Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd

In our review of leading construction cases of 2023, we look back at Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd [2023] EWCA Civ 292.

We acted for Children’s Ark Partnerships Limited (“CAPL”) in its dispute with Kajima Construction Europe (UK) Limited and Kajima Europe Limited (together “Kajima”) in which the Court of Appeal considered the enforceability of the Dispute Resolution Procedure (“DRP”) in the contract between the parties.

Background

On 10 June 2004 CAPL entered into a PFI Project Agreement with the Brighton and Sussex University Hospital NHS Trust (the “Trust”) to design, build and finance the redevelopment of the Royal Alexandra Hospital for Sick Children in Brighton (the “Hospital”) (the “Project Agreement”). On the same date CAPL entered into a sub-contract with Kajima to design and build the Hospital (the “Construction Contract”). In 2018, following construction of the Hospital, numerous fire defects were discovered, entitling the Trust to apply deductions to payments made to CAPL under the Project Agreement. CAPL sought reimbursement of the sum of such deductions from Kajima under the Construction Contract.

CAPL and Kajima agreed to extend the limitation period for any claim against Kajima under the Construction Contract, to allow the parties to establish the extent of deductions the Trust was entitled to apply under the Project Agreement, and accordingly the extent of Kajima’s liability to CAPL.

In December 2021, remedial works at the Hospital were largely complete and Kajima refused to extend the limitation period any further. CAPL accordingly issued proceedings on 21 December 2021 to avoid its claim being time-barred.

Kajima’s Application

Kajima applied to the Court to strike out CAPL’s claim on the basis that CAPL had not followed the DRP under the Construction Contract, which required a dispute between the parties to be “referred to the Liaison Committee for resolution” before Court proceedings could be commenced.Kajima argued that the Court did not have jurisdiction to deal with the claim on this basis, and further that as the limitation period had now expired without CAPL following the contractual DRP, CAPL was time-barred from seeking recovery of the sum of the deductions applied by the Trust under the Project Agreement.

While the Court agreed with Kajima that the DRP (and in particular the requirement to refer the dispute to the Liaison Committee) was a ‘condition precedent’ to litigation, i.e. that CAPL was not entitled to commence a court claim until the dispute had been referred to the Liaison Committee, it agreed with CAPL that the DRP was not “sufficiently clear and certain” to be enforceable. This was not least because the Liaison Committee (as defined in the Construction Contract) included representatives of the Trust and CAPL, but crucially not Kajima. The Judgment of Mrs Justice Joanna Smith (the “Judge”) noted “I cannot see how it is possible to “resolve” a dispute between two parties amicably when one is not involved in the process”.

The Judge further noted that even if the DRP was enforceable, the Court would have jurisdiction to deal with the matter, and in those circumstances she would have done no more than stay the proceedings (i.e. pause the proceedings to give sufficient time for the parties to comply with the DRP). In other words, even if the DRP was enforceable, it would not be appropriate, in the Judge’s view, to strike out CAPL’s claim.

The Appeal

Kajima appealed the Judgment on three bases, which the Court of Appeal (“COA”) rejected as follows:

Ground of Appeal 1: Was the Judge wrong to determine that the DRP was unenforceable?

The COA found that the Judge was correct that the DRP was unenforceable, as the Liaison Committee (for the purposes of the Construction Contract) was a fundamentally flawed body that could neither resolve a dispute involving Kajima “amicably”, and nor could it fairly provide a decision binding on Kajima in any event. 

Ground of Appeal 2: Was the Judge wrong to determine that a stay in court proceedings (ie. a pause) is the “default remedy” where a proceedings are commenced in breach of a condition precedent?

While the COA noted that a stay in proceedings is not the “default remedy” in the sense that it is “automatic or inevitable”, a stay in proceedings is the usual order that a court will make in these circumstances. Even if the Judge overstated the wide applicability of stays in proceedings in these circumstances, this did not affect the exercise of her discretion because she considered the possibility of an alternative remedy being applied.

Ground of Appeal 3: Was the Judge’s exercise of her discretion flawed?

The COA concluded that the Judge took into account the relevant factors, including the conduct of the parties and particular circumstances giving rise to the dispute, and accordingly the exercise of her discretion was not flawed. In particular, the COA disagreed with Kajima that the Judge had not taken into account Kajima’s contention that anything other than striking out CAP’s claim would deprive it of a limitation defence.

Conclusion

While the Court of Appeal accepted in the circumstances that the DRP under the Construction Contract was unenforceable, its Judgment serves as a warning to parties contemplating litigation to ensure that they follow the contractual DRP before commencing court proceedings if such DRP is expressed as a condition precedent, even if it has been badly drafted. This is especially the case when limitation is a factor, because a potential Claimant may need to factor in the time it will take to follow the contractual DRP before it is entitled to commence court proceedings.