The High Court of Justice (Technology and Construction Court): While deciding the instant matter revolving around the Dispute Resolution Procedure (DRP) in a construction contract between the parties; the Bench of Justice Joanna Smith, DBE, termed the DRP in question to be “unusual and surprising” and observed that the Procedure did not include a sufficiently defined mutual obligation upon the parties in respect to referral of their dispute to the Liaison Committee and the ensuing process, thus, creating an obvious difficulty in determining whether either Children’s Ark Partnership or Kajima Construction had acted in breach.
The Facts of the Case: In June 2004, Children’s Ark Partnership (CAP) entered into an agreement with Sussex University Hospital NHS Trust (Trust) to design, build and finance the redevelopment of the Royal Alexandra Hospital for Sick Children. Subsequently, CAP and Kajima Construction entered into a “construction contract” whereby which Kajima was appointed to design, construct and commission the afore-stated hospital.
The Trust was entitled to make deductions from CAP under the Project Agreement in respect of service failures arising from defects and Kajima Construction would be liable to reimburse those Deductions under the terms of the Construction Contract. Kajima Construction carried out the work between 2004 and 2007.
In September 2018, concerns around cladding and fire-stopping issues were notified to Kajima Construction, which agreed to carry out remedial works at its own cost on a without prejudice basis. The project commenced in December 2018 but had to be sequenced over a long period of time in order to minimize disruption at the Hospital. The parties agreed to a Standstill Agreement dated 29-03-2019, which was subsequently varied on four occasions to protect their mutual positions. The provisions of the standstill agreement made clear that it did not preclude steps being taken under the DRP in the construction contract.
On 30-11-2021, Kajima Construction informed CAP that since its remedial works had now been largely completed, thus it has reasonably met all possible liabilities that could arise from the design and construction of the Hospital and that therefore, it no longer wished to extend the standstill period. However, the Trust informed CAP that the finished work contained “certain design and/or construction defects”.
Trust wanted CAP to remedy the defects but CAP asserted that the defects arose from the failure on the part of Kajima Construction to comply with its obligations under the Construction Contract and/or breach of its tortious duty. Therefore, CAP sought “damages” and/or “sums due” pursuant to the terms of the Construction Contract or in tort.
Relevant Clauses of the Construction Contract
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Clause 9.7 of the Construction Contract provided that no claim, action or proceedings shall be commenced against Kajima Construction after expiry of twelve years from the Actual Completion Date of the works.
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Clause 56 contained the agreed contractual machinery for resolution of disputes- a Dispute Resolution Procedure set out in Schedule 26, which would be the only contractually agreed route for dispute resolution.
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Clause 68 stated that the courts of England and Wales shall have exclusive jurisdiction to hear and settle any action, suit, proceeding or dispute in connection with this contract, subject to the provisions of the Dispute Resolution Procedure.
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Schedule 26 aka the Dispute Resolution Procedure, stated that procedure set out in the Schedule shall apply to any dispute, claim etc. except where it has been expressly excluded from this procedure; and the DRP shall not impose any precondition on any party or otherwise prevent or delay any party from commencing proceedings in any court of competent jurisdiction to obtain either.
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Furthermore, Schedule 26 mandated that all Disputes are first to be referred to the Liaison Committee for resolution. Any decision of the Liaison Committee will be final and binding unless the parties otherwise agree. Schedule 26 also provided that the parties “may” refer the dispute to Mediation and Adjudication before dealing with “Court Proceedings”.
Observations: Upon perusal of the facts, contractual terms, relevant law, contentions by the parties and especially the precedents on arbitration, the Court observed that the precedents have not distinguished between mandatory obligations and conditions precedent for the purposes of deciding whether to enforce dispute resolution clauses prior to the commencement of litigation in court. It was noted that DRP, in so far as it concerns the requirement to refer disputes to the Liaison Committee can be properly interpreted as a condition precedent to the commencement of litigation.
As regards the DRP and its enforceability, the Court noted that in order to be enforceable, the Dispute Resolution Procedure aka DRP should be “sufficiently clear and certain by reference to objective criteria…“. However, Construction Contract, when read the Project Agreement, does not comply with the requirement of clarity. The Court reasoned that’
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There was no meaningful description of the process to be followed. It is unclear as to how the Liaison Committee will “seek to resolve the Dispute”. It is also unclear as to how a dispute between CAP and Kajima should be referred to the Liaison Committee.
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There is therefore no unequivocal commitment to engage in any particular ADR procedure. “Whilst the word “resolution” in the context of court proceedings means a final determination, it seems to me that it has a rather different meaning in the context of a dispute resolution process which is intended to achieve an amicable outcome. I cannot see how it is possible to “resolve” a dispute between two parties amicably when one is not involved in the process“.
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There is unclarity as to the impact any decision of the Liaison Committee has on Kajima. The Court also pointed out that when the process of referral to the Liaison Committee comes to such an end such that the dispute is “not finally resolved” it is unclear when the condition precedent is satisfied i.e., it is unclear whether a resolution or decision is required before litigation may ensue.
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The Court thus observed that although expressed as a condition precedent, the obligation to refer disputes to the Liaison Committee is not defined with sufficient clarity and certainty and therefore cannot constitute a legally effective precondition to the commencement of proceedings.
The Court also observed that the case gives rise to a novel point concerning the expiry of the limitation period, which arises only in the context of the exercise of the court’s discretion. However, in light of DRP’s lack of enforceability, Civil Procedure Rule 11(1) is not engaged. Thus, it is not an appropriate case for the intervention of the Court.
[Children’s Ark Partnerships Ltd. v. Kajima Construction Europe (UK) Ltd., [2022] EWHC 1595 (TCC), decided on 22-06-2022]
*Sucheta Sarkar, Editorial Assistant has prepared this brief.