SETTLEMENT AGREEMENTS AND CONSTRUCTION CONTRACTS: The Right to Adjudicate
Tim Mould
The right to adjudicate a dispute under a construction contract at any time is a powerful tool. Understandably, parties are reluctant to pursue a claim if the only viable route to do so is to commit to the time and costs of Court or arbitration proceedings. A decision to commence a construction adjudication (under statutory or contractual adjudication rules), where a binding and enforceable decision can be obtained within 28 days, is a quite different and attractive alternative.
There has however been significant potential to date to resist enforcement of an adjudication decision concerning breach of a settlement of a construction contract dispute. That is illogical given that if the relevant construction contract permits a dispute between the parties to be adjudicated, the commercial expectation will naturally be that any dispute over settlement of that same dispute ought also to be referable to adjudication. The recent decision of J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] EWHC 1148 (TCC) is strongly supportive of the common sense position that all settlement disputes, concerning construction contracts with attached adjudication provisions, may now be adjudicated. It decided that a dispute as to whether a final account settlement was concluded was a dispute arising “under” a sub-sub-contract.
The Court’s reasoning rejects an historical approach of determining that good jurisdictional challenges to settlement related decisions arise if the relevant construction contract has a narrowly drawn adjudication provision. Why Murphy v Maher is likely, but not inevitably, going to be the Courts’ approach to future adjudication decisions is now explained.
The Background
Murphy engaged Maher under a sub-sub-contract that was based on an NEC3 form of contract which included Option W2 that provided that “any dispute arising under or in connection with this sub-contract is referred to and decided by the Adjudicator”. Maher’s position was that, following its final payment application, a “final account sum” was agreed during a telephone conversation and this was referred to in subsequent correspondence sent to Murphy (that was not challenged at the time). Over three months after the telephone conversation, Murphy said that it was awaiting final sign off from head office as to the payment situation. Murphy then proceeded to set out its gross valuation of Maher’s works which was circa £230,000 less than the alleged agreed final account sum.
Maher made a first referral to adjudication of its claim that Murphy had failed to pay the settlement sum but this was withdrawn. The completed sub-contract data section of the sub-sub-contract had identified the TCC as the “Adjudicator nominating body”. Murphy took the point that because the TCC is not in fact a nominating body, there was no contractual basis for Maher to apply to the RICS for the appointment of an adjudicator. Murphy went on to say that because of this defect in the contractual adjudication provision the Housing Grants Construction and Regeneration Act