TWO key players behind a massive North-East regeneration project are being sued for £10m by a small development company, The Northern Echo can reveal.

English Partnerships (EP) and Tees Valley Regeneration (TVR) are being drawn into a David and Goliath-type legal battle over an alleged breach of contract.

Middlesbrough-based Chilli Developments has brought the case against EP and TVR, claiming both parties went back on an agreement signed in 2004 relating to the redevelopment of five acres of the 50-acre Middlehaven site.

Chilli was last night unable to comment, but The Northern Echo has seen the court papers that outline the firm's claim for loss and damage amounting to almost £10m.

TVR, the agency set up to develop the site in Middlesbrough, last night said it considers Chilli's court case is without merit and will be defended in full.

Had Chilli been able to go ahead with its plans for the Middlehaven site, for which it had secured planning permission and private funding, work would have been finished by next month.

As it stands, BioRegional Quintain - a joint venture partnership including Bio- Regional Properties, Quintain Estates and Development PLC1 - was chosen last November as the preferred developer and work is expected to start this year for completion in 2012.

The scheme includes 750 homes, a hotel and offices, together with shops, bars, cafes and restaurants.

It forms part of a wider development of the docklands, which will cost about £500m and includes a new college campus and offices.

Chilli's involvement in the scheme started in 2003, when Simon Brown set up the business to create a complex of 131 flats with offices, bars and restaurants on a five-acre area of the Middlehaven site.

By summer 2004, Chilli had put together detailed plans for the £50m, two-phase project. With support from both EP, which owns the land, and TVR, the firm went on to secure financial backing and planning permission from Middlesbrough Council.

In October 2004, Chilli signed an agreement with EP and TVR relating to the land, the terms of which stated that it would not be marketed to developers considering bidding for work on the rest of the Middlehaven site.

It was this agreement that Chilli claims both parties turned their back on by marketing the land and selecting BioRegional Quintain to redevelop the entire area.

In the court papers, Chilli claims EP and TVR entered into negotiations with other developers relating to the land and then took steps to "undermine" Chilli's interest.

The firm also claims that EP and TVR "took unconscionable advantage" of Chilli by allowing it to go ahead with the planning process before turning its back on the scheme.

Chilli's plans to redevelop the site collapsed in June 2005, when a meeting of all parties resulted in Chilli's funding partners - the Durham-based Esh Group - walking away from the scheme.

Chilli claims officials took advantage of the meeting to "attack, undermine, insult and ridicule" the firm's plans in front of Esh.

At the time, Chilli's managing director, Mr Brown, said he felt that the rug had been pulled from beneath him.

By September 2005, EP said the matter was closed.

In November last year, officials announced that Bio- Regional Quintain would carry out the £200m riverside renaissance scheme, bringing 1,000 jobs to the region.

The legal wrangle follows a previous court case involving the three parties, at which Chilli requested that all information relating to the Middlehaven case should be made available. TVR was awarded full costs.

A TVR spokesman said last night: "Despite attempts to reach settlement, the costs remain unpaid. An application is to be made to the court for a stay of the proceedings until a suitable payment has been made by Chilli."

Nobody at EP was available for comment.

à Dock plans - Business Echo