Beware the consequences of an invalid notice...

Adjudication has become the most popular forum for the resolution of construction disputes. Part of the charm of adjudication is the speed with which adjudication decisions can be given. This has led to accusations of "rough justice", but most parties are content to accept this, on the basis that disputes can be resolved quickly and that adjudication awards, while enforceable, are interim in nature and are subject to final resolution by an appropriate tribunal (arbitration or litigation).

Some construction contracts, including the standard form NEC contracts, contain provisions to the effect that an adjudicator’s decision will become final and binding on the parties unless one party notifies the other within a certain time frame that it is dissatisfied with the decision. But what are the requirements for that notice to be valid in order to stop the adjudicator’s decision from becoming final and binding? The Technology and Construction Court (TCC) recently considered this in the case of Ravestein BV v Trant Engineering Ltd [2023] EWHC 11 (TCC) (9 January 2023) in the context of an application to appeal the decision of an arbitrator who had found that such a notice was invalid, and therefore the adjudicator’s decision was final and binding.

Background

• In September 2010, the parties entered into an amended version of the NEC3 engineering and Construction Subcontract 2005. This included Dispute Resolution Option W2 with arbitration as the tribunal.
• In February 2021, Trant referred a dispute to adjudication regarding alleged defective works by Ravestein. The adjudicator issued his decision on 11 April 2021 (with a correction on 16 April) and ordered Ravestein to pay damages of c. £450,000 plus VAT and costs.
• On 12 April 2021 Ravestein sent two emails to the adjudicator stating that the adjudicator did not have jurisdiction as Ravestein had not received the referral notice within seven days and asked him to withdraw his ruling as inconsistent with the rules of the Housing Grants Construction and Regeneration Act 1996. The emails were sent to the adjudicator but copied to Trant.
• Trant subsequently obtained judgement in default to enforce the adjudication award, but Ravestein did not pay.
• In October 2021 Ravestein referred the same dispute to arbitration (as the tribunal selected in the contract). The parties agreed that the arbitrator should first determine whether Ravestein had complied with the NEC contract, of which Option W stated that an adjudicator’s decision is final and binding unless a party to gives a notice of dissatisfaction to the other within four weeks of the adjudicator’s decision.
• In March 2022 the arbitrator found that the purported notice on 12 April 2021 (being the second email sent by Ravestein to the adjudicator on 12 April 2021) was not valid and therefore the adjudicator’s decision was final and binding on the parties.
• Ravestein sought to appeal the arbitrator’s decision in the TCC.

The arguments

Option W2 of the contract contained the following provisions:

W2.3(11) …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.

W2.4(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.

Both parties relied upon an earlier judgement of O’Farrel J in Transport for Greater Manchester v Kier Construction Limited (t/a Kier Construction – Northern) [2021] EWHC 804 (TCC) but had different interpretations of that case.

In summary, Ravestein argued that:

• No particular form of words, nor any particular level of detail, was required in the notice
• All that was required was to inform Trant that the adjudicator’s decision was not accepted
• It was not necessary to specify the matter in dispute and
• There was no requirement to refer to arbitration within the notice.

Trant argued that:

• In accordance with the NEC clauses, the notice requires the identification of the matter which the party disputes and that the party intends to refer the matter to the tribunal (in this case arbitration)
• It is not sufficient to simply notify the other party that you do not accept the adjudicator’s decision
• The wording in Ravestein’s email was not sufficient to identify the matter about which it was dissatisfied, nor that there was a stated intention to refer the matter to the tribunal.

The court’s approach

The court agreed with the arbitrator’s analysis and findings as set out in his award, that the purported notice of dissatisfaction by Ravestein was invalid for the purposes of Option W2. In particular, the following points were noted:

• Ravestein’s email of 12 April 2021 appeared to be a jurisdictional challenge (on the basis that the referral notice had not been served within the correct timeframe), not a challenge to the correctness of the decision itself
• The fact that the alleged notice was an email sent to the adjudicator rather than to Trant (albeit they were copied in) would militate against the email being a notice of dissatisfaction
• A challenge to the adjudicator’s jurisdiction was different to a challenge on the merits of his decision on the underlying dispute
• The court accepted Trant’s interpretation of the earlier O’Farrel J case, that the NEC clauses imposed two requirements for the notice, being 1) the identification of the matter which the party disputes, and 2) that the party intends to refer the matter to the tribunal.

In refusing permission to appeal, the court also noted that it was relevant in this case that Ravestein had chosen not to pay, despite judgement in default having been entered in enforcement proceedings, which was against the "pay now, argue later" objective of the Construction Act.

Ultimately, this means that Ravestein are "stuck" with the adjudicator’s decision which requires it to pay Trant c. £450,000, with no right to challenge this award.

Key takeaways

The court in this case noted that there is a difference between the purpose of a notice and satisfaction of the requirements of a contractual clause in order for valid notice to be given. The provision of a notice (or purported notice) within a required timeframe is not enough on its own. A party must also take care that the notice satisfies any and all contractual requirements.

In this case the failure of the purported notice to meet the contractual requirements meant that the "losing" party lost the right to challenge the adjudicator’s decision and the award became final and binding on the parties. Any party to an NEC (or other) contract which contains these, or similar, provisions should therefore take care that any notice of dissatisfaction complies with all contractual requirements, in order to avoid ending up in a similar situation. The consequences of an invalid notice could be costly.