Citation: [2023] EWCA Civ 292
Abstract
A judge had been correct to conclude that a dispute resolution procedure in a construction contract had been unenforceable for uncertainty, and that even if it had been enforceable the proper exercise of discretion under CPR r.11(1)(b) would have been to stay the claim rather than strike it out.
Summary of Facts
The Appellants appealed the rejection of their application to dismiss the Respondent’s breach of contract claim for noncompliance with a contractual dispute resolution procedure (DRP). The Respondent had been engaged by an NHS Trust to construct and maintain a new hospital under a PFI scheme and had, in turn, engaged the First Appellant to carry out the building works, with the Second Appellant guaranteeing performance. The contract mandated a 12-year limit for claims post-completion and included a DRP requiring disputes to be submitted to a liaison committee before proceeding to court.
The Respondent initiated court proceedings as the limitation period neared its end in order to recover deductions which the Trust threatened to make under the main project agreement. The Respondent sought to stay proceedings to adhere to the DRP and undergo the pre-action process. The Appellants sought to strike out the claim, asserting the Respondent’s failure to comply with the DRP had deprived it of a limitation defence.
The judge had held that the DRP gave rise to an unfulfilled condition precedent and deemed it unenforceable for vagueness. Even if enforceable, the judge would only grant a stay of proceedings under CPR r.11(1)(b).
The Appellants claimed the judge erred in deeming the DRP unenforceable and in granting a stay as the default remedy, and that she misapplied her discretion in not striking out the claim. The Respondent reasserted an overlooked argument that, even if the claim against the first appellant should be struck out, the claim against the second appellant should not, as the guarantee lacked the DRP.
Held – Coulson LJ (Holroyde LJ agreeing)
Appeal dismissed.
Enforceability of the DRP – The judge had correctly held that the DRP was unenforceable. The argument limiting the condition precedent to the liaison committee referral was rejected. First, it would be wrong to assume that, if the only enforceable component of the DRP was the initial referral, the judge would have concluded that that was a condition precedent. Second, whilst the court had to endeavour to enforce the agreement between the parties, it should not overstrain to do so, so as to arrive at an artificial result. Isolating the referral ignores the other parts of the process. It was not appropriate for the court to try and tease out of the contractual process one element that might be capable of being salvaged, even if other parts were plainly unenforceable. Further, it was impossible to ascribe any value to the referral on its own (see paras 62, 68-70, 73-74 of judgment).
Exercise of Discretion – A stay of proceedings is not an automatic or inevitable remedy when a party neglects the contractual dispute resolution procedure; the appropriate remedy turns on the facts of the case. The judge employed “default remedy” as shorthand to denote the typical order issued when proceedings breach a mandatory dispute resolution mechanism, which was accurate. Even if her Honour overstated the wide applicability of stays, it did not impact her discretion (paragraphs 91-92). Criticisms of her Honour’s exercise of discretion were unfounded (paragraph 98). Re-exercising discretion, considering the First Appellant’s limitation defence argument, would not result in the striking out of the claim (paragraph 99).
Claim against the Second Appellant – Had the appeal succeeded, the Respondent would have been precluded from seeking any remedy against the First Appellant, but not from seeking any remedy against the Second Appellant. Limitation would have barred only the relief otherwise claimed against the First Appellant, without extinguishing the claim. The Second Appellant, having had no limitation defence, would have been liable as the principal debtor under the guarantee (paragraphs 114-115).
Popplewell LJ
Interpretation of the DRP provision – The DRP must be understood to be a mediatory process conducted by the Liaison Committee, in which it performed a facilitative, not adjudicatory, role; this was an amicable process that did not involve imposing a resolution on an unwilling party. It was necessarily implicit in a good faith exercise of the Liaison Committee’s function that Kajima would be entitled to make representations or see documents or participate in the process. There was nothing uncommercial about the parties providing for such a non-binding form of ADR.
Enforceability of the DRP – The DRP was too uncertain to be enforceable because of the uncertainty as to how and when the DRP process was complete. There was no other aspect of the DRP which rendered it unenforceable for uncertainty.
Exercise of Discretion – a stay is not the “default remedy” in cases such as this. All depends upon the particular features of the individual case. If a party has commenced proceedings in breach of contract, and a stay rather than strike out would deprive the other party of a limitation defence, both those factors would be important considerations in favour of striking out rather than staying the claim. There were no grounds for interfering with the Judge’s exercise of discretion.
Simon Hargreaves KC and Samar Abbas Kazmi acted for the Appellants; William Webb KC acted for the Respondent.
