High Court Refuses To Stay Proceedings Commenced In Breach Of Valid ADR Clause

• Published date: 18 March 2024
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Construction & Planning
• Law Firm: Herbert Smith Freehills
• Author: Jan O'neill

In a recent decision, the High Court held that a dispute resolution clause in a project agreement created a binding obligation on the parties to refer any disputes to an out-of-court adjudication process, as a pre-condition to commencing litigation. However, exercising its discretion, it refused to order a stay of proceedings that had been commenced in breach of the clause. Because the litigation involved other parties and wider issues regarding the project, the court considered that an adjudication involving only two parties would be of little utility and that a stay would unjustifiably disrupt the proceedings: Lancashire Schools SPC Phase 2 Ltd v Lendlease Construction (Europe) Ltd and others [2024] EWHC 37 (TCC).

The question of how the courts should respond where a party has failed to comply with a valid contractual ADR obligation was recently considered by the Court of Appeal in Children's Ark Partnerships Ltd v Kajima Construction Europe (UK) Ltd [2023] EWCA Civ 292 (discussed here). Its review of the limited authorities on the question confirmed that, while the courts have generally resisted striking out claims on this basis, the usual order is to grant a stay for the ADR process to be undertaken - including in cases where it was a mandatory obligation but not a condition precedent to litigation.

The recent decision is therefore something of an outlier in refusing to grant even a stay in a case where the clause did constitute a condition precedent (and where, unusually for such cases, there was no complaint that the ADR process was unworkable or too vague).

While the result here may be unusual, the way the judge went about deciding whether or not to grant a stay is broadly consistent with the approach adopted in the other authorities. Judges hearing such applications have consistently reiterated the importance of encouraging...