Murphy was subcontractor for shaft and tunnelling work on a road project in Manchester. It hired Maher to provide spoil removal services. The works were completed and Maher submitted a final payment application. The parties spoke by telephone and allegedly agreed a final account of some £720,000 backed up by an email from Maher to Murphy, but Murphy did not pay this and subsequently said the gross value was £483,000.
Maher commenced an adjudication to enforce the sum allegedly agreed. Murphy’s defence was that the adjudicator did not have jurisdiction because the settlement agreement was separate from the original contract, and this dispute arose under the new contract, which did not contain an adjudication clause. Further it was not itself a “contract for construction operations” so statutory adjudication under the Act did not apply.
- The alleged supplemental agreement took effect as a variation of the construction contract and if there was any dispute, it should be determined under the adjudication revisions of that “parent” contract.
- Although Section 108 (4) of the Construction Act refers to disputes “arising under the contract” this had to be interpreted very broadly to include disputes arising out of or in connection with the contract.
- Some settlement agreements are drawn up carefully and clearly as comprehensive and complete legal documents addressing all aspects of the parties’ dispute and providing a conclusion. It seems that these will be regarded as separate stand-alone agreements which in effect supersede the original contract. If challenged by one party or the other, it is likely that the defence will be (a) the agreement is stand-alone and alternatively (b) that there is no basis for dispute in any event since the parties have settled their respective rights and duties.
- The NEC3 Sub-contract Adjudication clause mentioned disputes “arising under or in connection with” the contract. This is similar to (and slightly wider than) Section 108 of the Construction Act.
- The Court followed the “Fiona Trust” case (a Decision of the House of Lords in 2007) which applied a liberal approach to arbitration clauses. Earlier case law had applied the expression “arising under the Contract” for example, very narrowly (Shepherd v Mecwright). The new approach is to allow in all of the issues arising between the parties instead of discriminating between issues which strictly arise “under” the Contract and those which arise “out of or in connection with.”