Tested: Mandatory ADR clauses in contracts
Jurisdiction: England and Wales
Judgment: Lancashire Schools v Lendlease and Equans
The High Court has recently made a decision to allow a lawsuit to move forward, despite it contravening a contract’s stipulation for mandatory alternative dispute resolution (ADR). This case involved Lancashire County Council and Equans, with the former initiating legal action against the latter over alleged flaws in the construction and maintenance of school buildings. The contract between the two parties included a clause that disputes should be resolved through adjudication, a form of ADR. Equans contended that Lancashire’s legal proceedings violated this clause, arguing that the court lacked jurisdiction as a result.
The key question was whether the contract required disputes to be settled through adjudication before any litigation could commence. The court referenced a previous case, Children’s Ark v Kajima, which dealt with a dispute resolution clause that was deemed too vague to enforce. In contrast, the clause in question was found to be “full and clearly enforceable,” detailing the adjudication process, including the appointment of an adjudicator and the timeline for reaching a decision, effectively excluding certain disputes from the court’s jurisdiction.
The court had to decide whether to enforce this adjudication clause strictly. Given that the litigation involved one of four agreements linked to the construction defects and was part of a broader series of legal actions that were expected to merge, the court anticipated that adjudication, involving multiple parties, would precede extensive litigation regardless. The court reasoned that mandating adjudication could introduce unnecessary costs and delays, thus choosing to exercise its discretion by not staying the proceedings. This decision prioritized moving the dispute resolution forward without further delay.
Additionally, the court declined to dismiss the lawsuit as unreasonable or constituting an abuse of the legal process, requiring Equans to present its defence in court. This ruling highlights the court’s willingness to bypass ADR clauses in contracts under certain circumstances, particularly when adherence to such clauses could result in inefficient or protracted legal battles.