Dispute resolution: the importance of Dispute Adjudication Boards

A number of court judgments from a variety of jurisdictions expect parties to exhaust all dispute resolution procedures available to them before using the courts, and then only "when all else fails". 

The importance of a Dispute Adjudication Board ("DAB") has been highlighted again in the recent Singaporean case of PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation reassertingthe English courts' approach in Peterborough City Council v Enterprise Managed Services Ltd[2014] EWHC 3193 (TCC).

It would appear that a trend is developing in construction law relating to DABs. This article takes a closer look at the English courts' handling of this issue in the Peterborough City Council case.

Background              

Peterborough City Council ("the Council") had engaged Enterprise Managed Services Ltd ("EMS") to design and build a solar energy plant on the roof of one of the Council's buildings. EMS was appointed using the FIDIC General Conditions of Contract for EPC/Turnkey Projects ("the Contract").

EMS failed to complete the solar plant by the contractual deadline of 31 July 2011 and, according to the Council, did not produce the required output of 55kW. Accordingly, under the Contract, the Council was entitled to a price reduction of approximately £1.3 million. The Council sought payment of the price reduction from EMS (and other sums) and eventually brought a claim against EMS.

Treatment of Dispute Adjudication Boards

The significance of this case concerns the issue of whether "the contract requires any dispute to be referred to adjudication by a Dispute Adjudication Board ("DAB")… as a precondition of any action in the courts."  

The parties had previously attempted mediation but had failed to reach settlement. On 21 July 2014, EMS gave notice under the Contract of its intention to refer the dispute to adjudication. This should have triggered the dispute resolution provisions of sub clauses 20.2 to 20.8 of the Contract which related to the appointment of a DAB. However, the Council issued court proceedings and served its claim form and Particulars of Claim on 11 August 2014.

The Council raised two main issues, namely whether clauses 20.2 to 20.8 of the Contract were enforceable and, secondly, in the event that these provisions were enforceable, on the interpretation of sub clause 20.8. The court held that "enforceability" was not relevant in this case and this article does not explore this argument further.

Clauses 20.2 and 20.3 dealt with the appointment of a DAB - which should be triggered whenever there is a dispute between the parties. Clause 20.4 dealt with the process of obtaining a decision from the DAB and clauses 20.5 to 20.7 dealt with settlement and non-compliance with the DAB's decision. Clause 28 was supposedly a catch-all clause and provided for resolving a dispute when "there is no DAB  in place… by reason of the expiry of the DAB's appointment or otherwise" (emphasis added).

Edwards-Stuart J disagreed with the Council's interpretation of clause 20.8 and said that it did not give it "a unilateral right to opt out of the adjudication process, save in a case where at the outset the parties have agreed to appoint a standing DAB [as opposed to an ad hoc DAB appointed to deal with a specific dispute] and that, by the time the dispute arose, that DAB had ceased to be in place, for whatever reason".

To stay or not to stay?

Having concluded that the contractual dispute resolution procedure should be followed prior to the issue of court proceedings, the court had to decide whether or not to stay court proceedings so that adjudication could take place.

In making his decision, Edward-Stuart J considered that neither party had incurred time or costs in preparing for an adjudication which, whatever the outcome, would likely be appealed by the "losing" party. However, the parties had entered into the Contract in which they agreed to resolve any disputes by first using the contractual dispute resolution provisions (namely to refer a dispute to a DAB prior to issuing any court proceedings).

Consequently, Edwards-Stuart J followed previous decisions and held that "the action must be stayed and the parties left to resolve their dispute in accordance with the contractual machinery."

Conclusion

What lesson can be learned from all of this? Essentially, if parties agree a particular method for dispute resolution the Courts are likely to intervene in the event that one party opts to ignore the specified procedure and issue court proceedings without following the agreed procedure. In particular, this case has clarified important provisions in the FIDIC suite of contracts, which favour the use of DABs as a first point of call when a dispute arises. The courts should only be used if contractually agreed methods are exhausted or otherwise fail.