by ArbDB Member, Murray Armes
THE MANDATORY NATURE OF DABs- THE CASE OF Enterprise Managed Services Limited and Peterborough City Council
The FIDIC General Conditions of Contract anticipate that a DAB will be established either at the outset of a contract or when a dispute arises, and that disputes will be referred to it as a precondition of a referral to arbitration. Sub Clause 20.8 permits a party to refer a dispute straight to arbitration where no DAB is in place or where its appointment has expired. On the face of it, unless caught by the sub clause a party has to refer a dispute to the DAB first, although a recent case involving Swiss law suggests that in certain circumstances (for example where a party has tried to frustrate the DAB process) this might not always be necessary, at least where arbitration is concerned.
Despite this possible uncertainty a recent case in the TCC, between Enterprise Managed Services Limited and Peterborough City Council City Council has clarified the position under certain circumstances, at least for England and Wales. The contract, for the provision of solar energy plant, was based on the FIDIC Silver Book which provided for an ad hoc DAB. The final forum for dispute resolution was to be litigation rather than arbitration.
Having attempted mediation, the Council commenced litigation, claiming just over £1.3m in liquidated damages, because the installation did not provide at least 55kW, thus denying the Council payment of a higher government tariff for supplying energy. EMS applied for a stay of the litigation; the Council argued that the parties could not be under a mandatory obligation to appoint an adjudicator and also asserted that Sub Clauses 20.4 to 20.7 were unenforceable due to lack of certainty and the lack of finality of the DAB’s DAB’s decision.
The Court was not persuaded that these difficulties existed where arbitration had been replaced by litigation as the final means of dispute resolution. It was argued that Sub Clause 20.8 could only be effective where a standing DAB was contemplated, because an ad hoc DAB would only ever be appointed after a dispute had been notified. In this case a nominating body had appointed the adjudicator, and it was clear the dispute could not be referred until that had been done and therefore the Court decided that Sub Clause 20.8 did not provide a unilateral right to opt out of the adjudication process.
The Council also said that there could be no DAB in place if a Dispute Adjudication Agreement had not been concluded and become effective. In this case, however, as is usual, the General Conditions of Dispute Adjudication Agreement had been included within the Silver Book Contract and thus the Judge found that all the relevant terms had been agreed save only for the adjudicator’s fees. He said that these could “readily be assessed by the Court in default of agreement”. Further, a failure to sign the Dispute Adjudication Agreement could not be relevant because the recalcitrant party could be compelled to sign by an order for specific performance.
In support of its assertion that the Court should exercise its discretion against granting a stay, the Council said that any decision by the DAB would probably result in a Notice of Dissatisfaction from one of the parties and therefore the procedure was a waste of time and money. The court was not persuaded that a complex dispute such as this could not be dealt with by adjudication, but sympathised with the idea that a single, albeit more expensive, form of dispute resolution (ie litigation) was preferable to two sets of consecutive proceedings.
However, in deciding whether to grant a stay, the Court considered that there was a presumption in favour of leaving the parties to resolve disputes in the manner set out in their contract. Furthermore, it was not known what positions the parties might adopt following the adjudicator’s decision and in any case that decision might be the basis for negotiation and settlement of the dispute. As a result the Court stayed the litigation, leaving the parties to resolve the dispute using the DAB.
The UK Courts actively support adjudication which, for construction contracts at least, is considered an unfettered right. Although an agreement to arbitrate will normally result in a stay of litigation, nothing in the UK legislation prevents a party from pursuing a claim in both litigation and adjudication, because the latter is not final and binding like arbitration. This case not only supports the DAB process but suggests that in the UK at least, litigation will be stayed pending a decision of the adjudicator.