Clauses setting out a tiered dispute resolution procedure (“DRP”) are common in construction contracts, requiring parties to participate in forms of ADR before litigation. However, such clauses need to be clear and well defined in order to be enforceable. DAC Beachcroft partner Lyn Crawford reviews a recent TCC decision, which emphasises the key requirements for creating an enforceable tiered dispute resolution clause.
Background
The Children's Ark Partnerships Ltd v Kajima Construction Europe (UK) Ltd and another [2022] EWHC 1595 (TCC) concerned the construction of the Royal Alexandra Hospital for Sick Children in Brighton. Children's Ark Partnerships Ltd (“CAP”) engaged Kajima Construction Europe (UK) Ltd (“Kajima”) to design, construct and commission the hospital. The contract between CAP and Kajima included a dispute resolution procedure (“DRP”) requiring “any dispute, claim or difference” to be referred to a liaison committee for resolution, with a further option for referral to mediation and adjudication, failing which the commencement of court proceedings was permitted.
CAP raised allegations of various defects and Kajima undertook remedial works, without prejudice to liability. The parties entered into standstill agreements and the liaison committee met four times to discuss the remedial works. When Kajima was not agreeable to a further extension, CAP issued proceedings. Kajima applied to strike out or set aside CAP’s claim, on the grounds that CAP had failed to comply with the DRP.
Decision
The court dismissed Kajima’s application, finding that whilst the DRP was a condition precedent to starting litigation, the clause was unenforceable due to a lack of clarity.
In contrast to an earlier TCC decision (Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2246 (TCC)), the judge found that the DRP here was a condition precedent. Although the words “condition precedent” were not expressly stated, it was enough that the contract clearly established the right to commence court proceedings as being subject to the failure of DRP.
The judge then reviewed the requirements for an enforceable DRP, established in Holloway v Chancery Mead Ltd [2007] 117 ConLR 30: (i) the process must be sufficiently certain in that there should not be the need for an agreement at any stage before matters can proceed; (ii) the administrative processes for selecting a party to resolve the dispute should also be defined; and (iii) the process or at least a model of the process should be set out.
The judge concluded that the DRP in the contract was not enforceable. The contract permitted the liaison committee to make its own rules but these were not specified, making it unclear as to how the liaison committee would resolve the dispute. The contract also did not explain how the parties should go about referring a dispute to the liaison committee. The absence of a representative for Kajima in the liaison committee meetings also raised the concern that any decision made by the committee could not be binding on Kajima.
Comment
It is clear from this decision that the court is willing to endorse tiered dispute resolution clauses and stay any court proceedings where a breach has occurred. However, parties wishing to establish a DRP must keep in mind that there is more to it than a simple agreement as to the process. It is paramount that any contractual obligation to engage in ADR is clearly recorded, the details and workings of the ADR are established, and that all parties upon which any decision is intended to be binding are actively involved in the DRP.
If you would like any further information on this decision or advice on construction insurance generally, please contact either Lyn Crawford or Vanessa Banjo on the details below.
