Pre-Litigation Adjudication Clause Upheld But Court Exercises Discretion in Lancashire Schools SPC Case

Citation: [2024] EWHC 37 (TCC)
Judgment on

Introduction

Lancashire Schools SPC Phase 2 Limited v Lendlease Construction (Europe) Limited & Ors is a significant case in the realm of dispute resolution, particularly in the context of pre-litigation adjudication. The case revolves around the question of whether a party to a contract is permitted to initiate legal proceedings without first adhering to an agreed adjudication process, as stipulated by the contract. This article explores the case’s essential facts, the legal principles applied, and the outcomes delivered by the Technology and Construction Court in the High Court of Justice.

Key Facts

The dispute concerns Lancashire Schools SPC Phase 2 Limited (Project Co) and Lancashire County Council (the Authority), with the latter applying to have the former’s claim set aside or struck out for not engaging in the contractually mandated adjudication before initiating legal proceedings. The underlying contract includes a clause detailing a dispute resolution process beginning with consultation, followed by adjudication, and finally, recourse to the courts.

Despite the proceedings involving defects in construction and facilities management, resulting in additional defendants (Lendlease Construction (Europe) Limited and Equans Buildings Limited), the focus of this application revolves around the contract between Project Co and the Authority.

Several legal principles were examined to address whether adjudication was a condition precedent to litigation:

Construction of Contractual Terms: The court underscored the necessity to ascertain the objective meaning of the contract’s language and to interpret dispute resolution clauses by considering the entire contract and commercial common sense.

ADR as a Condition Precedent: The case hinged on whether clause 68 stipulated adjudication as a condition precedent to litigation. Mr. Justice Alexander Nissen KC concluded that based on the broad language and the interplay between clauses 68 and 86, adjudication was indeed a condition precedent to initiating legal proceedings.

Exercise of Court’s Discretion: Even if adjudication was found to be a condition precedent, the court held discretion under CPR Part 11 to decide whether it should enforce this requirement. The court would consider the overriding objective and the utility of the adjudication process in reaching its decision.

Alternative Relief under CPR 3.4: The Authority sought to strike out the claim under CPR 3.4, arguing that the claim either lacked reasonable grounds or constituted an abuse of the court’s process. Nevertheless, the court rejected these claims, finding the existence of a condition precedent did not diminish the reasonableness of the substantive claim itself.

Key Case References:

  • Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2246 (TCC)
  • Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334
  • DGT Steel and Cladding Ltd v Cubitt Building and Interiors Ltd [2007] EWHC 1584 (TCC)
  • Children’s Ark Partnership Ltd v Kajima Construction Europe (UK) Ltd [2022] EWHC 1595; [2023] EWCA Civ 292

Outcomes

The court exercised its discretion to decline enforcement of the adjudication provision, dismissing the applications under CPR Part 11 and CPR 3.4. Key considerations included the utility of adjudication in a complex multi-party dispute, the potential impact on the seamless progression of litigation, the burden placed on other parties who did not insist on adjudication, and the implications for multi-party mediation efforts.

Conclusion

This case reinforces the principle that clear and unambiguous terms are required to oust the court’s jurisdiction, even temporarily. While the court upheld that adjudication was a condition precedent within the contractual dispute resolution mechanism, it exercised its discretion, taking into account the practical realities of the dispute, to allow the litigation to proceed without requiring prior adjudication. This outcome highlights the balance courts must maintain between upholding contractual agreements and the overarching needs of justice and effective case management in multiparty litigation.

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