Kajima Construction Europe (UK) Ltd & Anr v Children’s Ark Partnership Ltd

[2023] EWCA Civ 292

We discussed this case in Issue 268. CAP had entered into a contract with Kajima for the design and construction of the Royal Alexandra Hospital for Sick Children in Brighton Hospital. Disputes arose, and Kajima applied to strike out or set aside a Claim Form issued by CAP saying there had been a failure to comply with a contractual ADR provision (the Dispute Resolution Procedure or DRP), which was said to be a condition precedent to the commencement of proceedings. The proceedings had been commenced just a week before the limitation period expired – the parties having previously agreed a standstill period to see whether a settlement could be reached. CAP issued their own application seeking a stay to try and resolve the dispute through ADR, to obtain further details about the claim from its “upstream claimant” and/or to go through the Pre-Action process.

At first instance, the Judge held that the provisions of the DRP were unenforceable because they were uncertain, but that had they been enforceable, she would have exercised her discretion to stay the proceedings. 

The DRP was intended to cover disputes under the project agreement between CAP and the NHS Trust and the construction agreement between CAP and Kajima. It stated that all disputes were to first be referred to the Liaison Committee for resolution and the Liaison Committee’s decision should be final and binding. The Liaison Committee was to comprise only of representatives from Brighton and Sussex University Hospital NHS Trust and CAP, not Kajima, although there was a provision for others to be invited to attend. 

On appeal, Coulson LJ was clear that this was not a case where a standstill agreement was reached because of a failure to get on with the underlying dispute. He also noted that, wherever possible, the court should endeavour to uphold the agreement reached by the parties. Here, Coulson LJ explained that, at first instance, the reasons why the Judge concluded that the DRP was not certain enough to be enforceable included that there was no meaningful description of the process to be followed. There was also no unequivocal commitment to engage in any particular ADR procedure. In circumstances where Kajima was not obliged to take part in the process, and had no right to do so, it was impossible to see how the process could be said to: “provide a means of resolving disputes or disagreements between the parties amicably”. It was further unclear how a dispute between CAP and Kajima should be referred to the Liaison Committee and also when the process of referral to the Liaison Committee would come to an end. Finally, it was unclear what impact any decision of the Liaison Committee had on Kajima: could decisions be final and binding? 

Kajima said that the result of the DRP could never be binding on Kajima because of their lack of representation on the Liaison Committee. However, the process was sufficiently clear to be enforceable. The clear procedure identified was the referral of the dispute to the Liaison Committee which would convene and seek to resolve it within 10 days. It would be obvious whether or not the dispute had been referred to the Liaison Committee. The correct approach was to concentrate on the utility of the process, instead of determining whether or not it was sufficiently certain. The process came to an end once the 10 day period had elapsed. There was a complete DRP procedure, with a beginning, a middle and an end.

Coulson LJ disagreed. The underlying problem with the DRP, insofar as it related to the construction contract, was that Kajima was forced to argue that the DRP somehow involved the NHS Trust and CAP, not Kajima, despite the fact that the Trust were not a party to the construction contract and Kajima were. 

A particular difficulty was that, on the face of it, the DRP would impose a final and binding decision on Kajima, made by the Liaison Committee, on which Kajima had no representative, whose meetings Kajima had no right to attend, to which Kajima was not entitled – at least according to the DRP – to make representations, and whose documents Kajima were not entitled to see. In the view of Coulson LJ, this suggested: “a pointless and an unenforceable process.”

There was also some force in the suggestion that actual, or at least perceived, bias would be inherent in the whole structure of the DRP if it was extended to a dispute between CAP and Kajima. The Liaison Committee was, for the purposes of the construction contract, a “fundamentally flawed” body which could neither resolve a dispute involving Kajima amicably, nor could fairly provide a decision binding on Kajima in any event. Kajima had no right to attend the Liaison Committee or to make representations to it. That too suggested an unenforceable process. Whilst it was not entirely clear how the process was intended to commence,  there was no contractual commitment to engage in any particular procedure either covering the referral, or the process to be followed once the dispute had been referred.

There was no clear procedure to be followed. The Liaison Committee would have to try and resolve the dispute within 10 days of the referral, but they were also allowed 10 days’ notice before they even held a meeting; so, the process could, on one view, be over before it even began. When there is a contractual dispute resolution procedure and one party cannot commence court proceedings until that process has been concluded, if it is not clear when that might be, the process is not enforceable. 

Then there was the related question of the status of any resolution of the dispute. The provisions anticipated a resolution of any dispute through the decision of the Liaison Committee. That made complete sense amongst representatives from the two parties to the project agreement. If those representatives reached an agreed decision, then it is easy to see why it was also agreed that that would be final and binding. However, under the construction contract, the Liaison Committee could, on the face of it, reach a decision binding on Kajima.

At first instance, the Judge indicated that, even if the DRP had been enforceable, she would have exercised her discretion to stay the proceedings. CAP’s decision to issue proceedings so as to avoid expiry of the limitation period, and thereafter to seek an extension of time to facilitate compliance with the Pre-Action Protocol and with the contractual DRP, represented what she called “an entirely sensible approach.” Striking out the claim form would be a “draconian remedy, wholly unsuitable for the circumstances of this case.” The loss to Kajima of the limitation defence was an important element of the balancing exercise, but was not, by itself, decisive. 

Coulson LJ agreed that the matters taken into account by the Judge in the exercise of her discretion were all relevant. In particular, CAP had acted reasonably throughout. This was a case where limitation was at the forefront of everybody’s mind. The reason why such a long time had elapsed since the original construction works was because of the tragedy at Grenfell, the consequential survey, the discovery of alleged defects, and the ongoing remedial works. There was no dispute that potential claims could not be fully quantified until the end of the remedial works, which were still on going in early 2022. Neither the Trust nor Kajima wanted to take any action until the remedial works had been completed. Indeed, the negotiations had been delayed at Kajima’s request so as to allow Kajima to focus on the remedial works. That was sensible, but was again an important factor relevant to the exercise of the Judge’s discretion to order a stay. The appeal was accordingly dismissed. 

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