Contractual clauses requiring ADR before litigation – what happens when they are breached?

The Court of Appeal recently delivered an important decision regarding the enforceability and effect of contractual dispute resolution provisions that oblige parties to engage in an ADR process before commencing proceedings. Of particular interest is the court’s discussion of what remedy is appropriate where such a clause is enforceable and has been breached by a claimant starting litigation before engaging in the process: Kajima Construction Europe (UK) Ltd v Children’s Ark Partnership Ltd [2023] EWCA Civ 292.

It is well established that such clauses can be enforced by the court, but only where the nominated ADR process is specified in enough detail to provide certainty as to the parties’ obligations. In this case the process, which had been imported into a construction subcontract from the head contract, was found to be not workable in that context and unenforceable for uncertainty. To that extent, the decision is a reminder of the importance of such clauses being carefully tailored to the specific contract.  It also suggests that a court will not readily be persuaded to ‘salvage’ and enforce particular elements of a proposed ADR process that is otherwise unenforceable (although the minority judgment here would have been prepared to do so).

As to the appropriate remedy where such a clause is enforceable, the Court of Appeal confirmed that a stay of the proceedings is not an automatic or inevitable response, and that the appropriate remedy will always depend on the situation. However, it accepted that a stay is the “usual” order. On the facts here, it agreed that that was the appropriate response – even if this effectively deprived the defendant of a limitation defence it would otherwise have.  As is the case for other discretionary decisions (such as where there has been an abuse of process), deprivation of a limitation defence will be an important factor in the balancing exercise, but it will not be decisive.

The court’s reasoning suggests that a key factor in this context will be the reasonableness of the claimant’s conduct. The majority was clearly influenced by the fact that this was not a case where the claimant had simply ignored the ADR process, or where the limitation pressure had arisen due simply to its failure to pursue the claim earlier with no good reason. Rather, the claimant’s approach in the particular circumstances was “entirely sensible”.  However, the judgments leave scope for another court to exercise its discretion differently, and strike out a claim, where that is not the case.

As a practical matter, it remains the case that prospective claimants who find themselves under pressure between a looming limitation deadline and a mandatory contractual ADR obligation will in most cases be best advised to try to engage with the ADR process to the extent possible, and to seek a limitation standstill agreement – but if that is not possible, to commence the proceedings before the deadline (and then seek a stay for ADR if appropriate).


The dispute arose in connection with an NHS Trust’s engagement of the respondent (CAP) to redevelop a hospital (the head contract), and CAP’s engagement of a construction company (Kajima) to undertake the works (the subcontract).

Under the head contract, the Trust and CAP had established a Liaison Committee comprising representatives of each, to deal with issues arising throughout the project, including resolving any disputes amicably. It also included dispute resolution provisions (DRPs) agreeing that all disputes “shall first be referred to the Liaison Committee for resolution. Any decision of the Liaison Committee shall be final and binding unless the parties otherwise agree”. The DRPs provided that disputes would be referred to the High Court “to the extent not finally resolved pursuant to that procedure” (or any further agreed ADR process such as mediation).

The subcontract between CAP and Kajima imported those DRPs in substantially identical form.

Ten years after the works were completed, fire safety concerns were raised following the 2017 Grenfell fire and it was agreed that Kajima would undertake certain remedial works, without admission of liability. As a contractual limitation period of 12 years would expire while those works were ongoing, CAP and Kajima agreed a succession of limitation standstill agreements.

When Kajima indicated it would not agree to a further standstill, CAP commenced the proceedings, and then sought a stay until the parties had engaged with the Liaison Committee.  Kajima applied to strike out the claim on the grounds that it had been commenced in breach of the DRPs. In particular, it argued that any new proceedings would now be statute barred and that any remedy short of a strike out would wrongly deprive it of a limitation defence to the entire claim.

The High Court accepted that, properly construed, the DRPs made completion of the Liaison Committee process a condition precedent to litigation –  ie they obliged each party to engage in the process before it commenced any proceedings. However, it held that:

  • the provisions were unenforceable for uncertainty in a number of respects;
  • even if they were enforceable, the court would not have exercised its discretion to do more than stay the proceedings until the DRPs were complied with. The judge described a stay as “the default remedy” where the court was being asked not to exercise its jurisdiction due to a breach of a dispute resolution agreement.

Kajima appealed both those findings.


The Court of Appeal dismissed the appeal. Coulson LJ gave the lead judgment, with which Holroyde LJ agreed.  Popplewell LJ agreed with the ruling but on narrower grounds.


Although mindful of the need to enforce parties’ agreements whenever possible, the majority considered the DRPs in the construction contract unenforceable because:

  • Given that Kajima was not represented on the Liaison Committee, and had no entitlement to participate in it, it was not clear how it could fairly provide any adjudication that would be binding on Kajima, or facilitate an amicable settlement involving Kajima. It was therefore fundamentally flawed as a dispute resolution mechanism for the subcontract
  • While there might have been sufficient certainty as to the initial obligation to refer the dispute to the Committee, everything after that would depend on further agreements between the parties. The majority of the court rejected a submission by Kajima that the condition precedent to litigation was actually limited to that initial referral, rather than completion of the process:

Whilst the court will endeavour to enforce the agreement between the parties, it should not overstrain to do so, so as to arrive at an artificial result. I do not consider that it is appropriate for the court to try and tease out of the contractual process one element that may be capable of being salvaged, even if other parts are plainly unenforceable“.

  • There was ambiguity as to when the process could be treated as having come to an end, so that proceedings could be commenced.

Disagreeing, Popplewell LJ regarded the last point as the only factor that rendered the provisions unenforceable.  Although they were “a clumsy adoption” from the head contract, he would have construed them in this context as an agreement that the Committee conduct a mediation-like process (rather than an adjudication), including deciding the relevant procedure. That would leave no aspects to be agreed between the parties and could be enforced.

Further, Popplewell LJ would have been prepared to accept Kajima’s argument that only the commencement of the Committee process was a condition precedent to litigation and that that was enforceable – if not for his view that it was not open to Kajima to argue that in the appeal.

Stay versus strike out

Coulson J opened his judgment by commenting that the application to strike out the claim “would ordinarily seem like overkill: in all the relevant authorities, save one, a stay of the proceedings was regarded as sufficient”. However he noted the complications in this case arising from (i) the fact that the DRPs were not just mandatory but a condition precedent to litigation and (ii) the limitation issue.

In Coulson LJ’s view, a stay of proceedings was not the “default remedy” in the sense of an automatic or inevitable relief when a party ignores a contractual dispute resolution procedure. The right remedy would always turn on the facts of the case. However, to the extent that the expression was simply shorthand to describe the usual order made in such cases, he thought that that was plainly right, based on his review of the (limited) authorities where a court has considered such a breach.  He noted that, although most of those authorities were cases where the ADR process was mandatory but not expressed as a condition precedent to litigation, at least one was of the latter type.

Even if the High Court had overstated the wide applicability of stays, that had not affected the exercise of its discretion here, and if the Court of Appeal had needed to re-exercise the discretion it would come to the same conclusion.

That was so even if it was accepted that doing so would deprive Kajima of a limitation defence.  The majority considered that deprivation of a limitation defence “is an important element of the balancing exercise but it cannot alone be decisive”. It observed that, in the only identified case where the proceedings had been struck out for breach of a dispute resolution clause (as to forum rather than an ADR obligation), the limitation factor was only decisive because it was balanced against the judge’s finding of unreasonableness on the part of the claimant (Snookes v Jani-King (GB) Ltd [2006] EWHC 289).  In contrast, the majority agreed with the High Court that CAP had acted entirely reasonably in the circumstances here. In particular, this was not a case where the limitation pressure arose “because of indolence or a failure to get on with the underlying dispute”.  Rather, it was a situation where a national tragedy had prompted the identification of significant fire-safety issues and where both sides, and the NHS Trust, were trying to co-operate and work out an acceptable solution.

On the issue of remedy, Popplewell LJ considered that a stay is not the default remedy in the sense of there being any presumption in favour of it –  but also not in the sense of “it being the usual remedy, in the present context”.  In his view, if a party has commenced proceedings in breach of contract, and a stay rather than strike out will deprive the other party of a limitation defence, both those factors “were important considerations in favour of striking out rather than staying the claim”.

Popplewell LJ “would strongly incline to the view” that the appropriate remedy here was to strike out the claim if the condition precedent were just the commencement of the Committee process (as he would have accepted if that argument was open to Kajima). To do otherwise would be to permit CAP to rely on its breach to deprive Kajima of a limitation defence, in circumstances where CAP could have easily complied with the obligation before commencing the litigation. However, on the basis that the condition precedent had been held to be the completion of the process, he agreed with Coulson LJ that there were no grounds for interfering with the judge’s exercise of her discretion to limit the remedy to a stay of proceedings.

Jan O'Neill
Jan O'Neill
Professional Support Lawyer, London
+44 20 7466 2202

Revised ADR (or ‘NDR’) provisions in the new Commercial Court Guide

The recently released 11th edition of the Commercial Court Guide includes a number of revisions to the section regarding the use of ADR – including a change of terminology to “NDR” (for “negotiated dispute resolution”).

The revisions will not require any substantial change in day to day practice, and a comparison against the previous edition might appear at first glance as no more than a ‘tidying up’ of the wording.  However, the changes are notable in that they can clearly be seen as designed to give effect to the current judicial and government policy drive to embed ADR more fully into court procedure and culture at all stages of the process.

In particular, the revised provisions more closely reflect a system in which ADR is not something that might be considered in appropriate cases but, rather, is a standard or typical step in the mainstream process (which in our experience is the current reality in the Commercial Court for the most part).

Perhaps more importantly, the changes are also more reflective of a system in which both the parties and judge are expected to keep the potential for ADR under active review throughout the entire litigation process (which is something we believe is not always currently the case, and is to be encouraged).  Continue reading

Enforcing dispute adjudication board decisions

We reported earlier this year on a spate of recent court decisions in different jurisdictions giving support for the use of dispute adjudication boards (DABs). DABs can provide an effective means for parties to obtain interim binding decisions on disputes pending any final resolution by arbitration or litigation – applying a ‘pay now, argue later’ approach designed to keep long term projects on track and avoid disruption to cashflow.

However, enforcing DAB decisions is not always straightforward, as highlighted in the recent decision of the Singapore Court of Appeal in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (which is likely to be influential in other jurisdictions).   It now appears that the way should be clear for the contractor in that case to enforce the DAB's decision but it has taken him nearly seven years to reach this point.  What lessons can be drawn from this saga?  In our recent ebulletin, Mark Lloyd-Williams, Ann Levin and David Nitek, Partners in our London office, explore the details of the case and the salient take-away points.


Upcoming webinar – Making the best use of Dispute Boards

We have previously reported (here) on a recent spate of court decisions in several jurisdictions which examined contractual clauses providing for the use of Dispute Boards as a dispute resolution procedure.

On Thursday 12 March 2015, at 9.00am (GMT), Mark Lloyd-Williams and David Nitek, Partners in our Construction and Engineering team in London, will deliver a webinar on ‘Making the best use of Dispute Boards‘.

Dispute Boards offer great flexibility – they may be appointed either as and when disputes arise, or for the life of a project; and can give either a (temporarily) binding decision, or a non-binding recommendation.  The webinar discussion will consider the circumstances in which Dispute Boards can add value to projects (with a focus on construction and engineering projects), techniques for maximising the advantages they can offer and the enforcement of Dispute Board decisions that are binding.

This event is part of our series of “Soundbite” webinars,  designed to update Herbert Smith Freehills LLP clients and contacts on recent developments without having to leave their desks. Once you have registered, the webinar can be accessed “live”, with a facility to send in questions to the speakers in real time, or you can listen to a recording after the event. The webinars, both live and archived, also qualify for one CPD point.

If you would like to register for the webinar, or to obtain a link to the archived version, please contact Jane Webber.


Judicial support for dispute adjudication boards

Three separate court decisions in different jurisdictions in recent months have given support to dispute adjudication boards (DABs) as a form of dispute resolution and, more generally, the enforcability of contractual dispute resolution clauses.

DABs, which often comprise a panel of three members, provide a decision on a dispute which is binding pending any subsequent determination by a court or arbitral tribunal should one of the parties pursue litigation or arbitration. In this sense they are similar to adjudicators’ decisions. Commonly seen in international standard form contracts in the construction and infrastructure industries,  clauses requiring disputes to be referred to a DAB before court or arbitration are intended to keep a long term project on track by providing quick resolution to disputes and avoiding disruption to cashflow  – applying a ‘pay now, argue later’ approach.

Two decisions in England and Switzerland last year both considered the provisions in the FIDIC suite of contracts (used extensively in the construction industry) that require referral of disputes to a DAB.   In both cases, the courts held that the referral to a DAB was mandatory, with only limited exceptions  – rejecting arguments that the parties could opt out of the process once the dispute had arisen and refer the dispute direct to arbitration or court proceedings (although, on the facts in the Swiss case, the court considered that an exception based on principles of good faith applied).    Michael Mendelblat of our Construction team comments on the Swiss and English decisions below.

Shortly after those judgments, in an important decision in an arbitration context, the Singapore Court of Appeal upheld an interim award made by an arbitral tribunal giving effect to an obligation to promptly comply with a DAB decision. Our arbitration team comments on this Singapore decision on our Arbitration Notes blog here.

Underlying all three decisions is the view that parties should be held to their bargain where they have clearly expressed their intention to resort  first to a particular form of dispute resolution (in this case DABs) before escalating the dispute to court or arbitration.

Continue reading

ICC to revise ADR, Expert Determination and Dispute Board Rules

Earlier this year, the ICC Commission on Arbitration set up a Consultative Task Force comprising experts in the field of international ADR to review and revise their ADR Rules, Rules for Expertise and Dispute Board Rules. These ICC rules are available for parties to adopt, either in their commercial contracts or at the point of dispute, to resolve their dispute through ADR (for information click here), expert determination (for information click here), or a dispute board (for information click here).  To view the ICC’s current rules, click here

The guiding principle for the Task Force is that changes or additions to the above rules should only be made when it is genuinely useful or genuinely necessary to do so. The Task Force is currently amending the various rules, and meetings are taking place to discuss their drafts. It is the ICC’s expectation that the revised ADR rules will be submitted to the ICC Commission members at a meeting in November 2012, and approved in the spring of 2013.

Herbert Smith Freehills are on the Consultative Task Force and have advised the ICC on the revision of their ADR Rules.

Challenges to the enforcement of Dispute Board decisions in Asia

The use of Dispute Boards is becoming increasingly common on large and complex projects across the Asia Pacific region. In many cases, Dispute Boards have provided an effective means for parties to obtain interim decisions on disputes pending final resolution by arbitration or litigation. Unfortunately, however, enforcement of a Dispute Board determination is not always straightforward. This should be addressed through careful drafting and, in particular, by vesting an arbitral tribunal with jurisdiction to address in an expedited manner any failure to comply with a Dispute Board decision.  We consider some of the difficulties which may arise with particular reference to a recent Singapore case. Please click here to read more.