Navigating the right to adjudicate in UK construction disputes

A recent High Court ruling in London Eco Homes Limited v Raise Now Ealing Limited has underscored the importance of obtaining proper advice when entering into settlement agreements.

In November 2021, Raise Now Ealing Limited, the defendant, hired London Eco Homes Limited, the claimant, as the building contractor for a construction project in West Ealing under a Joint Contracts Tribunal( JCT) contract.

Disputes over the quality of work and delays led to the parties entering into a settlement agreement. However, after the defendant failed to make the agreed payments under the terms of that agreement, the claimant referred the matter to adjudication, which resulted in a decision favouring the claimant.

The defendant challenged the adjudicator's jurisdiction, arguing that the settlement agreement did not include provisions for adjudication and so the dispute could not be decided in this way.

Key issues

The main issue was whether the adjudicator had the authority to enforce the settlement agreement, given that it did not explicitly provide the right to adjudicate. The defendant argued that the settlement agreement was a standalone contract, replacing the original construction contract and its adjudication clauses.

The claimant contended that the settlement agreement was a variation of the original contract, meaning that the JCT's contract's adjudication provisions still applied. Alternatively, the claimant argued that the settlement agreement was itself a construction contract under the Construction Act 1996 as it provided for potential remedial construction works. As a construction contract, adjudication provisions would be automatically available to the parties as they would be implied by the Construction Act and Scheme.   

Outcome

At the summary judgment hearing, the judge ruled in favour of the claimant, determining that the settlement agreement was a variation of the original contract, and therefore preserving its adjudication provisions. Key factors included that:

• the settlement agreement explicitly referred to the termination mechanism of the original contract;
• both parties agreed that termination notices were served correctly "in accordance" with the JCT contract; and
• the settlement agreement altered the original contractual mechanism for determining the final sum due, with the defendant agreeing to pay a termination payment in full and final settlement of the final account.

The judge also noted that standard governing law and jurisdiction clauses should not be interpreted as excluding the ability to resort to alternative dispute resolution (ADR). However, the argument that the settlement agreement was itself a construction contract was rejected, as the dispute did not relate to construction operations, meaning the relevant provisions of the Construction Act were not applicable.

Osborne Clarke comment

The decision further highlights the judicial approach to interpreting adjudication provisions and supports the trend towards encouraging ADR in civil law. Although not the primary focus of the decision, the case touches on what amounts to a construction contract for adjudication purposes and provides valuable insights for future cases where the definition of a construction contract is contested.

Most importantly, this judgment underscores the importance of obtaining proper advice when entering into settlement agreements. It is easy for parties to overlook or fail to envisage these sorts of issues when they are attempting to bring their dispute to an end expediently. However, a failure to consider such matters and provide for them adequately in a settlement agreement can lead to costly further litigation and uncertain outcomes.