Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2015] EWHC 2915 (TCC)

Judgment date: 23 October 2015

An adjudication order in relation to an amended NEC3 form of contract was upheld as the court found that (a) the Adjudicator was nominated by the correct nominating body and (b) the correct procedure under the contract had been followed, despite ambiguous drafting.

Technology and Construction Court, Mr Justice Edwards-Stuart

Background

This case concerned an application made by Imperial Chemical Industries Ltd (the “Claimant”) to enforce the decision of an Adjudicator made in June 2015 (which happened to be the second adjudication between the parties).

In December 2012, the Claimant entered into a contract with the Merit Merrell Technology Limited (the “Defendant”) for the installation of steelwork and tank works at its paint processing plant in Northumberland (“Contract”).

Page 3 of the invitation to tenderers included the following, under the heading “Secondary Option Clauses” [paras 12 and 13]: “This Engineering and Construction Contract conditions of contract are the core clauses, dispute resolution Option W2 and the clauses for Secondary Options X2, X4, X7, X13, X16, Y(UK)2, Y (UK)3, X18 and Z of the NEC3 Engineering and Construction contract June 2005 (with amendments June 2006 and September 2011) as amended by the Additional Conditions of Contract (Option Z)." Two months later, in February 2013, the parties entered into a memorandum of agreement which contained a schedule of amendments to the NEC3 form; one of the clauses amended by that schedule was Option W2.

Disputes arose in relation to the value of additional work carried out by the Defendant and the quality of the welding; this led to a referral to adjudication by the Defendant in January 2015. The Defendant claimed approximately £7,500,000 following service of an interim payment notice on the previous November. The Adjudicator decided that the Claimant had not served a valid payment notice with the result that the Defendant was entitled to the sum claimed.

During the course of the referral, the Contract was terminated. That referral gave rise to a third adjudication. The same Adjudicator was appointed by the same nominating body; on the termination issue, the Adjudicator found in favour of the Defendant (but that decision did not come before the court in this case). It is relevant because it gave rise to an argument by the Defendant, in the second adjudication, that it was not obliged to perform any further obligations under the Contract “at least so far as the provision of documents was concerned, because it was discharged from doing so by the termination” [para 11].

Regarding the second adjudication between the parties, the Adjudicator decided that the Claimant was entitled to the relevant Contract documents (which had been listed in Schedule 1 to the notice of adjudication), but he did not go on to make an order for delivery of those documents to the Claimant by the Defendant (although he did require the Defendant to pay his fees).

The Defendant neither produced the documents requested by the Claimant nor paid the Adjudicator’s fees. The Claimant issued a claim for enforcement and sought delivery of the documents in question.

The Defendant contended that, in the second adjudication:

1. the Adjudicator was nominated by the wrong nominating body;
2. the Claimant made contradictory submissions about which procedural rules applied to the adjudication; and
3. the Adjudicator himself did not adopt the procedure stipulated by the Contract.

The Defendant submitted that, each of these factors was sufficient to make the Adjudicator’s decision in the second adjudication invalid.

In addition, in relation to Claimant’s request for documents, the Defendant argued that the court could not, by way of enforcement, make an order which the Adjudicator himself had expressly decided not to make.

Issues

In the NEC3 form of engineering and construction contract, the standard dispute resolution clauses are contained in Options W1 and W2.

The invitation to tenderers contained within the Contract specified the use of Option W2. The Contract Data identified the Adjudicator Nominating Body (“ANB”) as the Chartered Institute of Arbitrators (“CIArb”). Despite the clarity of these clauses, amendments later in the Contract created ambiguity. Appendix 2 identified (in square brackets):

1. the Royal Institution of Chartered Surveyors (“RICS”) as the ANB, not the CIArb; and
2. the Technology and Construction Solicitors’ Association (“TeCSA”) adjudication rules as the applicable rules, rather than Option W2.

Schedule 1 to the Contract amended Option W2 with the wording “Delete and replace with … all Disputes shall be resolved in accordance with Appendix 2” and Option W2 was later amended with the addition of a further sentence stating that the Contract was a “construction contract” within the meaning of the amended Housing Grants, Construction and Regeneration Act.

The court had to decide whether, under the Contract, the Adjudicator:

1. had the jurisdiction to act given its nomination by CIArb (as opposed to the RICS); and
2. was correct to follow the dispute resolution procedure set out in Option W2 of the Contract (rather than the TeCSA rules).

Decision

The court granted summary judgment in favour of the Claimant; the Adjudicator had jurisdiction as he had been correctly nominated by CIArb and was right to have followed Option W2.

The court held:

1. The later amendment made to Option W2 confirmed that that Option was still in place. If it had been deleted in its entirety by the amendment made, it would not exist and could not be amended. However, as it was in place, the clause applied and the Adjudicator was correct to follow it and use CIArb as the ANB [paras 29 and 30].
2. In the alternative, the square brackets around the specification of RICS and TeCSA in Appendix 2 were interpreted to mean that these provisions applied only in the event that alternatives were not provided elsewhere in the Contract. As the specification of Option W2 and CIArb were not in square brackets, these therefore took precedence and the Adjudicator was correct to follow them [para 31 – 36].
3. Even if Appendix 2 had applied, the Defendant had waived its right to rely on the TeCSA rules and the Adjudicator had rejected the Scheme, which was the only other option. Therefore, the Adjudicator did not breach the rules of natural justice [paras 50 -54].
4. The court also noted that it did not have the right to order the Defendant to deliver up the documents as the original order had specifically stated the contrary and the Claimant had not applied for either delivery or an interim injunction to preserve the documents [para 67-69].

For the full judgment click here.