It is trite practice that commencing legal proceedings should be the last option. Parties should explore, wherever possible, alternative means of resolving their dispute.
To that end, and often driven by a commercial imperative to save costs, and perhaps a desire to potentially preserve a business relationship, it is commonplace for commercial agreements to include dispute resolution clauses requiring the parties to engage with each other to resolve a dispute outside of the court process.
However, parties do disregard such clauses, whether because the relationship is so deteriorated as to render such a process of limited value; they simply do not wish to engage; or time (and limitation) is against them. This is not without risk.
In Children’s Ark Partnerships Ltd v Kajima Construction Europe (UK) Ltd and another [2022] EWHC 1595 (TCC), the defendants applied to strike out or set aside the claim form on the grounds of the claimant’s failure to comply with a contractual ADR provision. The defendants maintained that the ADR (described in the contract as dispute resolution procedure (DRP)) provision was a condition precedent to the commencement of proceedings.
That said, the real significance of the defendants’ application was that the limitation period for the claimant’s claim, as extended pursuant to a series of standstill agreements, expired just over a week after the issue of the claim form. The defendants contended that by commencing the proceedings with just a week before the expiry of the limitation period, the claimant had deprived the defendants of the limitation defence that would have been available had the claimant complied with its contractual obligations.
The defendants’ application was brought under CPR 11(1), contending that the court had no jurisdiction over the defendants, nor should the court exercise any jurisdiction it may have. Alternatively, under CPR 3.4(2)(a) and/or CPR 3.4(2) on the basis that there were no reasonable grounds for bringing the claim and that it was an abuse of the court’s process.
In considering the position, the judge held that:
- The court has a discretion to stay proceedings commenced in breach of an enforceable alternative dispute resolution agreement.
- The dispute resolution procedure in this instance was properly to be interpreted as a condition precedent; it was not necessary for the actual words ‘condition precedent’ to be used.
- There is no reason in principle why CPR 11(1) would not be engaged where there was an enforceable ADR clause.
The judge ultimately concluded that, in the circumstances of this matter, the DRP was not enforceable as it lacked sufficient clarity and certainty (per Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] BLR 576). Accordingly, the provisions of CPR 11(1) were not engaged. Further and in any event, the judge confirmed that were the DRP in fact enforceable, she would have applied the remedy under CPR 11(6) and granted a stay of proceedings.
Practitioners can for the moment at least breathe a sigh of relief, albeit the decision is subject to an appeal. In the meantime, the judgment reminds us of a few key practical points:
1) It may be felt that the claimant here had a lucky escape as, save for the judge’s indication that she would have exercised her discretion to grant a stay of proceedings, had the DRP been enforceable on the face of it the clause would have been taken as a condition precedent of which a failure to satisfy could give rise to a challenge that the court had no jurisdiction to try the claim. Where a limitation period was due to expire, that would have obviously been disastrous. That rather starkly highlights the potentially obvious point that claimants should, ideally, not run the risk of issuing proceedings until the last minute, and, relatedly, commencing any contractual dispute resolution procedure as soon as possible. It is, of course, accepted that we do not live in an ideal world.
2) The court will be slow to deny enforceability of contractual ADR provisions and it is important that the courts should seek to give effect to bargains struck by commercial parties.
3) Practitioners drafting ADR provisions should, wherever possible, make sure to consult their contentious lawyer colleagues to ensure that any such terms are enforceable in the first place.
4) Regardless of any encroaching limitation deadlines, and accepting we do not live in an ideal world, claimants would be adopting an ‘entirely sensible approach’ to issue proceedings to avoid expiry of the limitation period and thereafter to seek an extension of time to facilitate compliance.
These are all salient points worth repeating. Having done so, we await the Court of Appeal’s decision with interest, and a degree of apprehension.
Leigh Callaway is a dispute resolution partner, and Jane Leech a professional support lawyer, dispute resolution, at Fladgate LLP, London
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