In Empyreal Energy Ltd v Daylighting Power Ltd, Stuart-Smith J held that an expert determination was null and void because the dispute had not properly been notified and referred under the contract.
Case summary
The case arose in relation to a contract between Empyreal Energy Limited (the employer) and Daylight Power Limited (the contractor) for the latter to design, supply, construct, test and commission a solar park in Essex.
The contractor denied liability for and refused to remedy three categories of defects alleged by the employer. Under clause 13.7 of the contract, this gave the employer the right either to (a) carry out the remedial work and deduct or recover the costs of doing so from the contractor as a debt; (b) agree a reasonable reduction of the contract price; or (c) terminate the contract. Clause 13.8 provided that, if the employer and contractor were unable to agree a reduction (or in circumstances where, as here, the contract price had already been paid, a partial reimbursement) under clause 13.7(b), the parties could refer the issue to expert determination under clause 36 (subject to first serving a notice of the intention to do so).
The employer notified the contractor of its intention to refer the dispute to an expert if the contractor failed to reimburse the employer for the estimated cost of remedying the alleged defects. Absent such payment from the contractor, the employer referred the dispute to expert determination. Despite the contractor’s jurisdictional objections, the expert determined that the employer had substantiated its claim in full and ordered the contractor to pay just over £1.7 million. The employer applied for summary judgment to enforce the expert’s determination, whilst the contractor commenced Part 8 proceedings to challenge the expert’s jurisdiction.
Stuart-Smith J heard and determined both proceedings concurrently, finding that the dispute (as it had been purportedly referred to, and determined by, the expert) was not one that was permitted to be referred under the contract. The judge also found that the employer’s notice of intention to refer the dispute had been insufficient.
Jurisdiction of the expert
It is common that parties will include in their contract an option for certain types of disputes to be referred to expert determination, with the balance of disputes arising under or in connection with the contract to be determined by their chosen dispute resolution mechanism (that is, the courts or arbitration). It is therefore critical to review the referral clause carefully to ascertain the types of disputes that the parties agreed could be determined by an expert.
Here, the dispute that could be referred under clause 13.8 was limited to one that concerned the reduction or reimbursement of the contract price as required under clause 13.7(b). However, the judge found that the employer had advanced its claim both in correspondence and then in its submissions to the expert as a claim for payment to cover the costs of curing the defects as a debt or damages, rather than as an adjustment to the contract price. Notably, the judge found this despite the fact that the employer’s use of the term “reimbursement” in correspondence reflected the language of clause 13.7(b), and even though the employer had not yet rectified the defects itself or via a third party as is envisaged under clause 13.7(a).
Consequently, the judge held that the dispute was not one that could be referred under clause 13.8, and the expert’s determination was null and void.
Notice
Stuart-Smith J proceeded to resolve whether the employer had properly served notice under clause 36.1 of the contract, which provided that “[w]here this Contract provides for a dispute to be referred to an expert, any Party may serve notice on the other Party of its intention to refer the dispute to… an independent expert”. In doing so, he emphasised the importance of looking at the substance, rather than the form, of notices.
Taking the latter aspect of the clause 36.1 criteria first, the judge held that, when read together, a letter and subsequent email from the employer to the contractor constituted adequate composite notice of an intention to refer the dispute (as opposed to a mere threat to do so).
However, the employer’s “confused and confusing” characterisation of the dispute to be referred tainted the adequacy of the notice. The judge held that, viewed objectively, the employer’s notice was not sufficiently clear and unambiguous to leave the contractor with no reasonable doubt that the dispute intended to be referred related to an adjustment to the contract price under clause 13.7(b).
Accordingly, the purported notice was held to have been inadequate and invalid.
Concluding remarks
This case demonstrates the importance of carefully considering the precise language of an expert determination clause and ensuring that (insofar as possible) the claim intended to be referred is made and presented accordingly. Here, the substance of the dispute between the parties was one that likely could have been properly and validly referred to the expert had the basis of claim been clearly articulated and framed as a claim for an adjustment, rather than a claim for debt or damages.
