Lancashire Schools SPC Phase 2 Ltd v Lendlease Construction (Europe) Ltd [2024] EWHC 37 (TCC)

In one of the leading construction cases of 2023, Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd [2023] EWCA Civ 292 , the Court of Appeal considered – and rejected – the appellant’s argument that our client’s claim form should be struck out on the basis that it had not followed the applicable contractual dispute resolution procedure (“DRP”), being a condition precedent to commencing court proceedings.

Similar questions were again put before the court in the recent TCC case of Lancashire Schools SPC Phase 2 Ltd (formerly Catalyst Education (Lancashire) Phase 2 Ltd) v Lendlease Construction (Europe) Ltd (formerly Bovis Lend Lease Ltd) [2024] EWHC 37 (TCC), in which the Court was asked to consider whether to give effect to a contractual dispute resolution clause requiring parties to adjudicate the dispute as a pre-condition to litigation. 

Background

The dispute arose from alleged defects discovered at a school that was built and maintained under a Private Finance Initiative (“PFI”) Project Agreement between a single-purpose Project Company (“Project Co”) and Lancashire County Council (the “Authority”) (the “Project Agreement”).

The original proceedings were brought by Project Co against the parties it held responsible for the alleged defects under a Building Contract and Facilities Management Agreement respectively (the “Primary Defendants”), as well as against the Authority on the basis that if the Primary Defendants established they were not in breach of their respective contracts, the Authority had no entitlement to apply financial deductions against Project Co under the Project Agreement.

The Authority applied to have Project Co’s claim against it set aside or otherwise struck out, on the basis that court proceedings were commenced in breach of a provision of the Project Agreement requiring disputes between Project Co and the Authority to be referred to adjudication before they could be litigated in the courts (the “Dispute Resolution Provision”).  

What did the Court Decide?

In contrast to Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd, the court found that not only was the Dispute Resolution Provision a condition precedent to commencing litigation, but that it was also sufficiently clear and certain to be enforceable.

However, the court nevertheless declined to exercise its discretion to make an order to either strike out Project Co’s claim against the Authority or to stay proceedings to allow the Dispute Resolution Provision to be followed, on a number of bases including that:

• in a multi-party dispute, a bilateral adjudication between Project Co and the Authority would be unlikely to satisfactorily resolve matters;
• mediation between the parties to the litigation may be negatively impacted by having Project Co and the Authority separately seek to resolve their dispute by adjudication;
• it could not be said that Project Co’s claim against the Authority disclosed no reasonable grounds; 
• it was not an abuse of process for Project Co to have commenced proceedings against the Authority before referring the dispute to adjudication, notwithstanding the Dispute Resolution Provision was a condition precedent; and
• striking out the claim or ordering a stay in proceedings would not further the overriding objective of assisting the parties to resolve their dispute.

Conclusion

This case reinforces the principle identified in Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd that in appropriate circumstances, the court will exercise its discretion not to enforce contractual provisions requiring alternative dispute resolution procedures to be followed, even if such provisions are clearly expressed to be a pre-requisite to commencing litigation.

While it is perhaps surprising on the face of it, that the court in Lancashire Schools SPC Phase 2 Ltd (formerly Catalyst Education (Lancashire) Phase 2 Ltd) v Lendlease Construction (Europe) Ltd (formerly Bovis Lend Lease Ltd) elected not to give effect to the Dispute Resolution Provision in circumstances where it was found to be both mandatory and sufficiently certain to be enforceable, the case turned on its specific facts. In light of this, parties should expect the courts to continue to enforce agreements that that have been freely entered into unless there are compelling reasons not to, and the circumstances in which the courts decline to enforce such contractual provisions to be limited.