Children’s Ark Partnerships Ltd v Kajima Construction (Europe) UK Ltd & Anr
[2022] EWHC 1595 (TCC)
Note: Decision affirmed on appeal: see Issue 274 [1].
Kajima applied to strike out or set aside a Claim Form saying there had been a failure to comply with a contractual ADR provision which was said to be a condition precedent to the commencement of proceedings. The proceedings had been commenced just a week before the limitation period expired – the parties having previously agreed a standstill period to see whether a settlement could be reached. The Claimant (or “CAP”) issued their own application seeking a stay to try and resolve the dispute through ADR, to obtain further details about the claim form its “upstream claimant” and/or to go through the Pre-Action process.
The provisions of the Standstill Agreement made clear that it did not preclude (i) steps being taken under the Dispute Resolution Procedure (“DRP”) in the Construction Contract, or (ii) the issue and service of proceedings in relation to the dispute between the parties, during the standstill period.
Mrs Justice Smith DBE referred to the case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] BLR 576, where O’Farrell J had made a number of comments about the circumstances in which the court may stay proceedings where a party seeks to enforce an alternative dispute resolution provision, including:
“The dispute resolution process to be followed does not have to be formal but must be sufficiently clear and certain by reference to objective criteria, including machinery to appoint a mediator or determine any other necessary step in the procedure without the requirement for any further agreement by the Parties.”
The Judge further considered that the court has an inherent jurisdiction to stay such proceedings for the enforcement of an alternative dispute resolution provision where the clause creates a mandatory obligation and where it is enforceable.
Here, the Judge considered that the DRP in setting a requirement to refer disputes to the Liaison Committee under paragraph 3 of Schedule 26 to the Construction Contract was a condition precedent to the commencement of litigation. It was not necessary for the words “condition precedent” to be used, (and they were not here), as long as “the words used are clear that the right to commence proceedings is subject to the failure of the dispute resolution procedure” (see Ohpen). But it is necessary to have more than a mere statement that compliance with the dispute resolution procedure is mandatory. The key here was clause 68.2 of the Construction Contract, which anticipated that the right to commence court proceedings was subject to compliance with the DRP. This provided for a sequence which had to be followed before legal proceedings could be commenced.
The Judge then turned to whether the DRP was “sufficiently clear and certain by reference to objective criteria …” Here, the Judge noted that there was no meaningful description of the process to be followed. Disputes were to be referred to a Liaison Committee which could make its own rules and procedures, but these were not identified anywhere and there was no evidence that the Liaison Committee had identified any rules and procedures to apply to dispute resolution in the context of the construction contract. There was no unequivocal commitment to engage in any particular ADR procedure and it further seemed that Kajima was not obliged to take part in the process (and had no right to do so). There was no procedure that would enable disputes as between CAP and Kajima to be resolved “amicably.” This gave rise to an obvious lack of certainty.
The DRP was “both unusual and surprising.” It was: “neither clear nor certain. It does not include a sufficiently defined mutual obligation upon the parties in respect of the referral to the Liaison Committee and the process that will then ensue and it therefore creates an obvious difficulty in determining whether either CAP or Kajima has acted in breach.”
The result was that, although expressed as a condition precedent, the obligation to refer disputes to the Liaison Committee was not defined with sufficient clarity and certainty and, therefore, could not constitute a legally effective precondition to the commencement of proceedings. Further, in these circumstances, CAP’s decision to issue proceedings so as to avoid expiry of the limitation period and, thereafter, to seek an extension of time to facilitate compliance with the pre-action protocol and with the contractual DRP was an “entirely sensible” approach. The Judge noted that Paragraph 12 of the Pre-Action Protocol for Construction and Engineering Disputes expressly envisaged that, if compliance with the protocol may result in a claim being time barred, then “the Claimant may commence proceedings without complying with this Protocol”. If this happens, it was standard procedure for the court to consider staying the whole or part of those proceedings pending compliance with the protocol:
“it is better that the parties issue proceedings on time and engage in ADR in a meaningful way at a later date when ready to do so than that they are rushed into pointless compliance with an ADR provision which will never bear fruit.”
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