In Kajima v Children’s Ark, the Court of Appeal agreed that uncertain Alternative Dispute Resolution provisions that were a condition precedent to commencing litigation were unenforceable.
Background - two contracts, one hospital
A UK hospital trust hired Children’s Ark to redevelop a hospital. Children’s Ark then hired Kajima to design and build it.
There were two contracts. The first was between the trust and Children’s Ark. It described an ADR procedure using a committee. This procedure had to take place before litigation could be commenced. The second was between Children’s Ark and Kajima. It was under this contract that the dispute arose and the ADR provisions referred to the procedure described in the first contract.
Kajima appealed a High Court decision that the ADR provisions were unenforceable.
Court of Appeal decision - committee “fundamentally flawed”
The court was “mindful of the need to enforce the parties’ agreement whenever possible”. However, it found that the provisions were unenforceable for these reasons:
- The ADR provisions, on any interpretation, did not make commercial sense. Either the decision of the committee could not bind Kajima, or it could make a binding decision despite having no representative from Kajima. The committee was therefore a “fundamentally flawed body”. This suggested an “unenforceable process”.
- It was unclear how to start the process.
- There was no definable minimum participation obligation.
- It was unclear how and when the process would end.
Key lessons - you need a beginning, middle and end
ADR provisions should be carefully drafted, particularly where there are interlinking agreements or more than two parties. It must be clear how the ADR starts, progresses and finishes – otherwise the provisions may be unenforceable!
Judgment: Kajima Construction v Children’s Ark Partnership
