Introduction

In the recent case of Children’s ARK Partnerships Limited v Kajima Construction Europe (UK) Limited, Kajima Europe Limited [2022] EWHC 1595 (TCC), the English Technology and Construction Court (the “Court”) held that even though a dispute resolution procedure clause (“DRP clause”) gave rise to a condition precedent to the commencement of litigation, the DRP clause in the current case was unenforceable as the wordings were neither clear nor certain.

Background

In 2004, Children’s Ark Partnerships Limited (the “Claimant”) entered into a construction contract (the “Construction Contract”) with Kajima Construction Europe (UK) Limited (the “Kajima Construction”) for the design, construction and commissioning of the Royal Alexandra Hospital for Sick Children in Brighton (the “Hospital”). The Claimant had signed a Project Agreement of even date with the NHS Hospital Trust for the design, building and financing of the redevelopment of the Hospital.

Clause 9.7 of the Construction Contract provided that no claim, action or proceedings shall be commenced against Kajima Construction after the expiry of twelve years from the Actual Completion Date (i.e. 2 April 2007). Despite the fact that such limitation period would have expired on 2 April 2019, the parties agreed to a standstill agreement dated 29 March 2019 (which was subsequently varied on four occasions: 7 April 2020, 29 March 2021, 28 June 2021 and 27 September 2021) due to the ongoing remedial works carried out by Kajima Construction since December 2018. As such, the limitation period was extended to 29 December 2021.

The Claimant initiated legal proceedings on 21 December 2021 and issued an application seeking a stay of proceedings in order to pursue the DRP clause. On the same day, Kajima Construction made an application under Rule 11 of the Civil Procedure Rules (“CPR”)[1] to strike out/set aside the Claimant’s claim on the grounds of failure to comply with a contractual alternative dispute resolution provision, which was argued to be a condition precedent before commencing legal proceedings.

The issues for the Court to decide were:

1.       whether a DRP clause gave rise to a condition precedent or whether it was a mandatory jurisdictional provision;

2.       whether the provisions of DRP clauses were enforceable;

3.       if enforceable, whether the provisions of DRP clauses were complied with by the Claimant in advance of issuing proceedings;

4.       whether Rule 11(1) of CPR was engaged; and

5.       if Rule 11(1) of CPR was engaged, how should the Court exercise its discretion.

Decision

The Court considered Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] BLR 576 (“Ohpen”), which listed out the circumstances that the court may stay proceedings where a party seeks to enforce an alternative dispute resolution provision, including (i) the obligation must be expressed clearly as a condition precedent to court proceedings; (ii) the DRP clause must be clear and certain by reference to objective criteria; and (iii) the court has discretion to stay proceedings which were commenced in breach of an enforceable dispute resolution agreement.

Although the Court held that complying with a DRP clause was a condition precedent with clauses providing for a sequence which must be followed before legal proceedings can be commenced, the Court, however, disagreed with the finding in Ohpen based on the reason that an obligation must be expressed clearly as a condition precedent before the Court will stay proceedings.

In this regards, the Court confirmed in paragraph 58 of the current judgment:-

“The Court’s task in interpreting the Construction Contract is to apply the ordinary and well known principles of contractual interpretation, i.e. to ascertain the objective meaning of the language used by the parties to express their agreement.

It is not necessary for the words ‘condition precedent’ to be used, as long as ‘the words used are clear that the right to commence proceedings is subject to the failure of the dispute resolution procedure’. It is necessary to have more than a mere statement that compliance with dispute resolution procedure is mandatory.”

Furthermore, the Court reiterated that it has an inherent jurisdiction to stay proceedings for the enforcement of alternative dispute resolution when the clause in question creates a mandatory obligation and where it is enforceable.

In addition, the Court outlined the following reasons why the DRP clause in the current case was unenforceable as it was neither clear nor certain:

1.       there was no meaningful description of the process to be followed regarding the alternative dispute resolution;

2.       there was no unequivocal commitment to engage in any particular alternative dispute resolution procedure. There was a lack of certainty and it was unclear how a court was to decide which party was in compliance or breach;

3.       the Liaison Committee was to comprise only of representatives from Brighton and Sussex University NHS Trust and from the Claimant, with a provision for others to be invited to attend. Since there was no representation on the committee by the defendants, the process would not have final or binding effect; and

4.       it was unclear when the condition precedent is satisfied and when the process was intended to come to an end.

 

Based on the above reasons, the Court considered that the strike out and abuse of process applications failed.

Takeaway

The above English decision serves as a reminder to the employers / contractors to take heed in the course of negotiating terms and conditions of construction contract. In particular, for the condition precedent for applying for time extension, claims for loss of expenses and/or dispute resolution mechanism, the wordings must be clear and certain. With that being said, the Court of Appeal has recently granted permission to appeal the Court’s decision in the current case. Therefore, the final outcome of whether an alternative dispute resolution clause is considered to be a condition precedent before the commencement of legal proceedings is yet to be seen.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2022