Do settlement agreements negate right to adjudicate?

Newsletters

July 25 2016 | Contributed by Mayer Brown International LLP

Facts

In J Murphy & Sons Ltd v W Maher and Sons Ltd, [2016] EWHC 1148, representatives of a subcontractor and its sub-subcontractor had a telephone discussion. The sub-subcontractor confirmed, the same day by email, that a 'final account sum' had been agreed. The subcontractor acknowledged the email and said that it would prepare the paperwork and associated information to close out the account. It did not challenge the sub-subcontractor's email and, months later, said it was awaiting head office sign-off. Subsequently, it then issued a gross valuation that was substantially less than the final account sum allegedly agreed and made no further payments. The sub-subcontractor took its claim for the final account sum to adjudication, but the subcontractor asked the court for a declaration that the adjudicator had no jurisdiction. It said that the claim did not arise under the sub-subcontract but under the alleged standalone settlement agreement, so that adjudication did not apply.

Decision
The judge said that, in adjudication cases, the courts should follow the House of Lords' ruling on arbitration clauses – that the parties, as rational business people, were likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. A dispute as to whether alleged contract entitlements have been settled in a binding way consequently arises under the original contract. It would be illogical if the parties or Parliament had intended that an otherwise properly appointed adjudicator would have jurisdiction to deal with a contractor or subcontractor's payment entitlement except where there was a dispute as to whether that entitlement had been settled. If that were correct, unless there were a separate agreement to refer the dispute to adjudication, one could never adjudicate in a construction contract on an interim or final account agreed in some binding way. This makes commercial and policy nonsense when such agreements must occur all the time and should be encouraged and supported by retaining the right to adjudicate if there is a challenge to the settlement.

Comment
Parties should note that a formal written settlement agreement dealing with all disputes may not necessarily constitute a construction contract, in which event disputes arising under the settlement agreement would not fall under the statutory adjudication regime. However, this case shows how much leeway the court is prepared to give claimants as part of its policy of supporting the adjudication process.

For further information on this topic please contact Chris Fellowes at Mayer Brown International LLP by telephone (+44 20 3130 3000) or email (cfellowes@mayerbrown.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.

Reference:http://www.internationallawoffice.com/Newsletters/Construction/United-Kingdom/Mayer-Brown-International-LLP/Do-settlement-agreements-negate-right-to-adjudicate?utm_source=ILO+Newsletter&utm_medium=email&utm_content=Newsletter+2016-08-22&utm_campaign=Construction+Newsletter