Condition precedents in light of Lancashire Schools v Lendlease

What is a ‘condition precedent’?

Broadly, a condition precedent describes an arrangement by which a specific event or situation must occur before a subsequent event can happen, i.e., something is conditional on the occurrence of another event. Places you will find these may be familiar. In contracts to buy a property or in a share purchase agreement there will often be conditions before completion can occur.

Condition precedents are particularly common in construction contracts, for example with notices, certificates, payment requirements, extensions of time and dispute resolution.

How do the courts approach condition precedents?

If the wording of the condition precedent is sufficiently clear and certain, the court will generally enforce it as binding. You do not need to state that the relevant clause/act is a ‘condition precedent’ for it to be considered so.

The parties need to make clear with express language that they are creating a “conditional link” between the events, in that the outcome is contingent on performance of the initial event.[1] The certainty of the wording is vital. The courts will look to consider the ordinary meaning of the words including by considering the contract terms in their entirety.  If the requirements for the condition to be met or the applicable deadline are unclear, there is a real risk that the provision will be void for uncertainty and the condition precedent will not apply.

The court has provided particular requirements in order for certain notice provisions to be considered condition precedents. Specifically, they must state the precise time within which the relevant notice must be served and make plain by express language that the party will lose their rights under the clause unless the notice is served within the specified time.[2]

Where the terms of the condition precedent are sufficiently certain with the requisite detail, a condition precedent will generally be enforced as binding and the benefitting party will be able to rely on it. This aligns with the relatively strict approach of the courts of England and Wales to enforce clear terms of a contractual bargain wherever possible.

However, if a court finds that a condition precedent has not be complied with, the recent case of Lancashire Schools v Lendlease demonstrates they may still be willing to decline enforcement.

Lancashire Schools SPC Phase 2 Limited v Lendlease Construction (Europe) Limited and Others [2024] EWHC 37 (TCC)

This case concerned an application by the fourth defendant, Lancashire County Council, to set aside service of the claim form or strike out the claim. This was on the basis that the claim had been brought in breach of a condition precedent in the dispute resolution clause which required the parties to adjudicate before issuing formal proceedings. It was agreed that no such adjudication had taken place.

The court had to assess whether the adjudication provision was a condition precedent (or otherwise mandatory), and if so, whether it should therefore decline jurisdiction and set aside service of the claim form or strike out the claim.

The Judge, after assessing the wording of the relevant clauses, was “wholly satisfied”[3] that adjudication was a condition precedent to litigation. The wording was sufficiently certain and showed express intention to create a condition precedent.

Therefore, you may, understandably, have assumed that the court made an order to strike out the claim or for a stay to enable the parties to first exhaust the prescribed adjudication procedure before formal proceedings could be brought.

An exercise of discretion

Despite finding the clause was a condition precedent (or alternatively, adjudicating first was otherwise mandatory) the court declined to enforce it, whether through a stay or strike out of the claim. The court made regular reference to the overriding objective and analysed the wider implications of enforcing the clause in these specific proceedings.

The Judge gave four key reasons for declining enforcement of the clause:[4]

• With the proceedings being a multi-party dispute, the Judge was “very doubtful” that a bilateral adjudication between Lancashire County Council and the Claimant would resolve matters satisfactorily. Although the dispute resolution clause allowed for submissions to be made by other parties, and that parties had essentially bargained to be bound by an adjudication decision between the Council and the Claimant, the Judge deemed that applying those provisions may be particularly difficult and could lead to procedural complications. The Judge felt there was a real risk that an adjudication would essentially achieve nothing.
• In the present litigation, which was split into “Phase 1” and “Phase 2” and with a total of five parties, a stay would likely delay the ultimate disposal of the proceedings as it would interfere with orderly progress. Such interference and delay would be against the overriding objective.
• The significance of the court ordering a stay was reduced as, according to the Claimant’s submissions, the Council would be free to begin its own adjudication at any time if their application was dismissed.
• Ordering a stay or strike out could have impacted the ongoing multi-party mediation.

With specific reference to the option to strike out, the Judge considered that, at the most, the dispute resolution clause was a “temporary deprivation” of the Claimant’s entitlement to advance their claim, rather than the clause meaning that there were no reasonable grounds for bringing the proceedings. The Judge felt striking out such a claim, simply because of such a temporary deprivation, would be draconian.[5]

As a result, the Judge dismissed the application for a stay or strike out, despite the proceedings being brought in breach of the condition precedent.

Key takeaways:

• Condition precedents can be used in a variety of contexts to ensure that an event is contingent on another and are particularly prevalent in construction contracts.
• The certainty of wording for condition precedents is vital to ensure they are interpreted as such by the courts. The deadline, requirements, and consequences of not meeting these must be very clear.
• Generally, if the clause is worded effectively to show express intention to create a condition precedent using certain terms, the court will look to uphold and enforce their requirements.
• Although fact specific, Lancashire Schools v Lendlease shows that, in some circumstances, the court may be inclined to disregard a condition precedent, even if sufficiently clear and certain, in favour of a pragmatic approach and the overriding objective.

Ewan Anthony is a Trainee Solicitor and David Owens at Sharpe Pritchard LLP.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk