In London Eco Homes Ltd v Raise Now Ealing Ltd the Technology and Construction Court heard a claim in which the parties entered into a settlement agreement, but due to defaults an adjudication was raised to seek payment of the remaining balance. Interestingly, the defendant did not contest that money was due to the claimant – instead, the jurisdiction of the adjudicator was at heart of the claim. This article provides a summary of the judgment in relation to the right to adjudicate and highlights its key implications for the construction industry.
BACKGROUND
The parties were London Eco Homes Ltd (“LEH”) and Raise Now Ealing Ltd (“RNE”). LEH was engaged by RNE as a building contractor on a construction project in West Ealing, under a JCT Intermediate Building Contract with contractor’s design (“the Original Contract”).
The parties had an express right to refer disputes to adjudication under the Original Contract, and this was subject to the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”).
There were various disputes between the parties, but those were said to be subject of a negotiated settlement agreement reduced to writing on 8 August 2023 (“the Settlement Agreement”). As RNE did not make payment in accordance with the Settlement Agreement, an amendment schedule was agreed between the parties on 25 September 2023.
THE ADJUDICATION
As RNE continued to default under the Settlement Agreement, LEH referred the matter to adjudication by way of an Adjudication Notice dated 15 May 2024. RNE challenged the adjudicator’s jurisdiction to deal with the matter, on the basis that there was no provision for adjudication under the Settlement Agreement. However, this challenge was rejected by the adjudicator, who awarded a payment of £95,000 (being the remaining balance under the Settlement Agreement) plus interest in favour of LEH (“the Adjudicator’s Decision”).
RNE did pay in accordance with the Adjudicator’s Decision and LEH raised enforcement proceedings in October 2024.
COURT PROCEEDINGS
LEH sought a summary judgment against RNE for a total of £125,748.11. RNE did not concede that the sums were due to LEH. Instead, the adjudicator’s jurisdiction was at the core of the proceedings.
LEH’s and RNE’s submissions as to why the parties could or could not adjudicate when the Settlement Agreement was entered into are summarised below:
- RNE’s position was that the parties entered into a “free-standing settlement agreement intended to supersede and replace the original contract…which decided not to include adjudication clauses”, and that the Settlement Agreement did not meet the definition of a “construction contract” under the Construction Act. Instead, RNE placed emphasis on the “Governing Law” and “Jurisdiction” clauses within the Settlement Agreement, which indicated that disputes were to be resolved exclusively through the courts of England and Wales.
- LEH’s position was that the Settlement Agreement “cannot be understood or construed in isolation, but rather that it has to be seen in the context of the original contract”. Further, LEH argued that regardless of whether the dispute was to be considered as “under” the Original Contract, the Settlement Agreement could also be interpreted as a construction contract under the Construction Act, and that this would imply entitlement to adjudication. Overall, by reference to various authorities, LEH reminded the Court that there is an increasing encouragement of alternative dispute resolution, and that it could not be sensible for a contractor (who settles) to be in a worse position than if it had not settled.
DECISION
RNE’s jurisdictional challenge failed, and the Adjudicator’s Decision was enforced. This was on the basis that:
- The dispute related to the provision of a warranty rather than construction operations; therefore, the Construction Act did not imply a statutory right to adjudicate into the Settlement Agreement.
- However, as the Settlement Agreement varied the Original Contract, the Original Contract’s adjudication provisions continued to apply to the Settlement Agreement.
The Court also observed that the use of “Governing Law” and “Jurisdiction” clauses “did not carry any magic in terms of the issue of contractual construction before the Court”, that they are “standard” and did not deliberately exclude the use of alternative dispute resolution.
IMPLICATIONS FOR THE CONSTRUCTION INDUSTRY
This judgment serves as a reminder that it is essential to draft a settlement agreement with care (as to its wording) and ensure that there is an adequate mechanism in place to enforce the agreement (should any party be in default). Whilst it is hoped that a settlement agreement resolves disputes between parties, there can still be disputes over the implementation of settlement terms. It also emphasises the importance of whether the settlement agreement is to be treated as a variation to the original contract or a standalone agreement. Following this judgment, adjudication would only be available if it were a variation.
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