Adjudication ordered in £1.3m dispute between council and solar business

A High Court judge has ordered that a local authority’s bid to recoup £1.3m from a solar energy installation company be determined by adjudication, rather than by litigation as desired by the council.

In Peterborough City Council v Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC) the defendant ("EMS") applied for an order to stay legal action brought by the council.

The legal action relates to a contract dated 7 July 2011 by which EMS agreed to design, supply, install, test and commission a 1.5 MW solar energy plant on the roof of a building owned by the council.

It was a term of the contract that EMS was to provide plant generating at least 55 kW by 31 July 2011 in order that Peterborough could benefit from the higher tariff payable under the Government's feed-in tariff scheme in respect of the whole installation once completed.

If EMS failed to achieve that target, it was said that the contract provided that it should pay liquidated damages of just over £1.3m (the "price reduction") to the local authority.

EMS applied to the Technology & Construction Court on the ground that the contract required any dispute to be referred to adjudication by a Dispute Adjudication Board ("DAB"), in this case consisting of a sole adjudicator, as a precondition of any action in the courts.

The principal issue before Mr Justice Edwards-Stuart on this application was whether or not the contract did in fact require this. If it did, then the question arose as to whether or not the court should order the council's action to be stayed.

The works were only completed in late 2011 and Peterborough claims that the company had failed to achieve the required output by the stipulated date.

The contract provided that in that event that the council was entitled to recover the price reduction as a debt.

In January this year the council sent EMS a pre-action protocol letter of claim, to which EMS responded by a letter dated 21 February 2014. In that letter EMS's solicitors took the point that the council should have referred the dispute to the DAB, as the contract required, rather than threaten litigation.

EMS went on to suggest that, given the ongoing relationship between the parties, it would be appropriate to make an attempt at that stage to resolve the dispute at that stage by mediation.

Mediation took place in May 2014 but no settlement was achieved. On 21 July 2014 EMS gave notice under the contract of its intention to refer the dispute to adjudication.

On 11 August 2014 Peterborough issued and thereafter served its claim form and Particulars of Claim. On 13 August 2014 its solicitors wrote disputing that it was obliged to refer the dispute to the DAB.

On 26 August 2014 EMS applied to the RICS (the nominating body named in the contract) for the appointment of an adjudicator. A partner in law firm Goodman Derrick was duly appointed.

Mr Justice Edwards-Stuart said he rejected Peterborough’s submissions that a particular sub-clause gave 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 and that, by the time when the dispute arose, that DAB had ceased to be in place, for whatever reason.

He also rejected the council's submissions that the adjudication provisions in the contract were unenforceable.

“Accordingly, I accept EMS's case that the contract requires that the determination of the current dispute is to be by way of adjudication and amicable settlement under sub-clauses 20.4 and 20.5 and, only failing that, by litigation,” the judge said.

Counsel for Peterborough sought to argue that the ‘rough and ready’ process of adjudication was inapt to resolve the dispute.

The judge said he had some sympathy with this view, but pointed out that both parties had agreed to have it.

Mr Justice Edwards-Stuart concluded that the council had not made a sufficient case for resisting a stay.

A spokeswoman for the authority told Peterborough Today: “The council wanted to accelerate its ability to recover money from Enterprise Managed Services Ltd in this action.

“However, Enterprise sought to invoke an arbitration clause which in the council’s view would slow down the recovery of its money.

“However, the judge has decided this week that our claim should first go through arbitration.”

The spokeswoman added that the judge’s decision was “in no way a reflection of the strength of our claim”.

She said: “It is fair to say that the judge’s decision has delayed a decision by the courts, but it has not delayed our claim ‘indefinitely.’

“We will now begin the arbitration process. If we cannot agree a satisfactory outcome for the council, then we will of course take the matter back to the courts.

“We have kept the council’s Audit Committee fully up-to-date on this matter and will continue to do so.”