How adjudication by consent under W1 aligns with statutory adjudication

Key points

• Option W1 provides for consensual adjudication on NEC projects while option W2 is for mandatory adjudication on projects subject to the UK Construction Act.
• A recent case confirmed the adjudicator’s powers are the same in options W1 and W2, and the list of powers is non-exhaustive.
• The confidence given by the judgment is likely to encourage greater use of option W1.

An April 2021 decision by the UK Technology and Construction Court in Croda Europe Limited v. Optimus Services Limited considered the interpretation of secondary option W1 of the NEC3 Professional Services Contract (PSC). Option W1 provides a consensual adjudication process for dispute resolution where for UK projects not covered by the UK Housing Grants, Construction and Regeneration Act 1996 (the Construction Act).

Background

Croda owns a site in Hull, UK where it manufactures speciality chemical products. Optimus is an engineering and design company and was appointed by Croda in relation to expansion works, using an amended NEC3 PSC. Due to the nature of the works, the statutory adjudication regime under the Construction Act did not apply to this dispute but the parties agreed a consensual adjudication process under option W1. Option W2 is only applicable where statutory adjudication applies under the Construction Act.

A dispute arose over the sum due to the contractor and two adjudications followed. The first adjudication went in favour of the client, finding that the contractor had been overpaid by around £0.3 million. In the second adjudication, which related to correction of the contractor’s invoices and repayment of the sum assessed as due to the client in the first adjudication, plus VAT and interest, the client was again successful.

The client then sought to enforce the second adjudication decision in court. The contractor contended that clause W1.3(5) gave the adjudicator power to, ‘review and revise any action or inaction of the Project Manager or Supervisor related to the dispute,’ but did not give them the power to revise an invoice. It also argued the contract did not provide for negative interim payments and therefore the adjudicator in the second adjudication did not have jurisdiction to make the award of repaying the overpaid sum to the client.

Court decision

Clause W1.3(5) – which is the same as clause W2.3(4) in option W2 − also provides that an adjudicator may alter a quotation which has been treated as accepted, take the initiative in ascertaining the facts and the law, and instruct a party to provide further information within a stated time or take other action necessary to help reach a decision.

The contractor argued the adjudicator did not have jurisdiction beyond the powers expressly set out in W1.3(5) and therefore did not have the power to revise its invoice. The client’s position was that the proper construction of the contract required a consistent approach to be taken to the similar wording in option W2. Judge Roger Ter Haar agreed.

The court said that looking at W2.3(4), the powers listed could not be an exhaustive list as, to comply with the Construction Act, the parties must be able to refer any dispute under the contract to adjudication. If the contractor’s position was correct, there would be a clear divergence between the effect of W1 and W2, in that W2.3(4) would list powers available to the adjudicator without restricting the adjudicator’s powers, whereas W1.3(5) would be, ‘a closed list of powers’. The judge said this was, ‘an improbable and uncommercial interpretation’ of the contract.

Additionally, the approach adopted by the contractor would mean that where a dispute falls within W1.3(5), a party must adjudicate before arbitration, but for any other dispute under the contract, adjudication would not be available and a party has to go straight to arbitration. The judge did not consider this a, ‘sensible construction’ of W1 and, ‘it simply is not what it says’.

The contractor also argued that in directing a negative interim payment from itself to the client, the adjudicator acted outside of their jurisdiction. The court also rejected this submission. Even if it was true (though the contract did not provide for negative interim payments), this was a matter of contract construction that was open to the adjudicator, that is a matter of law, and was not therefore a proper ground to resist enforcement.

Conclusion

Whereas the court’s decision is this case was not unexpected, there are still relatively few judgments on NEC contracts. The clear judgment on the correct construction of the wording that requires a consistent approach to similar or identical wording in W1 and W2 is likely to encourage more use of option W1 going forward.