The High Court has allowed litigation to proceed even though it was in breach of a mandatory alternative dispute resolution clause in a contract.

Lancashire County Council contracted with Equans to build and maintain school buildings. Lancashire claimed defects in the buildings and maintenance, and started legal proceedings. The agreement had a provision referring disputes to adjudication. Equans claimed Lancashire had started proceedings in breach of this provision so that the court had no jurisdiction.

Was adjudication required?

The court considered the recent case of Children’s Ark v Kajima (about a clause that was found to be too uncertain to be enforceable) and interpreted the provision before it. The court said that the provision described a procedure that was “full and clearly enforceable” since it outlined steps to appoint an adjudicator and reach a binding decision, imposed deadlines for adjudication, and functioned as a carve-out from the jurisdiction clause. Therefore, adjudication was either a condition precedent to litigation or it was mandatory that the parties go first to adjudication.

If so, then what?

The dispute was about one of four agreements and underpinned the second of a set of two proceedings in relation to the claimed defects. The court believed the two proceedings would ultimately be consolidated. The court predicted that adjudication would be complex, as it involved multiple parties, and would inevitably be followed by litigation. Although the court had the power to stay proceedings to encourage alternative dispute resolution, this was not appropriate where adjudication would likely cause unnecessary costs. Therefore, the court exercised its discretion not to order a stay, as the further delay would impact the progress of the dispute.

Proceed to litigation

The court also refused to strike out the claim as unreasonable or an abuse of process.

Equans now must file its defence

Judgment: Lancashire Schools v Lendlease and Equans