Recently the Technology and Construction Court (TCC)* considered the application of a contractual term which required the parties to adjudicate before bringing a claim. In so doing, the TCC analysed the Dispute Adjudication Board clauses in FIDIC contracts.

This is the latest in a series of cases where the court has been prepared to recognise terms which require the parties to follow contractual dispute resolution procedures before issuing legal proceedings, as discussed in a previous blog post.

What is a dispute resolution board?

A dispute board is a project-specific adjudication process. It is an alternative to more conventional methods of dispute resolution, such as arbitration or litigation. Dispute boards are common in international construction and engineering projects and feature in many standard forms of contract, including FIDIC contracts.

If either party is dissatisfied with the dispute board’s determination or decision, it may register that dissatisfaction by serving a notice on the other party and the dispute board. The notice is usually a condition precedent to arbitration or litigation. If neither party serves a notice of dissatisfaction, the determination becomes final and binding on the parties and the dispute cannot then be referred to arbitration or litigation.

The case

The background to this case is that Enterprise Managed Services Ltd (the contractor) entered into a contract dated 7 July 2011 with Peterborough City Council (the employer). Under the contract, the contractor agreed to design, supply, install, test and commission a 1.5 MW solar energy plant on a building roof for the employer.

The key terms of the contract were that:

  • The plant would generate at least 55 kW by 31 July 2011; and
  • In the event of a dispute, the parties would appoint a dispute adjudication board (DAB) in accordance with clause 20.

The works were completed in late 2011.

The employer alleged that the plant failed to achieve the required output of 55 kW by 31 July 2011 and, on this basis, sent a letter before action to the contractor. The contractor’s response was that the dispute should have been referred to a dispute adjudication board. The contractor also offered to resolve the dispute by mediation. In May 2014, a mediation took place but no settlement was reached.

In July 2014, the contractor gave notice of its intention to refer the dispute to adjudication and, in August 2014, an adjudicator was appointed.

In early August 2014, the employer started court proceedings. The contractor, again, disputed the employer’s right to start court proceedings and on this basis asked the court to stay those court proceedings (i.e. temporarily halt the court proceedings pending the outcome of the adjudication).

The TCC judge decided that it was appropriate to stay the proceedings. The TCC judge held that under the contract any dispute was to be determined by adjudication and, only failing that, by litigation.

The TCC judge noted that the court is not required to stay proceedings, but that there is a preference for leaving the parties to resolve their dispute in the manner provided for by their contract. Sensibly, the judge noted that requiring the parties to adjudicate could end up simply increasing the costs. However, as the same time, the Council had not made a sufficiently compelling case to dispel the presumption.

In deciding this case, the judge made a noteworthy distinction between conditions precedent to arbitration and conditions precedent to litigation (i.e. steps that must be taken before either one becomes an available option). He commented that non-compliance with conditions precedent to arbitration can limit an arbitrator’s jurisdiction but that there is no such effect on a court. This, he concluded, means that identically worded dispute resolution clauses can have a different interpretation depending upon whether the final dispute resolution forum is a court or an arbitration tribunal.

The upshot of this case, and indeed of the recent trend of cases, is that parties need to take care to ensure that, before issuing proceedings, they follow any contractual dispute resolution procedures, or, agree with the other party to dispense with them.

*Peterborough City Council v Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.