Settlement Agreements and Adjudication

Disputes are a fact of everyday life in the construction industry. Parties can manage to fall out over anything from the value of a particular variation to the quality of completed work or the value of an interim valuation and so the list goes on and on. More often than not, these disputes are agreed as the work proceeds and these agreements may be recorded by a handshake, an exchange of emails or letters or even by the drawing up of a formal settlement agreement. All this is well and good until one party decides that it no longer wishes to be bound by the settlement agreement reached. So where does this leave you and, more importantly, can you rely on your statutory right to have the ensuing dispute decided by an adjudicator if the gloves have to come off?

The answer to this question is 'probably', but, as with all things in life, the answer is a little complicated and will depend on a number of factors. These factors include the circumstances under which the agreement is reached, the terms of the agreement itself and the express terms of the adjudication provision in the underlying contract.

Looking at these factors in more detail, ask yourself if the settlement agreement is intended to vary any of the terms of the underlying construction contract, is it intended to replace the underlying contract or is it simply a statement of what is actually provided by the terms of the underlying contract? For example, the parties may agree that the value of a particular variation is £100 and this could be simply a recognition of an entitlement that exists by virtue of express terms set down in the underlying contract, permitting the instruction of a variation, and other terms defining how the variation is to be valued. Clearly, the settlement agreement in this example does not set out to replace the underlying contract, it simply reflects an existing entitlement. If the agreement breaks down, then an adjudication can follow under the underlying construction contract.

But what if the agreement is a far more complex settlement agreement, covers a wide range of issues and clearly states that it is intended to cancel and replace the underlying construction contract? Such a settlement agreement may not be classed as a construction contract in its own right and thus no statutory right to adjudication then exists. The adjudication provisions set down in the original construction contract might come to your rescue, but then again it all depends on what the provisions actually say.

A contractual adjudication provision may restrict you to only adjudicating “disputes arising under the contract” or it may say “disputes arising under and in connection with the contract” or it may even say “disputes arising under, out of or in connection with the contract”. A dispute that arises from a replacement contract, even if it is not classed as a construction contract, would still be caught by the second and third examples but arguably not the first.

To complicate things further, what if an allegation of misrepresentation is made in connection with the replacement contract which it alleged goes to root of the agreement, could this be adjudicated? The answer would, in the first example, appear to be 'no', in the second 'possibly' and in the third example 'more than likely'.

Clearly, any doubt regarding the right to adjudicate under a settlement agreement can quickly be removed by including an express provision specifically catering for the adjudication of disputes but it is amazing how these things can get missed in the rush to document an agreement.

In preparing this article I have reviewed a number of judgements which include Shepherd Construction Ltd v Mecright Ltd [2000], Quarmby Construction Co Ltd v Larraby Land Ltd [2003], L Brown & Sons Ltd v Crosby Homes (North West) Ltd [2005] and J Murphy & Sons Ltd v W Maher and Sons Ltd [2016]. In doing so I have come to the conclusion that it is a difficult area of construction law which continues to develop. Whilst it does appear that the Courts are increasingly leaning towards allowing adjudication in settlement agreements and more cases are sure to follow, there can be no substitute for drafting carefully worded settlement agreements that clearly spell out that a right to adjudicate exists if that is what you intend.


Peter Vinden
