Shepherd Construction v Mecright Ltd [2000] BLR 489 : 27.07.2000

This summary was provided by CMS Cameron McKenna LLP.

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A settlement agreement may mean that there can be no disputes capable of referral to adjudication. A claim that an agreement was entered into under economic duress is not a dispute arising "under" the sub-contract. In appropriate circumstances, the Court will grant a declaration under Part 8 of the CPR.

HHJ Humphrey LLoyd QC, Technology & Construction Court

27 July 2000

S brought a claim under Part 8 of the CPR seeking a declaration that the adjudicator appointed to investigate a dispute had no jurisdiction to do so. The Court approved the use of this procedure for such applications.

M was S's sub-contractor on the Walsall bus station. Towards the end of the work, the parties were in dispute over the amounts of money due to M. On 15 March 2000, an agreement was reached between the parties for the gross valuation of the work. The agreement was recorded in writing and signed by M, "in full and final settlement of all our claims." M subsequently wrote to S expressing unhappiness at the amount, then served a notice of adjudication in July 2000, claiming over £275,000, as a result of advice received from James R Knowles.

Neither the letter describing the dispute nor the subsequent referral notice mentioned the previous agreement. The Judge described this as "extraordinary", and noted that in adjudication, a party is expected to present its case in full, not to hold anything back, and to be open and honest in its presentation, especially if there is no provision for a statement in reply.

S informed the adjudicator of the agreement, and M then claimed that it had been reached under duress, as S had taken advantage of M's straitened financial circumstances. S then applied for a court declaration, on the basis that there was no dispute under the sub-contract capable of being referred to adjudication, and the claim regarding duress was not a dispute capable of referral to adjudication.

The Court agreed that the effect of the agreement was that there could thereafter be no dispute capable of being referred to adjudication. The point about duress did not exist when the notice of adjudication was served, as it was raised later. Therefore, the adjudicator had no jurisdiction to deal with the notice. The Court also believed that a dispute about a settlement agreement of this kind could not be a dispute "under" the sub-contract, since the effect of a settlement agreement is one which replaces the original agreement to the extent to which it applies. The word "under" was used in the sub-contract, rather than "in connection with" or "arising out of" which have a wider reach.

The agreement would stand until a court or arbitrator decided that it was entered into under economic duress. The Court granted S a declaration as sought. An intervention of this kind avoids waste of time and expense. It was wrong of M to seek adjudication until it had established that the settlement agreement was of no effect.

A settlement agreement may mean that there can be no disputes capable of referral to adjudication. A claim that an agreement was entered into under economic duress is not a dispute arising "under" the sub-contract. In appropriate circumstances, the Court will grant a declaration under Part 8 of the CPR.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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