A recent court decision provides a key reminder that parties should think carefully about the wording of particular clauses, particularly where standard form contracts are being used.

A contract should reflect the agreement between the parties, and the particular context of the goods or service being provided, from the beginning, and so a clear understanding of what the clauses say and their implications, is always important.

Greater Glasgow Health Board v Multiplex Construction Europe Limited & others

This case involves a construction dispute, and whilst there are some nuances of construction agreements that do not necessarily apply in all services contracts, the principle that parties should think carefully about the context and appropriateness of certain clauses remains the same. In this instance, parties had included standard clauses from the NEC3 form of contract, including a requirement that disputes were referred to adjudication before court proceedings.

The Health Board sued Multiplex (and others) for £72.8m for losses sustained due to defects in the construction of Queen Elizabeth University Hospital in Glasgow. A legal question arose, because a clause of the contract suggested that dispute should first be referred to adjudication, before court proceedings could be raised. The clause in question read:

“W2.1 (1) A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator. A Party may refer a dispute to the Adjudicator at any time.

…

W2.3 (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 contract that he is dissatisfied with a matter decided by the Adjudicator and intends to refer the matter to the tribunal.

W2.4 (1) A Party does not refer any dispute under or in connection with this contract to the tribunal unless it has first been decided by the Adjudicator in accordance with this contract.

(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.

(3) The tribunal settles the dispute referred to it…”

The dispute, of course, had not been referred first to adjudication, and there was no waiver of the requirement to adjudicate agreed between the parties. The defender(s) argued that the action was therefore incompetent, and should be struck out. The Health Board, on the other hand, argued that the action should be allowed to proceed, because this dispute was not one intended for adjudication, which had inherent limitations. In particular, this dispute was far too complex for adjudication, and might involve up to 22 separate adjudications against a number of different parties, with the risk of mutually inconsistent decisions.

In the end, the court decided in favour of the defenders: that the clause did require the parties to first refer the issue to adjudication before raising court proceedings. The court indicated that the fact that the issues were complex did not mean that they were inherently unsuitable for adjudication. Furthermore since it was foreseeable at the time of contracting that there might be disputes, and they might be complex, if the parties intended that certain disputes fall outside the scope of the adjudication clause, they could have made special provision for that.

The court chose not to rule the action incompetent, and rather sisted (stayed or paused) the court action, until parties had gone through the process of referring it to adjudication. This would have been a relief to the suing party, since the action was raised very shortly before the time bar (or prescriptive period) expired, so raising brand new proceedings would be time barred.

Comment

This case demonstrates the importance of ensuring that all clauses in a contract are appropriate to the context. A clause can work well in other contracts but not apply so well in others. Checking a contract carefully involves more than just ensuring that all the clauses are valid and correct: they also need to fit the likely circumstances involved.

For some helfpul guidance on contract language, download our Guide to Common Contracts Errors, or if you have any particular questions or queries about a contract contact us and we would be happy to set up a call with you to discuss further.