Lancashire Schools SPC Phase 2 Limited v Lendlease Construction (Europe) Limited & Ors

A contractual dispute-resolution clause may make adjudication a condition precedent to litigation where, construed as a whole, it clearly makes court jurisdiction subject to completion of the agreed process. A permissive right to commence adjudication does not prevent adjudication being a necessary precursor to court proceedings. Nevertheless, breach of such a provision gives rise to a discretionary remedy. The court should consider the utility of the proposed adjudication, the nature and complexity of the dispute, the effect on other parties and proceedings, delay, settlement prospects and the overriding objective. A stay may be refused where a bilateral adjudication would be ineffective in a complex multi-party dispute. Strike-out is ordinarily inappropriate where the provision temporarily affects the forum or timing of the claim rather than its substantive merits.

The claimant brought proceedings concerning alleged defects in a school delivered under a PFI project agreement. It claimed against the building contractor, its parent, the facilities-management contractor and the local authority. The authority applied under CPR 11(1)(b) and CPR 11(6)(b) to set aside service or obtain a stay, alternatively seeking strike-out under CPR 3.4(2). It argued that clause 68 of the project agreement required the claimant to adjudicate before litigating. The central questions were whether adjudication was a condition precedent or mandatory contractual step, how the court should exercise its discretion, and whether strike-out was appropriate.

1. Construction of clause 68. Clause 86 made the English courts’ jurisdiction subject to clause 68. Clause 68.1 required disputes concerning any aspect of the agreement to be resolved under that clause. Read together, those provisions created a clear contractual framework in which adjudication was a condition precedent to litigation. Clause 68.3 used “may” to avoid compelling a party to adjudicate against its will, but did not permit the parties to bypass adjudication and proceed directly to court. The court route in clause 68.14 was the stipulated route following an adjudicator’s decision, or failure to provide one.
2. Alternative conclusion. Even if adjudication was not a condition precedent, the requirement to adjudicate first was mandatory and enforceable. The adjudication machinery was sufficiently clear and certain.
3. Discretion under CPR 11. The court recognised the strong policy in favour of holding commercial parties to their agreed dispute-resolution mechanism, with the burden on the party resisting a stay. However, the pleaded dispute was not a short question of contractual interpretation. It involved alleged defects, contingent liabilities and potentially conflicting responsibility between the building and facilities-management contractors. A bilateral adjudication between the claimant and authority was unlikely to resolve the real dispute effectively. It could draw the other parties into expensive satellite disputes, interfere with the existing litigation and possible consolidation, cause delay, and hinder settlement. Those factors outweighed the presumption in favour of a stay.
4. Strike-out. Failure to adjudicate did not mean that the claim disclosed no reasonable grounds. It affected the timing or forum for determination, not the substantive merits. Strike-out would also be disproportionate and inappropriate under CPR 3.4, including because no separate abuse of process was established.
5. The applications under CPR Part 11 and CPR 3.4 were dismissed. The parties were to address the consequential directions, including the timetable for the other defendants’ defences.

Not an appeal. The judgment determined an interlocutory application in the High Court proceedings.