Factual and Procedural Background
These Part 8 proceedings arise from a dispute between a sub-contractor, Company A, and its earth shifting sub-sub-contractor, Company B, concerning the jurisdiction of an adjudicator. The dispute centers on whether a full and final settlement agreement was reached between the parties regarding the final account and whether any dispute arises "under" the sub-sub-contract, the alleged settlement agreement, or both.
Company A was engaged as a sub-contractor by Company C in 2013 to perform shaft and tunnel work on a project at The City. In February 2014, Company A subcontracted Company B to provide labour and materials for spoil removal related to this project. The subcontract incorporated the NEC 3 Engineering and Construction Subcontract form, including an adjudication clause permitting disputes arising "under or in connection with" the subcontract to be decided by an adjudicator, with the Technology and Construction Court (TCC) named as the adjudicator nominating body.
Company B commenced work in January 2014 and submitted multiple payment applications until April 2015, receiving payments less than applied for. Company B continued work until around September 2015 and submitted a final payment application on 28 September 2015 for a gross sum of £763,980.24, with a net sum claimed as due. Company A did not acknowledge or respond to this application.
Subsequent correspondence between the parties included a telephone conversation on 11 November 2015, where Company B alleged that a final account sum of £720,000 was agreed, confirmed by email. Company A did not challenge this confirmation in writing despite reminders and made no further payments. Company A later disputed the amount, valuing the work at £483,529.03.
Company B’s claims consultants issued a Notice of Adjudication in April 2016 pursuant to the subcontract and the Scheme for Construction Contracts, appointing an adjudicator through the Royal Institution of Chartered Surveyors (RICS). Company A challenged the adjudicator’s jurisdiction on two grounds: the nominated adjudicator body was incorrect, and the dispute concerned the alleged settlement agreement rather than the subcontract, and thus was not referable to adjudication.
Company B issued a second Notice of Adjudication under the Scheme. Company A maintained its jurisdictional challenge, leading to the current proceedings seeking a declaration that the adjudicator lacks jurisdiction to adjudicate disputes arising from the alleged final settlement.
Legal Issues Presented
- Whether a dispute about the existence or effect of a final settlement agreement arises "under" the original subcontract or is a separate dispute outside the adjudicator’s jurisdiction.
- Whether the adjudicator has jurisdiction to determine disputes arising from or connected to an alleged settlement agreement made after the subcontract.
- The effect of errors in the adjudicator nominating body specified in the subcontract on the validity of adjudication proceedings under the Scheme.
Arguments of the Parties
Appellant's Arguments (Company A)
- The adjudicator lacks jurisdiction because the dispute is based on an allegedly binding settlement agreement, which is a standalone contract without an adjudication clause.
- The disputed claim does not arise "under" the original subcontract but under the separate settlement agreement.
- Reliance on authority holding that disputes about standalone settlement agreements are not disputes under the original contract and thus not referable to adjudication.
Appellee's Arguments (Company B)
- The claim, although related to the settlement agreement, arises "under" the original subcontract because the settlement agreement can be considered a variation of the subcontract.
- The adjudication clause’s wording "arising under or in connection with" the subcontract is broad enough to cover disputes arising from the settlement agreement.
- Reliance on authorities supporting a broad interpretation of adjudication clauses to include disputes arising from variations or agreements connected to the original contract.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| McConnell Dowell Constructors (Aust) Pty Ltd v National Grid Gas PLC [2006] EWHC 2551 (TCC) |
Whether a supplemental agreement operates as a variation of the original contract or is a standalone agreement affecting adjudicator jurisdiction. |
The court preferred the view that the supplemental agreement was a variation of the original contract, subject to the same adjudication provisions, supporting jurisdiction. |
| Shepherd Construction Ltd v Mecright Ltd [2000] BLR 489 |
Disputes about settlement agreements do not arise under the original contract and thus are not referable to adjudication. |
The court distinguished this case as involving a standalone settlement agreement voidable for duress, limiting its application. |
| Quarmby Construction Co Ltd v Larraby Land Ltd (TCC Leeds 2003) |
Section 108 of the HGCRA should not be narrowly construed; adjudication clauses should be broadly interpreted. |
The court acknowledged a broader interpretation of adjudication rights, supporting jurisdiction over disputes connected to the contract. |
| Westminster Building Company Ltd v Beckingham [2004] EWHC 138 (TCC) |
Agreements that vary the underlying contract are subject to the contract’s adjudication provisions. |
Supported the view that a "capping agreement" was a variation, thus disputes under it arose under the contract and were adjudicable. |
| L Brown & Sons Ltd v Crosby Homes (North West) Ltd [2005] EWHC 3503 |
Side or supplemental agreements without their own dispute resolution provisions are treated as variations subject to the original contract’s adjudication clause. |
Confirmed that disputes under such agreements arise under or in connection with the original contract and are referable to adjudication. |
| Premium Nafta Products Ltd v Fili Shipping Co Ltd "The Fiona Trust" [2007] UKHL 40 |
Construction of arbitration clauses should give effect to the commercial purpose, presuming parties intend all disputes arising from their relationship to be decided by the same tribunal. |
The court applied similar reasoning to adjudication, supporting broad jurisdiction to cover disputes arising under or in connection with the contract. |
| Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC) |
Section 108(5) HGCRA imposes the Scheme’s adjudication provisions where contract provisions do not comply with statutory requirements. |
Confirmed that non-compliance with adjudication provisions leads to application of the Scheme in full, as in the case of the incorrect nominating body. |
Court's Reasoning and Analysis
The court began by examining the adjudication clause in the subcontract, which allowed disputes "arising under or in connection with" the subcontract to be referred to adjudication. Although the subcontract incorrectly named the TCC as the adjudicator nominating body, this error was deemed accidental and did not invalidate the adjudication provisions, which broadly comply with Section 108(1) to (4) of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA). The court found that the adjudication provisions survived and were broad enough to cover disputes arising from the alleged settlement agreement, as that agreement arose in connection with the subcontract.
The court analyzed possible factual scenarios regarding the alleged agreement on 11 November 2015, ranging from a binding final settlement to no agreement at all. It held that even if the settlement was non-binding or merely a mutual recognition of a sum, disputes about outstanding payments would still arise under the subcontract and thus be referable to adjudication.
Relying on the commercial common sense emphasized in the Fiona Trust arbitration case, the court reasoned that parties and Parliament intended adjudication to provide a quick and efficient dispute resolution mechanism covering all disputes arising from the contractual relationship, including disputes about whether a settlement agreement was reached. The court rejected the narrow interpretation that disputes about settlement agreements fall outside adjudication jurisdiction unless the settlement agreement contains its own adjudication clause.
The court distinguished the Shepherd Construction Ltd v Mecright Ltd case, which involved a settlement agreement challenged only on grounds of duress, from the present case where the existence and effect of the settlement agreement itself were disputed. It also noted that the McConnell case and others support a broad interpretation of adjudication clauses to include disputes arising from variations or agreements connected to the original contract.
Ultimately, the court concluded that the alleged settlement agreement operated as a variation of the subcontract or at least arose in connection with it, making the dispute referable to adjudication under the subcontract’s adjudication clause and the Scheme.
Holding and Implications
The court held that the adjudicator has jurisdiction to determine the dispute arising from the alleged final settlement agreement, as the dispute arises under or in connection with the original subcontract.
As a consequence, the appellant’s claim that the adjudicator lacked jurisdiction failed, and judgment was entered in favor of the appellee. The court also ordered the appellant to pay the appellee’s costs, summarily assessed at £11,000.
The court granted a declaration confirming the adjudicator’s jurisdiction to adjudicate the dispute under the subcontract and the Scheme. While the court indicated sympathy for an appeal to clarify this important area of construction law, no new precedent was established beyond affirming the broad jurisdictional scope of adjudication clauses in the context of settlement agreements connected to construction subcontracts.