Nana Manu-Mabiza is a senior paralegal in the construction and engineering team at RWK Goodman
A Court of Appeal case that sheds light on how the court will deal with disputes where there is a default contractual dispute resolution procedure (DRP) between the parties is Kajima Construction (UK) Ltd, Kajima Europe Ltd v Children’s Ark Partnership Ltd. [2023] EWCA Civ, 292, 2023 WL 02541639.
This case concerns an appeal where a party failed to activate the contractual dispute resolution procedure required by the terms of the agreement before commencing legal proceedings on limitation issues. In this case, the DRP provided that disputes arising under the contract would be referred to a liaison committee.
The trial judge dismissed the application on the basis that the DRP was not enforceable as it contained several unclear and uncertain provisions.
General principles on the enforceability of DRPs
- Whenever possible, a court will try to uphold the parties’ intentions.
- Where a DRP is relied upon to delay or quash court proceedings, courts have sometimes found these provisions to be unenforceable. This is because clear words are required to oust the court’s jurisdiction.
There is extensive legal authority relating to the enforcement of an arbitration clause, and arbitration is one of the most widely used forms of DRP. Some examples are Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 i Tang and another v. Grant Thornton International Ltd and others [2012] EWHC 3198. Cable & Wireless v IBM UK Ltd [2002] EWHC 2059 (Comm), Holloway v Chancery Mead Ltd [2007] EWHC 2495 (TCC). These case law authorities establish the test for determining whether an arbitration clause is enforceable as follows:
If the arbitration clause provides
- (a) a commitment sufficiently certain and unequivocal to initiate a process;
- (b) a means of discerning the steps each party had to take to initiate the process;
- (c) sufficient clarity and definition to enable the court to determine objectively the minimum participation requirements for each party;
- (d) an indication of how the process would be properly exhausted or terminated without default.
Regarding mediation, in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2246 (TCC) the court set out the main considerations when enforcing a dispute resolution provision through a stay of proceedings. The judge in Ohpen operations stayed the matter pending a referral to mediation on the basis that the dispute resolution provision created an enforceable obligation requiring the parties to participate in mediation and was a condition precedent to court proceedings .
On the other hand, an example of a case where the dispute resolution clause was deemed too uncertain is DS Rendite-Fonds v Titan Maritime SA [2015] EWHC 2488 (Communication). The clause in question required the parties to “negotiate in good faith” and was held to be unenforceable.
Appeal decision
In this case, on appeal, the judge concluded that, as a starting point, the courts are reluctant to step in and be the “destroyer of contract negotiations”, but in this case the DPR did not meet the requirements minimums noted in the jurisprudence authorities on what constitutes an enforceable DRP. This was because:
- the DRP clauses as drafted had no meaningful process to follow and no commitment to participate in any dispute resolution procedures;
- it was not clear how a dispute would be referred to the liaison committee;
- nor was it clear what impact the decisions taken by the parties would have;
- it was not clear when the referral process to the liaison committee would end. This was problematic in this case because it was a condition precedent and a party could not commence legal proceedings until such proceedings had been concluded.
Lessons learned from contractors and subcontractors
- Get your DRP right or risk being overruled by the court in favor of proceedings.
- When entering into a construction contract, ensure that the DRP clauses in the contracts are drafted with sufficient clarity, certainty and ensuring that the DRP’s decision is binding. If in doubt, seek legal advice.
The usual rule is a stay, not a cut-off point where a DRP must be met.
- When a party is a potential plaintiff and limitation is a concern, the prudent step is to issue proceedings to protect the limitation position and then seek to stay the matter to comply with any DRP or prior action protocol requirements.
- Where a party is a potential defendant, consider whether there is scope to ask the court to stay litigation proceedings to comply with DRP or pre-action protocol requirements.
- Remember that a party’s conduct at the pre-action stage is an important determinant in the balance of factors when a court attempts to exercise its discretion in determining whether to grant a stay or withdrawal. Seek to have blameless conduct.
Finally, not only is it important to obtain the DRP clause prior to contractual agreements, it is also advisable to carefully review existing contracts and consider whether you need to re-draft/renegotiate the dispute resolution clause before it becomes necessary.
