clause W2 of the subcontract.

It was accepted that, if no valid Notice of Dissatisfaction had been given, the previous adjudication decision was final and binding and could not be reviewed by arbitration.

The arbitrator’s decision, reached in April 2022, was that the Notice of Dissatisfaction issued by Ravestein was not a valid Notice of Dissatisfaction so the adjudicator's decision was final and binding.

Ravestein sought permission to appeal the arbitrator's decision which was the subject of court proceedings in the Technology and Construction Court.

Ravestein's position

Ravestein advanced the argument that the decision reached by the arbitrator’s was incorrect. It relied on the judgment in Transport for Greater Manchester v Kier Construction Ltd [2021] which set out requirements for a valid notice of dissatisfaction under Option W2 of the NEC form of contract.

Ravestein argued that no specific form of words or level of detail is prescribed in W2 and all that was required was to inform that the adjudicator’s decision is not accepted as final and binding. The notice did not need to specify the matter in dispute and did not need to expressly confirm the intention to refer the dispute to arbitration. Ravestein argued the arbitrator had both:

1. Incorrectly held that the Notice of Dissatisfaction had to both notify the matter in dispute and state the intention to refer it for further dispute resolution; and
2. Incorrectly found that Ravestein's notice challenged only the jurisdiction of the adjudicator, rather than contesting the merits of the underlying decision.

Alternatively, Ravestein submitted that the issue was one of public importance given the widespread use of the NEC3 standard form contract within industry.

Trant’s position

Trant sought to uphold the decision of the arbitrator arguing that Ravestein’s interpretation of the Transport for Greater Manchester decision was incorrect and placed emphasis on the threshold established in that case which was:

1. That a notice of dissatisfaction was required to identify both the matter disputed and the intention to refer the matter to the next stage of the dispute resolution process; and
2. It was not sufficient to simply notify the other party that you do not accept that the adjudication decision is final and binding.

Trant argued that Ravestein’s purported notice of dissatisfaction did nothing other than contend the jurisdiction of the arbitrator, it failed to identify any dispute.

The court’s decision

The TCC upheld the arbitrator's decision, rejecting Ravestein’s application to appeal.

Her Honour Judge Kelly agreed with Trant, in that the correct interpretation of Transport for Greater Manchester was that the notice was required to identify both (i) the matter disputed and (ii) the intention to refer the matter to arbitration.

HHJ Kelly noted that in Transport for Greater Manchester the decision had made it clear that two separate requirements were contained within clause W2.4(2).

Namely:

1. That this provided, together with clause W2.3(11), that the adjudicator's decision would be final and binding unless one of the parties notified the other within four weeks of notification of the decision that (i) it was dissatisfied with a matter decided by the Adjudicator and (ii) it intended to refer the matter to the Court; and
2. Whilst the NEC form does not stipulate the form of words that had to be used, or the level of detail that was required, a valid notice should be clear and free from ambiguity.

The TCC held that Ravestein did not issue a valid notice of dissatisfaction and it agreed with the arbitrator’s analysis that Ravestein’s complaint was in relation to jurisdiction only.

The judge also noted that “For the court to allow permission to appeal would not be just in all the circumstances in any event, as the defects which were the subject to the adjudication decision were originally notified as long ago as 2011 and the adjudication decision was in April 2021 but the claimant has paid nothing, despite default judgment being entered in enforcement proceedings.”

Further recent decisions

Ravestein v Trant is just one of a number of recent decisions surrounding the requirement for valid Notices of Dissatisfaction.

In Prater Limited v John Sisk & Son (Holdings) Limited [2021], it was held by the TCC that Clause W2.4(2) is concerned with circumstances in which a party is dissatisfied with the decision regardless of the grounds for that dissatisfaction. A notice of dissatisfaction will therefore be required both for challenges on jurisdictional or natural justice grounds, as well as challenges to the merits of the decision. The TCC's further clarified in Prater that, for a party wishing to challenge the enforceability of an adjudicator's decision, it is not enough to simply challenge that decision in a Notice of Dissatisfaction, it must also "bring and make good that challenge before the Court".

In the case of Metropolitan Borough Council of Sefton v Allenbuild Limited [2022], the TCC held that whilst a notice of dissatisfaction "need not descend into the details of any substantive challenge to an adjudicator's decision", it did need to state whether a challenge is being made to the validity of an adjudicator's decision on jurisdictional grounds, instead of, or in addition to, a challenge to its substantive merits.

Conclusion

Ravestein highlights the critical importance of understanding and complying with the contractual terms relating to notices including the requirements for a valid Notice of Dissatisfaction. In Ravestein, a failure to adhere to contractual requirements of a NEC contract meant Ravestein lost the right to challenge the adjudicator’s decision which meant that the award become final and binding on the parties. Following the correct contractual processes is vital as the consequences of an invalid Notice of Dissatisfaction can be very costly indeed.