Dissatisfaction under NEC – more haste, less speed?

The judgment in Ravestein BV v. Trant Engineering Ltd [2023] is a timely reminder for those who regularly contract under the NEC standard form with Option W2: in the event that a dispute is referred to adjudication and the losing party in that adjudication decides to refer the dispute for a final determination, it is crucial that a valid Notice of Dissatisfaction is served first.

The consequences of failing to serve a valid Notice of Dissatisfaction will be drastic. As noted in the judgment, the losing party will not be able to formally dispute the merits of the adjudicator’s decision by issuing Court or arbitration proceedings (as the case may be) and will therefore be stuck with any unfavourable orders that have been made by the adjudicator.

Background

Trant employed Ravestein to carry out engineering works pursuant to an amended NEC3 subcontract, incorporating Option A (Priced Subcontract with Activity Schedule), Dispute Resolution Option W2, and a number of secondary options.

In February 2021, Trant referred a dispute to adjudication where it alleged that Ravestein’s works were defective and that Trant was entitled to damages as a result. The adjudication process took place (albeit the judgment notes that Ravestein did not take an active role in that adjudication) and the adjudicator ultimately decided in April 2021 that Ravestein was to pay Trant damages of £454,083.09 plus VAT. Ravestein refused to pay.

Shortly after the decision, Ravestein issued two emails on 12 April 2021, both of which were addressed to the adjudicator and copied to Trant.  In the first, Ravestein stated that it did not accept the adjudicator’s jurisdiction because it allegedly did not receive the referral notice within 7 days of the notice of adjudication, such that the “the entire process is null and void”.  In the second, Ravestein claimed that the adjudicator was not entitled “after seven days… to makeany rulings” and that, if the adjudicator refused to withdraw his decision, it would file a request to the Institution of Civil Engineers to “reverse the ruling”.  The adjudicator responded on the same day to note that this jurisdictional challenge had not previously been made but, in any event, he had directed that Trant could serve the referral notice electronically and so he considered it to have been served in time.

Referral to arbitration

Many months later in October 2021, Ravestein served a notice to inform Trant of its intention to refer the dispute concerning its liability for defects as decided by the adjudicator to arbitration. It relied on its second email of 12 April 2021 as its Notice of Dissatisfaction.

It was agreed between the parties that the arbitrator should first determine whether Ravestein had issued a valid Notice of Dissatisfaction pursuant to clause W2.  The arbitrator published their award on that issue in March 2022 finding that Ravestein had not in fact served a valid Notice of Dissatisfaction and, as a result, the adjudicator’s decision was final and binding.  This meant that the arbitrator did not have jurisdiction to go on and decide the dispute that Ravestein had originally sought to refer.

Ravestein applied for leave from the Court to appeal the arbitrator’s decision pursuant to section 69 of the Arbitration Act 1996 (which allows appeals against arbitration decisions on matters of law).

The Court’s decison

For leave to appeal to be given, the Court must be satisfied of the following conditions:

1. The determination of the question will substantially affect the rights of one or more of the parties (“Condition 1”);
2. The question is one which the arbitrator was asked to determine (“Condition 2”);
3. The decision of the arbitrator on the question is either obviously wrong (“Condition 3a”), or the question is one of general public importance and the decision of the arbitrator is at least open to serious doubt (“Condition 3b”); and
4. It is just and proper in all the circumstances for the Court to determine the question notwithstanding that the parties agreed to resolve the matter by arbitration (“Condition 4”).

Condition 2 was not in dispute.  Accordingly, the Court was required to determine Conditions 1, 3a, 3b and 4 only.

For Condition 1, the Court easily determined that the validity of the Notice of Dissatisfaction would substantially affect the rights of both Ravestein and Trant.  If permission to appeal was not granted, Ravestein would be stuck with the decision made by the adjudicator.  On the other hand, if permission to appeal was granted, Trant would lose the benefit of the adjudicator’s decision and subsequent arbitral award.

It was accepted by the parties that either Condition 3a or Condition 3b needed to be satisfied, i.e. both conditions did not need to be satisfied for leave to appeal to be given.

For Condition 3a, the Court had to consider whether the arbitrator’s decision was obviously wrong, namely that no valid Notice of Dissatisfaction had been served. That involved considering clauses W2.3(11) and W2.4(2) of the contract, which were unamended from the standard form. In essence, clause W2.3(11) states that an adjudicator’s decision is binding unless and until it is revised by the tribunal (in this case, an arbitral tribunal), whereas clause W2.4(2) states that a party dissatisfied with an adjudicator’s decision may not refer the dispute to the tribunal unless, within four weeks of the adjudicator’s decision, it notifies the other party of the matter which it disputes and its intention to refer the matter to the tribunal.

Ravestein sought to rely on the earlier judgment of Transport for Greater Manchester v Keir Construction Ltd [2021] which states that “the purpose of [any Notice of Dissatisfaction] was to inform the other party within a specified, limited period of time that the adjudication decision was not accepted as final and binding”. Ravestein therefore argued that, properly interpreted, the Notice of Dissatisfaction needed only to have informed Trant that the adjudicator’s decision was not accepted as final and binding.

The Court disagreed, finding that Ravestein had misinterpreted O’Farrell’s earlier judgment by confusing (a) the purpose of the notice and (b) satisfying the requirements of the notice clause.  In order to achieve the latter, Ravestein was required to comply with the two requirements in clause W2.4(2), which were to notify Trant (i) of the matter it disputes and (ii) of its intention to refer the matter to arbitration. The Court agreed with and adopted the arbitrator’s analysis, which was that both requirements had not been met. Perhaps most significantly, Ravestein’s emails only ever expressed dissatisfaction with the adjudicator’s jurisdiction and not the substantive correctness of the adjudicator’s decision – parties are often dissatisfied with a decision, but that doesn’t also mean that they believe it was substantively wrong.

The Court went on to consider Condition 3b and concluded that the question posed was not one of general public importance nor was the arbitrator’s decision open to serious doubt.  While it was accepted by the Court that the interpretation of standard clauses was often of general public importance, the meaning of clauses W2.3(11) and W2.4(2) had already been considered recently in the Transport for Greater Manchester case. In any event, the point to be decided here was whether an individual email was a valid Notice of Dissatisfaction and that could not be said to be a question of public importance.

For Condition 4, the Court did not accept that it was just and proper for it to determine the question posed to it.  Part of its reasoning for that was because one of the main objectives of the Housing Grants, Construction and Regeneration Act 1996 is to ‘pay now, argue later’ and Ravestein’s refusal to pay plainly went against that objective.

The Court therefore refused to grant the permission to appeal sought by Ravestein.

Conclusion

It has always been known that a party seeking to appeal an arbitrator’s award pursuant to section 69 of the Arbitration Act 1996 will have an uphill battle and this case is yet another reminder of that.

The main take-away though is that any notice should be issued in strict compliance with the requirements of the underlying construction contract.  For those that regularly use the NEC standard form with Option W2 (which should be the case if the Housing Grants, Construction and Regeneration Act 1996 applies), any losing party to an adjudication should not only be mindful of the time limit for issuing a Notice of Dissatisfaction but also the substance of that notice. A failure to meet either requirement will result in it having no further recourse to challenge the adjudicator’s decision.

The case also serves as a warning of what can happen when a party buries its head in the sand rather than actively participating in an adjudication.  By failing to participate, in addition to Ravestein being held liable to Trant in the principal amount of £454,083.09 plus VAT (as decided in the adjudication), Ravestein will now likely be facing hefty cost bills from the failed arbitration and subsequent court action. Who knows what would have happened if it had just taken part in the adjudication to start with rather than what appears to have been a meritless jurisdictional challenge…

This article originally featured in June 2023’s edition of our Aggregate newsletter: to read the complete edition, click here.