Following ADR procedures before legal proceedings

Introduction

The June 2022 decision in Children’s Ark Partnership Ltd v Kajima Construction (Europe) UK Ltdand another saw the Technology and Construction Court (TCC) consider an application by the Kajima Construction (Europe) UK Ltd (“Kajima”), to stay or set aside Children’s Ark Partnership Ltd’s (CAP) claim against Kajima for defective cladding and fire-stopping issues. The application was sought on the grounds that the claimant did not comply with the contractual alternative dispute resolution provisions, which Kajima argued were a condition precedent to commencement of court proceedings. The court on consideration ruled that whilst this ADR provision did indeed constitute a condition precedent, the contract did not make sufficiently clear the procedure to be followed. The condition precedent was therefore not legally effective.

The background facts

In June 2004 CAP entered into a contract with Brighton and Sussex University Hospital Trust (the Trust) to design, build and finance the redevelopment of the Royal Alexandra Hospital for Sick Children. Simultaneously. CAP engaged Kajima to design, construct and commission these works. Kajima’s liability under this contract expired on the date which was 12 years from the Actual Completion Date – which was 2 April 2007.

CAP informed Kajima of concerns surrounding cladding and fire-stopping issues at the hospital in or around September 2018. Kajima agreed to undertake the necessary remedial works albeit over a lengthy period of time, so as to minimise disruption to the hospital. Whilst the limitation period was due to expire in April 2019, owing to the ongoing remedial works CAP and Kajima agreed to enter into a standstill agreement to push back the limitation period expiry, with that date eventually falling on 29 December 2021.

Kajima deemed that its remedial works were largely completed by the end of November 2021 and informed CAP that it did not wish to extend the standstill period any further. In submissions Kajima argued that CAP was therefore put on notice that if it intended to issue proceedings on or before the limitation period expiry, it would need to follow the ADR procedure, as set out in the contract.   

CAP issued its claim form to commence legal proceedings on 21 December 2021.

The issue

The fundamental issues at the heart of this application were whether:

1. the dispute resolution procedure did indeed amount to a condition precedent to commencing court proceedings and;
2. whether the dispute resolution procedure was enforceable.

In considering the first issue the judge agreed with Kajima: the dispute resolution procedure did amount to a condition precedent which CAP was required to follow before issuing the claim form.  

In reaching his conclusion, the judge held that:

• the parties used objective meaning in their language to express their agreement to undertaking the alternative dispute resolution procedure before engaging the courts; and
• it is not necessary to expressly provide that the use of an alternative dispute resolution procedure is a ‘condition precedent’ to legal proceedings, provided that the language of the contract is clear that any entitlement to commence legal proceedings is: .”subject to a failure of a dispute resolution procedure, and more than a mere statement that the use of a dispute resolution procedure is mandatory”. These requirements were held to have been satisfied under this contract.

On the second issue, the judge held that to be valid, the dispute resolution procedure would need to satisfy three conditions:

• The process ought to be sufficiently certain. There should be no need for parties to come to agreements before they can proceed. This should be clearly set out within the contract prior to commencement;
• The administrative processes for selecting a party to resolve the dispute and how any such person will be paid should be clearly identified; and
• The entire process (or at the very least, a model of such process) should be exhibited to ensure the detail of any such process is certain and unambiguous.

Applying this, the judge held that the dispute resolution procedure was invalid for uncertainty. It did not have a ‘meaningful description’ nor did it meet the criteria set. It could therefore not operate as a condition precedent to the commencement of legal proceedings. 

In reaching this conclusion the judge noted that:

• The Liaison Committee at the centre of the dispute resolution procedure could make up its own rules and procedures – there was no identification of these anywhere in the contract. It was not sufficiently clear how the committee would seek to resolve a dispute;
• The Liaison Committee was appointed by the Trust, and the Trust was in contract with CAP only. There was no express instruction as to whether Kajima was required to attend committee meetings and play an active role. If the very presence of the party at the centre of the dispute is not expressly required, the judge questioned how the Liaison Committee could ever resolve the dispute effectively;
• There was no clear instruction how a dispute was to be referred to the Liaison Committee;
• Any decision made by the committee was stated to be final and binding on the parties, but without any definition of the parties referred to, there was no way of telling who would actually be bound by the decision; and
• There was no defined ‘end of process’, leaving uncertainty as to when the condition precedent could be deemed to be satisfied and a claim in the courts commenced.

Conclusion

Although the judge agreed that the dispute resolution procedure did amount to a condition precedent to commencement of legal proceedings, it was nevertheless unenforceable as it did not constitute a clear, concise and unambiguous procedure by which disputes could be resolved.  As such, it was unenforceable and Kajima’s application was dismissed. 

The Birketts’ view

In answer to the question posed in the title of this update: yes you do have to follow ADR procedures before commencing legal proceedings. This is provided that the contract makes clear that the use of ADR is intended as a condition precedent to commencement of legal proceedings, and that the mechanism for resolving a dispute under ADR is clear and concise. Simply including an ambiguous procedure, or a provision that the use of ADR is mandatory under the contract will not be sufficient to satisfy these requirements. Careful consideration must therefore be given to ensure you have an effective, valid procedure which operates as a condition precedent to issue of legal proceedings.