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In this week's bulletin we take a look at a recent case that deals with an alternative dispute resolution provision and the New Home Ombudsman Service.

Do I need to comply with an ADR clause before bringing court proceedings?

The High Court in Children’s Ark Partnerships Ltd v Kajima Construction Europe (UK) Ltd and another [2022] EWHC 1595 (TCC) considered whether an alternative dispute resolution (ADR) clause must be complied with prior to pursuing court proceedings.

The case dealt with a construction contract for the redevelopment of a hospital between Children's Ark Partnerships (the Developer) and Kajima (the Contractor).  The construction was effectively completed in 2007 however, because of issues relating to cladding and fire-stopping, the Contractor had to undertake remedial works in 2018. The limitation period under the contract was to expire on 2 April 2019 and was extended by agreement between the parties until 29 December 2021.  The Contractor refused any further extensions.  On 21 December 2021, in order to protect its position, the Developer issued proceedings against the Contractor.  It then sought to stay the proceedings to resolve the dispute in accordance with the ADR provision in the contract.

The Contractor opposed the Developer's claim on the basis that the ADR provision had not been complied with. The Contractor claimed that the ADR provision was a condition precedent (i.e. a condition that must be satisfied before some other event can take place) to commencing proceedings and that the court therefore either had no jurisdiction or should not exercise its jurisdiction to deal with the claim (relying on CPR 11).  If the Contractor was successful in its argument then the Developer's claim should be dismissed and it would be time barred from bringing any new claim.

The court agreed that the ADR provision in the case should properly be considered a condition precedent to commencing court proceedings.  However, it found that the ADR provision was neither clear nor certain and was therefore unenforceable.  The court highlighted a number of issues with the ADR provision: no meaningful description of the process to be followed; no unequivocal commitment to engage in any particular ADR procedure; and no clear way to refer the dispute for resolution. Moreover, in a curious quirk, the ADR provision provided for a liaison committee to resolve disputes which was made up of the hospital trust and the Developer but which the Contractor had no right to be a part of.

This case reinforces the principle that an ADR clause can be effective as a condition precedent to commencing proceedings. However, care must be taken in drafting and negotiating such clauses to ensure that the provisions are sufficiently clear and certain to be enforceable.

The New Homes Ombudsman Service

As part of the raft of changes to safety standards in residential buildings introduced by the Building Safety Act 2022, the New Homes Ombudsman Service (NHOS) will be established and is due to go live in Autumn 2022. The NHOS, which is required to be open to all developers, will provide a means for new build homeowners to bring complaints against developers and for those complaints to be investigated by the independent ombudsman at no cost to the complainant. The costs of the NHOS will be covered by registration/membership fees charged to developers.

When investigating complaints, the ombudsman will be able to request information from developers and can then require the developer to pay compensation; make an apology; provide an explanation; or such other action as the ombudsman deems is in the interests of the complainant. If a developer does not comply with the ombudsman's decision, regulations will specify the sanction, which may include expulsion of the developer from the scheme. 

Whilst the NHOS is not intended to take the place of legitimate legal claims that homeowners may have against developers, it is intended to supplement that and provide a more cost effective route for some homeowners who cannot otherwise take legal action. The potential reputational damage to developers for failing to join the scheme, expulsion from the scheme or repeated complaints in a public forum will be an important factor for developers to consider. Equally a low number of complaints and compliance will likely have a positive impact on the reputation of developers. 

For a more detailed review of the provisions of the NHOS, please watch our webinar where we were joined by Emma Toms, the Interim COO of the New Homes Quality Board: Webinar: Private residential development briefing – The Ombudsman scheme and Code – Trowers & Hamlins

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