REUTERS | Larry Downing

TCC grants stay to enable FIDIC dispute board to proceed

I’ve talked about dispute boards on a number of occasions over the past few years, but only once did it involve a case in the TCC.

Fans of dispute boards will be pleased to hear that the TCC has recently handed down another judgment on this topic and, on this occasion, it involved a dispute board appointed under the FIDIC Silver Book.

Peterborough City Council v Enterprise Managed Services Ltd is interesting for a number of reasons, not least because it shows the increasing use of FIDIC contracts in domestic UK projects.

Peterborough CC v Enterprise 

Enterprise agreed to design, supply, install, test and commission a 1.5 MW solar energy plant on a building roof for Peterborough CC. The parties entered into a contract based on the FIDIC Silver Book. However, things did not go well and Peterborough alleged that the plant did not achieve the required output and a dispute arose. (We can only speculate whether this had anything to do with the British weather, after all there have been rather a lot of raindrops falling on our heads recently!)

Brief details of what happened next include:

  • On 11 August, Peterborough commenced court proceedings (it had served a pre-action protocol letter of claim in January, followed by an unsuccessful mediation in May).
  • On 26 August, Enterprise applied to the RICS under clause 20 of the contract for the nomination of an adjudicator for an 84-day FIDIC adjudication. (As the works comprised power generation (section 105(c)(i) of the Construction Act 1996), I have assumed they fell outside the Act’s scope.)
  • On 27 August, Enterprise applied for a stay of the court proceedings, arguing that Peterborough first needed to refer the dispute to a dispute board.

Enterprise’s stay application

Enterprise argued that clause 20.2 contains a mandatory requirement that disputes “shall be adjudicated” in accordance with clause 20.4.

Peterborough argued that it was entitled to commence court proceedings because no dispute board had been appointed, and it relied on clause 20.8 which states:

“20.8 Expiry of Dispute Adjudication Board’s Appointment

20.8.1 If a dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB in place, whether by reason of the expiry of the DAB’s appointment or otherwise:

(a) Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.5 [Amicable Settlement] shall not apply, and

(b) the dispute may be referred directly to the courts of England and Wales under Sub-Clause 20.6 [Final Settlement].”

Peterborough argued that the words “or otherwise” in sub-clause 20.8.1 were, in effect:

“an opt-out that enabled a party who did not wish to have the dispute resolved by adjudication to refer the dispute directly to the court.”

Dispute board was mandatory

Edwards-Stuart J did not buy Peterborough’s arguments. He agreed with Enterprise that:

  • In the first instance, the referral of disputes to a dispute board under clause 20.2 was mandatory.
  • Clause 20.8 did not provide the parties with the ability to opt out of referring disputes to a dispute board if they did not fancy it.

When one considers the FIDIC suite of contracts as a whole, it is clear that FIDIC’s intention was that all disputes would be referred to a dispute board in the first instance, and Edwards-Stuart J’s conclusion is clearly correct. However, I confess that I do have some sympathy with this part of Peterborough’s argument because, while the heading of clause 20.8 states that it applies to the expiry of a dispute board’s appointment, the words “or otherwise” suggest that the dispute board procedure can be avoided where no ad-hoc dispute board has ever been appointed. Edwards-Stuart J explained that clause 20.8 was probably only applicable where a standing dispute board, rather than an ad-hoc dispute board, had been appointed:

“It seems to me that sub-clause 20.8, which is in the same form in all three of the FIDIC Books, probably applies only in cases where the contract provides for a standing DAB, rather than the procedure of appointing an ad hoc DAB after a dispute has arisen.”

In the context of standing dispute boards, clause 20.8 makes much more sense. Perhaps this is something FIDIC might want to address the next time clause 20 is reviewed?

Stay granted

The granting of a stay was obviously at the court’s discretion. Peterborough argued that this was a complex dispute unsuitable for the “rough and ready” process of adjudication but, as Edwards-Stuart J rightly pointed out, the parties had agreed to this procedure in their contract.

Peterborough also argued that the adjudication was likely to be an unproductive exercise for both parties as the dispute board’s decision would “almost inevitably” provoke one of the parties to serve a notice of dissatisfaction.

Edwards-Stuart J had some sympathy with Peterborough’s position, noting that the parties had not yet invested the time or money in the adjudication and it was possibly better to have one dispute resolution procedure, even if that would be more extensive and expensive. However, the authorities clearly showed that there was “a presumption in favour of leaving the parties to resolve their dispute in the manner provided for by their contract”. Therefore, he ordered a stay of the court proceedings.

I’m not sure I have quite so much sympathy with Peterborough’s position because:

  • While it may be adjudication rather than litigation, this was to be an 84-day procedure, not a 28-day Construction Act procedure that many of us are used to. 84 days would provide adequate time for the preparation of comprehensive experts’ reports and the like.
  • The adjudicator appointed by RICS is sound and I know that he has considerable dispute board experience. My money is that a reasoned decision from this adjudicator is likely to resolve the dispute, and that we are unlikely to see the dispute go to a full trial in the TCC.
  • Even if the dispute did go to a full trial, it doesn’t follow that all of the costs expended in the dispute board proceedings will have been wasted. On the contrary, documents such as the experts reports are likely to be reused, even if they might need to be fine-tuned following the adjudication.

We should welcome this judgment as further evidence of the TCC’s support for ADR, and adjudication in particular. To borrow from Dyson J in Macob, for the court to have decided otherwise would have allowed a “coach and horses” to be driven through FIDIC’s dispute clause.

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