McConnell Dowell Constructors (Aust) P/L v National Grid Gas plc [2006] EWHC 2551 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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In the absence of contractual provisions relating to adjudication, does an agreement settling a dispute under a construction contract (which does duly provide for adjudication) fall within the remit of the statutory adjudication provisions and/or contractual provisions for adjudication contained in the construction contract? The courts have reached the conclusion that it depends on whether the agreement is a separate, standalone settlement agreement or a supplemental agreement that resolves the dispute by varying the construction contract. The former will not be subject to the adjudication provisions either under the HGCRA or under the construction contract, whereas the latter will be a variation of the construction contract and therefore subject to its provisions relating to adjudication.

Mr Justice Jackson – Queen’s Bench Division, Technology and Construction Court

Background

McConnell were appointed by NGG to construct a gas pipeline. The works were delayed for a number of reasons and costs escalated. A dispute developed as to what additional payments and extensions of time should be granted to McConnell. The dispute was resolved by a supplemental agreement, which varied the contract.

Following completion of the works, it was necessary to establish what further payments were due to McConnell in addition to the sum specified in the supplemental agreement. The parties were unable to agree, therefore McConnell referred its claim against NGG to adjudication.

NGG maintained that the adjudicator did not have jurisdiction because the issues between the parties concerned the meaning and effect of the supplemental agreement. The supplemental agreement did not contain an adjudication clause (unlike the contract) and was not a construction contract within the meaning of the HGCRA.

The adjudicator concluded that he did have jurisdiction and awarded McConnell a sum in excess of £1million. NGG refused to pay the sum for a number of reasons, including because it contended that the adjudicator had no jurisdiction to determine the dispute.

There were a number of applications and cross-applications before the court in these proceedings. This note only seeks to summarise the court’s findings in relation to the adjudication issues before it.

Decision

Jackson J held that the relationship between the contract and the supplemental agreement was crucial. In his view, the supplemental agreement operated as a variation of the contract, and therefore was subject to the adjudication provisions (which complied with the HGCRA) contained in the contract rather than a separate, standalone settlement agreement because:

It varied the contract sum and contractual completion dates.
It defined which matters were covered by the increased contract sum and which matters were not covered and therefore could form the basis for a claim for additional payments.
The recitals of the supplemental agreement provided that the contract remained in force save to the extent to which the supplemental agreement modified the terms of the contract.
If an officious bystander had been present on the date of completion of the supplemental agreement and had asked the parties whether the dispute resolution machinery in the contract would have applied to any disputes arising under the settlement agreement, the judge had no doubt that both parties would have testily replied “Yes, of course”.

For these reasons, the judge held that the adjudicator had jurisdiction to determine this dispute and therefore his decision must be enforced by the court.

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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