Murphy’s Law? An adjudicator’s jurisdiction and settlement agreements
A recent case provides a timely reminder of the need to ensure that contractual documents are checked carefully at the outset of a project to ensure certainty as to the scope of disputes referable to adjudication.
The issue for consideration in the recent case of J. Murphy & Sons Limited v W. Maher & Sons Limited was whether an adjudicator had jurisdiction to determine whether a binding settlement of a contractor’s account had been reached.
The facts were straightforward. Maher, a sub-sub-contractor, submitted its final payment account to Murphy (the sub-contractor). Maher alleged, and Murphy disputed, that a telephone conversation took place during which Murphy agreed the amount of that final account in the sum of £720,000. When Maher sought to refer the dispute to adjudication, Murphy objected.
1. What was the correct adjudication clause or other arrangement to be applied? The first issue was the adjudication clause to be applied. Under the contract between Murphy and Maher any dispute “arising under or in connection with” was referable to adjudication.
However, Murphy argued that the contract did not comply with the requirements of the Housing Grants, Construction and Regeneration Act 1996 such that the Scheme for Construction Contracts 1998 (“the Scheme”) applied. A more restrictive adjudication clause therefore applied because under the Scheme only disputes “arising under” the contract would be referable. Murphy’s position was that this distinction was important: while the dispute may have arisen “in connection with” the sub-sub-contract, it did not “arise under” it. Rather, it arose under the alleged settlement agreement, a separate contract. It followed, according to Murphy, that the adjudicator had no jurisdiction to decide the issue and Maher would have to pursue via county court proceedings. Maher’s case was that the settlement was a variation of the sub-sub-contract, and therefore arouse “under it” so the adjudicator retained jurisdiction.
The judge (Sir Robert Akenhead) did not accept that there had been non-compliance with the 1996 Act. The only ground of alleged non-compliance was the sub-sub-contract’s nomination of the TCC as the adjudicator appointing body (the TCC has no such power). The judge refused to find that this rendered the contract non-compliant since sections 108(1)-(4) of the 1996 Act did not require the contract to name an adjudicator-appointing entity. It followed that, as it was common ground that a dispute under the alleged settlement agreement arose “in connection with” the sub-sub-contract, the dispute was properly referable to adjudication.
2. Did the dispute arise “under” the sub-sub-contract?The judge went on to consider whether the dispute “arose under” the original contract. He found that it did. He considered that logically that the alleged agreement could fall within a number of permutations:
(a) a final and binding agreement
(b) a temporary binding agreement
(c) a non-binding but mutual recognition that £720,000 represented an agreeable final account sum
(d) no agreement
In scenarios (c) and (d), the judge found that there could be no dispute that the claim for sums outstanding would be referable to adjudication “under” the sub-sub-contract. The difficulty for Murphy on scenario (b) was that such agreements are reached every day on construction projects and any suggestion that they could not be referred to adjudication if breached was, to the judge’s mind, far-fetched and unrealistic. There was no logical reason to distinguish between disputes arising “under” the contract and those arising “out of” or “in connection with” it.
In those circumstances, a dispute as to whether full and final settlement had been reached arose under the contract. It was only in scenario (a), when a claim had been unarguably settled in a binding manner, that an argument would apply that there was no longer any subsisting dispute which could be referable to adjudication.
The judge that the dispute could be referred to adjudication. He also commented that, were he to decide the issue, he would have found that the alleged agreement was not a separate agreement but a variation of the original sub-sub-contract: it merely substituting a figure as due for whatever else was due under the sub-sub-contract. To his mind, it was questionable whether there was any consideration and therefore whether a binding settlement had been reached. However, in that case, the matter would certainly be referable to adjudication as a dispute under the sub-sub-contract.
CommentWhile this may not be the end of the matter, with the judge commenting that he would be “sympathetic” to an application for permission to appeal to give additional certainty on these issues. For the time being the court has given the parties a clear steer that disputes over whether the parties have reached an agreement can be referred to adjudication.
This cases stresses the need for parties to ensure that all settlement terms are reduced to writing in a standalone agreement and that proper thought is given to what consideration is given for the agreement being entered into. It also demonstrates the importance of ensuring your contractual documents are checked carefully at the outset of a project to ensure there is certainty about what disputes may be referred to adjudication.