| Date | 15 March 2000 |
|
|
| Judgment | Lathom Construction -v- Brian Cross and Anne Cross TCC 29 October 1999 |
|
|
| The Issue | Effect of settlement agreements prior to an adjudicator's decision. |
|
|
| Implication |
A settlement agreement will normally fall outwith the ambit of the Construction Act, and accordingly an adjudicator will not have jurisdiction to deal with disputes which flow from the agreement. |
printThere are few in the construction industry who would argue that adjudication has failed to deliver against its promise. Most people who have experienced the process will by now regard it as an extremely cost effective means of resolving what would otherwise be intractable commercial disputes. There is evidence to suggest that even the threat of adjudication is bringing about a fairer and more even handed attitude in the commercial dealings of construction people. There is however no doubt that adjudication needs to be treated very carefully. A failure to understand the nuances of the payment mechanisms, for example, can be fatal to a party's success in an adjudication. There are many other pitfalls awaiting the unwary. The case of Lathom Construction Limited -v- Brian Cross and Anne Cross examined a situation where, following the appointment of an adjudicator, a settlement was reached by the parties prior to any decision being made. The adjudicator was informed and effectively stood down. It subsequently transpired however, as is often the case in such situations, that the parties were not entirely in agreement as to the terms of their settlement. The Crosses believed that, as a precondition of the settlement, they were entitled to withhold £5,000 from the contractor in respect of work that was still to be carried out. Lathom disagreed and refused to carry out the works. The Crosses continued to withhold the money. Uncertain whether a proper settlement had been secured or not, Lathom then decided to bring the adjudicator back into the process. Lathom advised the adjudicator that in its view the settlement was ineffective and that the adjudicator should now deal with the disputed matters arising under the original building contract. The Crosses of course disagreed, arguing that a settlement agreement had been made and that the adjudicator would have no jurisdiction to hear any matters which were now said to be in dispute. At this point the adjudicator no doubt recognised that he was in for a rough ride. If a settlement agreement existed at all, then that agreement constituted a separate contract. Crucially that contract would not be a construction contract within the definition of the Housing Grants, Construction and Regeneration Act. The adjudicator would therefore have no jurisdiction to determine whether the terms of that agreement were or were not being met by either party. Undaunted by these potential difficulties the adjudicator proceeded to consider the matters. He found that a settlement agreement had been reached and then decided that by applying the terms of the underlying construction contract, he was entitled to adjudicate upon the terms of that settlement. He held that the Crosses were incorrect in their assertion that they could withhold £5,000, and issued a decision to the effect that this sum, together with further monies payable under the contract, should be paid to Lathom. The Crosses refused to pay. In consequence Lathom brought proceedings for summary judgment for enforcement of the adjudicator's decision. Their argument in front of His Honour Judge Mackay was clear. They accepted that the adjudicator could not adjudicate upon the settlement agreement, as this was not a building contract under the terms of the Act. They said that this adjudication was one arising under the underlying building contract. They argued that it was open to the Crosses to defend the adjudication on the basis that there had been a settlement agreement and indeed the Crosses had won that argument. Accordingly, having dealt with that point, the adjudicator was faced with the position that he must look at the settlement agreement to see if it had been carried out. In so doing the adjudicator had found that the settlement agreement had not been carried out because the Crosses had failed to pay all the sums due. In these circumstances it was argued the adjudicator had made a perfectly proper decision and had allocated the losses where they rightfully lay. On behalf of the Crosses it was argued that the adjudicator had taken a step too far. He was entitled to accept jurisdiction under the underlying contract and indeed entitled to make a decision in respect of the existence of the settlement agreement. However, to go on to examine the terms of that settlement agreement and to determine whether or not the parties had complied with it, was to go outside the terms of the 1996 Act. Judge Mackay recognised that in the context of summary proceedings for enforcement of an adjudicator's decision under part 24 of the Civil Procedure Rules, the Crosses need only establish that they had a reasonable prospect of success in arguing that the adjudicator was wrong. He found that the application before the adjudicator was properly made, in the sense that it was a coherent application that was capable of giving the adjudicator jurisdiction. However, once the adjudicator had referred to the question of the settlement agreement and found that the agreement was in existence, there was immediately an argument that he did not have any jurisdiction to make the further decisions he had made. This argument upon jurisdiction stood a reasonable prospect of success. Accordingly the orders of the adjudicator were inappropriate and wrong in such circumstances. As a consequence, although Judge Mackay was not prepared to make any declarations as to the eventual resolution of the case, he refused to order enforcement of the adjudicator's decision.
CJ-0010
|
|||
|
© Brewer Consulting |
|||
 |
|||