We reported recently on a decision of the Swiss Courts on the effect of clause 20 of the FIDIC contract where no Dispute Adjudication Board (DAB) had been constituted. In that case, the Swiss Court had held that the DAB procedures must be treated as mandatory. A decision of the English courts last week has reached a similar conclusion, although the circumstances of the case were very different.
In the case of Peterborough City Council v Enterprise Managed Services Ltd the claimant commenced court proceedings in the TCC arguing that it was entitled to in effect opt-out of the requirement in clause 20.2 of the FIDIC contract Silver Book where it did not wish to have a dispute resolved by the DAB and to refer the dispute directly to court (which had been chosen by the parties as the final determination procedure, rather than arbitration).
The claimant relied on clause 20.8 of the FIDIC contract, which says that a dispute may be referred directly to arbitration (or, in this case, litigation) in circumstances where “there is no [DAB] in place, whether by reason of the expiry of the [DAB’s] appointment or otherwise.” It was the “or otherwise” part of this clause that the claimant sought to rely upon. The claimant’s position was that the parties could not be under a mandatory obligation to achieve the appointment of a DAB and that the phrase “or otherwise” was wide enough to include a state of affairs where a DAB was not in place because the Dispute Adjudication Agreement had not been concluded between the parties and the DAB.
Mr Justice Edwards-Stuart considered how the clause should be interpreted and concluded that the words “or otherwise” should be viewed narrowly with the effect that clause 20.8 does not give either party “a unilateral right to opt out of the [DAB] process, save in a case where at the outset the parties have agreed to appoint a standing DAB and that, by the time when the dispute arose, that DAB had ceased to be in place, for whatever reason.”
The court proceedings commenced by the claimant were therefore stayed to enable the parties to “resolve their dispute in accordance with the contractual machinery …” i.e. by the DAB.
In another interesting part of the judgment, the court rejected the proposition that clauses 20.4 to 20.7 of the FIDIC contract were unenforceable for lack of certainty. What has been described in the industry as “the gap” in those provisions (where an unsuccessful party refuses to comply with a binding, but not final, decision of a DAB and the only remedy is said to be to refer the non-compliance to yet another DAB) has been recognised by the drafters of the contract, FIDIC. However, Mr Justice Edwards-Stuart held that “these problems disappear when the contract provides that the forum for final resolution of any dispute is litigation, and not arbitration.” Those entering into FIDIC contract should bear this in mind when selecting the forum for final determination.