Contractual Dispute Resolution Procedure As A Condition Precedent: Clarity Is Key

• Law Firm: Cooley LLP
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Construction & Planning
• Author: Ms Alice Wong and Harriet Jones
• Published date: 12 April 2023

Contractual dispute resolution mechanisms intended to avoid or narrow formal disputes through early dialogue are popular, particularly in long-term contracts.

The case of Kajima Construction Europe (UK) Ltd v Children's Ark Partnership Ltd¹ serves as a reminder: a contractual Dispute Resolution Provision ("DRP") can be a condition precedent to commencing proceedings. In a departure from previous case law,² the High Court in Kajima found a DRP does not actually have to be expressed as a condition precedent to be enforceable as one. However, the DRP does need to be set out as a mandatory obligation that is sufficiently clear and certain - which was not the case in Kajima itself.

Background

In 2004, Kajima Construction Europe (UK) ("Kajima Construction") entered a construction contract with the Children's Ark Partnership ("CAP") to design, build and finance the redevelopment of a hospital. In 2013, Kajima Europe Ltd guaranteed contractual performance (the "Guarantee").

The construction contract included adetailed DRP provision: in essence, a requirement to refer all disputes to a "Liaison Committee" for resolution, with Court proceedings envisaged only if disputes were "not finally resolved" through ADR.

In 2018, CAP raised concerns about fire safety issues at the hospital. Kajima Construction subsequently agreed to carry out remedial works. The parties also entered into a 'Standstill Agreement' extending the contractual limitation period for commencing proceedings. Eventually, Kajima Construction considered the remedial works to be largely completed and did not wish to extend the Standstill Period any further. CAP disagreed and asserted that there were defects in the work.

CAP brought court proceedings against Kajima shortly before the expiry of the extended limitation period. CAP also applied for a stay of proceedings to comply with the DRP. It had not referred the dispute to the Liaison Committee in advance of issuing proceedings, although there was evidence the remedial works had been discussed with the committee on various occasions.

In response, Kajima made an application to set aside or strike out CAP's claim on the ground that CAP had failed to comply with the DRP.

First instance decision³

Mrs Justice Smith found the DRP gave rise to a condition precedent and CAP had not complied with it, but that it was not clear how the DRP was intended to commence, nor what procedure was to be followed either at the outset or thereafter. This meant that the...