Neutral citation: Arcadis UK Ltd v May & Baker Ltd (t/a Sanofi) [2013] EWHC 87 (TCC)

NEC contract topics: Compensation events, change of decision by the project manager after implementation of a compensation event

Form of contract: NEC3 Engineering and Construction Contract (June 2005 edition with June 2006 amendments)

Main areas of law: Adjudication enforcement, natural justice, interpretation of contracts, successive adjudications.

 

The dispute arose out of a contract dated 16 March 2011, under which Arcadis UK Ltd (“Arcadis”) was employed by May and Baker Ltd (trading as Sanofi) to perform remediation works at the Dagenham site, specifically an area known as D44 Landfill. The project aimed to prepare the land for future industrial redevelopment by means of soil washing, chemical treatment, and off-site disposal. The contract, valued at approximately £4.5 million, was based on the NEC3 Engineering and Construction Contract (June 2005 edition with June 2006 amendments), and included provisions for adjudication.

The scope of the remediation changed when it became apparent that contaminated material extended beyond both the Northern and Southern boundaries of the site. The Project Manager issued a series of instructions (PMIs 26, 33, 34, and 44) for the Northern Boundary works and later PMI 51 for the Southern Boundary. Initially, these works were treated as Compensation Events under Clause 61.1, and Arcadis submitted quotations accordingly. However, Sanofi’s Project Manager later purported to withdraw these PMIs, asserting that the additional works were not valid Compensation Events. This led to disputes over Arcadis’ entitlement to payment and extensions of time.

Arcadis initiated adjudication proceedings for the Northern Boundary works in August 2012 (First Adjudication), and for the Southern Boundary works in October 2012 (Second Adjudication). The First Adjudicator decided in Arcadis’ favour, awarding £412,060.78 and a 12-working-day extension. This award was honoured. The Second Adjudicator also found for Arcadis, awarding £480,231.44 plus VAT and a 29 day extension, but Sanofi did not comply, prompting Arcadis to seek enforcement through the courts.

 

The key legal issues of the dispute were:

• Whether an adjudicator in a subsequent adjudication may properly consider, or be bound by, the decision or reasoning of an earlier adjudication involving similar facts and parties.
• Whether the Second Adjudicator exceeded his jurisdiction or breached natural justice by relying on the First Adjudicator’s reasoning.
• Whether the Second Adjudicator adopted an impermissible method of assessing quantum by “splitting the difference” between Arcadis’ and the Project Manager’s valuations.
• Whether the adjudicator failed to consider the employer’s case on delay.
• Whether consideration of the prior adjudication gave rise to apparent bias.

Sanofi contended that the Second Adjudicator had taken an erroneously restrictive view of his jurisdiction and had failed to give Sanofi a fair opportunity to respond. It also challenged the reasoning used to assess the increased price and delay damages.

 

Mr Justice Akenhead rejected each of Sanofi’s arguments. The court found that it was neither improper nor unfair for the Second Adjudicator to have considered the First Adjudication decision. It was held that the Second Adjudicator had explicitly stated he would only be bound by the earlier decision if the Southern Boundary works had been implemented as a compensation event, which he found they had not. Thus, he proceeded to decide the matter on its own merits.

The judge noted that adjudicators are entitled to refer to earlier decisions between the same parties, especially when the issues and contractual interpretation are closely aligned. He stated:

“It must be a rare case in which either party to an adjudication cannot refer a previous adjudicator’s decision between the same parties and on the same contract... at the very least persuasive.”

The court also dismissed the argument that the adjudicator had “gone off on a frolic of his own” by splitting the difference between two forecast-based valuations. The judge found that both figures had an evidentiary basis and the adjudicator was within his rights to select a figure in the middle as a reasonable forecast, particularly under Clause 63.1 of NEC3 which directs compensation event assessments to be based on forecast Defined Cost.

As to the issue of delay, the adjudicator was found to have fully considered Sanofi’s contentions. He reviewed, accepted, and rebaselined programs and determined that the Southern Boundary work was on the critical path, delaying completion by 29 days. His reasoning was logical and supported by the evidence, even if not detailed on every counterargument.

Ultimately, the court ordered full enforcement of the adjudicator’s decision. There were no breaches of natural justice or jurisdictional overreach.

 

This case reinforces several important principles in the interpretation and operation of NEC3 contracts. First, it confirms that once a compensation event has been implemented under the contract, that is, accepted and assessed, the Project Manager cannot reverse the decision. This reflects the contractual finality embedded in the compensation event process.

Second, the judgment supports the view that adjudicators may consider previous decisions between the same parties, both as a matter of efficiency and consistency. While such decisions are not binding on a subsequent adjudicator unless the dispute is identical, they may be highly persuasive and even determinative if the issues substantially overlap.

Third, the approach taken to assess the increased contract price using a midpoint between two forecast-based figures demonstrates that a pragmatic, evidence-grounded decision by an adjudicator can withstand legal scrutiny, provided it is based on reasoning presented by the parties.

Lastly, the judgment clarifies that adjudicators must consider the parties’ arguments on delay, but they are not required to address every single point if a broader programme analysis resolves the issue. This provides valuable practical guidance for parties preparing adjudication submissions under NEC contracts, particularly in compensation event claims involving time and cost assessments.

The case also exemplifies the strict judicial approach to enforcing adjudicator decisions in line with principles from Carillion Construction v Devonport Royal Dockyard (2006), affirming that errors of fact or law by adjudicators will not usually prevent enforcement unless there has been a material breach of natural justice.