Court considers interplay between adjudication and arbitration in a dispute resolution clause

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Authored by: Joseph Chung

In Northumbrian Water Ltd v Doosan Enpure Ltd & Anor [2022] EWHC 2881, the claimant (NWL) applied to England’s Technology and Construction Court for summary judgment to enforce an adjudication decision, directing the Defendants (the JV) to pay NWL £22,458,540.04 plus interest.  The JV resisted enforcement and applied for a stay of proceedings on the ground that the dispute which was the subject of NWL’s claim was required to be referred to arbitration.

Background

NWL entered into a contract with the JV based on the NEC3 Engineering and Construction Contract Option C for the design and construction of waste water treatment works.  Disputes arose between the parties arising out of cost-overruns, delays to the works and quality issues and NWL terminated the Contract on the grounds that the JV had substantially failed to comply with its obligations under it.

Dispute Resolution Provisions (DRPs)

The DRPs in the Contract provided that a dispute arising under or in connection with the Contract was to be referred to and decided by an adjudicator and that a party dissatisfied with the adjudicator’s decision may refer the  dispute to  arbitration, with the adjudicator’s decision being binding on the parties unless and until revised by an arbitral tribunal.

Adjudication & referral to arbitration

NWL commenced adjudication and the adjudicator made an award in NWL’s favour, ordering the JV to pay it £22,458,540.04 plus interest.  However, the JV failed to pay and served a Notice of Dissatisfaction, stating its intention to refer the matter to arbitration for final determination.  

Court action

NWL then commenced court proceedings claiming the £22,458,540.04 plus interest and the JV applied to stay the proceedings to arbitration under s.9 of the Arbitration Act 1996. Section 9(1) of the Arbitration Act (which is similar to s.20(1) of Hong Kong’s Arbitration Ordinance) provides that a party to an arbitration agreement against whom legal proceedings are brought in respect of a matter which under the agreement is to be referred to arbitration may apply to court to stay the proceedings.

NWL’s position was that the adjudication decision required immediate payment by the JV to NWL of £22,458,540.04 plus interest, as under the DRPs the decision was binding on the parties unless and until revised by the tribunal and enforceable as a matter of contractual obligation. In a case such as this, where the adjudicator had clearly answered the question that was referred to him and there was no breach of natural justice, there was no available defence to an application for summary judgment.

The JV argued that the reference to “dispute” in the DRPs was expressed in very wide language: “a dispute arising under or in connection with this contract” and such “dispute” included NWL’s adjudication enforcement claim and it was entitled to a stay of the adjudication enforcement claim for arbitration.

Construction of the DRPs

The court started by construing the dispute resolution procedure in the DRPs to determine whether there was a binding and enforceable adjudication decision under the Contract, before turning to the application for a s.9 stay.

The court said that the parties agreed to the appointment of the adjudicator, the JV did not raise any jurisdictional challenge prior to, or during, the adjudication, and participated in the adjudication by producing substantive written submissions and evidence. The adjudicator published his decision within the extended time limit agreed by the parties and the decision addressed the key issues identified by the parties in their written submissions and evidence.  Therefore, on its face, it was a binding and enforceable adjudication decision.

The court said that having participated in the adjudication without raising any jurisdiction challenge, specific or general, it was now too late for the JV to raise such challenge and it was deemed to have waived any right to do so. The adjudication decision required immediate payment by the JV to NWL of £22,458,540.04 plus interest. 

The DRPs provided that the adjudicator’s decision was binding on the parties unless and until revised by the tribunal and was enforceable as a matter of contractual obligation.  The meaning of the word “decision” in this clause was a matter of contractual construction, the court said, and its plain and ordinary meaning in the context of the DRPs was the decision purportedly made by the adjudicator on the dispute referred to him.

The court pointed out that the courts take a robust approach to adjudication enforcement, enforcing decisions of adjudicators by summary judgment, regardless of errors of procedure, fact or law, unless the adjudicator had acted in excess of jurisdiction or in serious breach of the rules of natural justice.

Subject to the JV’s application for a stay of proceedings, the JV had no defence to the application for enforcement of the adjudication decision and NWL was entitled to summary judgment, the court said.

Stay of proceedings

The court found that the DRPs defined “dispute” in very broad terms as “a dispute arising under or in connection with this contract“.  As a matter of principle, the court said, that covered the underlying substantive issues in dispute and was also sufficiently wide to cover a dispute as to whether the adjudication decision was outside the adjudicator’s jurisdiction or in breach of the rules of natural justice, regardless whether this was considered to be part of, or separate from, the substantive underlying dispute.  However, it did not follow, the court said, that the court must grant a stay for arbitration in this case because:

• The Notice of Dissatisfaction did not include any challenge to jurisdiction or on grounds of breach of the rules of natural justice. Therefore, the adjudication decision was final and binding in respect of those matters. The JV had lost its right to challenge the validity of the adjudication decision in court or in arbitration, although it retained its right to refer the underlying disputed issues to arbitration in accordance with its notification. On that basis, the effectiveness of the adjudication decision was not a matter which under the Contract was to be referred to arbitration and s.9(1) of the Arbitration Act 1996 was not engaged.

• Regardless of the scope of any reference to arbitration, the parties had expressly agreed that the adjudication decision would be binding on an interim basis.  The parties agreed a tiered dispute resolution procedure.  The DRPs expressly provided that the adjudicator’s decision was binding on the parties “unless and until revised by the tribunal“, that is, in arbitration, and that it was enforceable as a matter of contractual obligation.

• If there was no challenge to the validity of the adjudication decision in arbitration, any requirement for a party to enforce it by obtaining declaratory relief through an arbitration award (before enforcing such award under the Arbitration Act 1996) deprived it of any efficacy in the meantime. If there was a challenge to the validity of the adjudication decision, any requirement for a party to await the outcome of such challenge through the arbitral process likewise deprived it of any efficacy in the interim.  The court will, it said, strive to construe the Contract so as to give effect to all the express terms of the same.  No effect could be given to this provision unless the DRPs were read as expressing the parties’ agreement that the court had power to enforce the adjudication decision pending any revision in arbitration.

The court concluded that, having construed the words used by the parties in this way so as to give effect to their intention, the claim to enforce an adjudication decision that was agreed to be binding and enforceable as a contractual obligation, was not a matter which under the agreement was to be referred to arbitration for the purpose of s.9(1) of the Arbitration Act 1996.

Comments

The decision of the court in this case is unsurprising. If an adjudication decision cannot be readily enforced in court, it would frustrate the objective of quick resolution of disputes between the parties by adjudication subject only to review by arbitration. 

Key Contacts

Joseph Chung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9647