The recent TCC decision of J. Murphy & Sons Ltd v W. Maher and Sons Ltd [2016] EWHC 1148 (TCC) provides confirmation of a very interesting point in regards to the jurisdiction of an adjudicator: can a dispute as to whether there has been a full and final settlement of a final account be referred to adjudication?

Background

Murphy was employed as a sub-contractor by Balfour Beatty Civil Engineering Ltd in 2013 to carry out shaft and tunnel work on the Man Trunk Project at Trafford Park, Manchester. By way of a sub-sub-contract, which incorporated much of the NEC 3 Engineering and Construction Subcontract form with June 2005, June 2006 and September 2011 amendments (the Subcontract), Murphy employed Maher in February 2014 in order to remove spoil. The Subcontract stated: "Any dispute arising under or in connection with this subcontract is referred to and decided by the Adjudicator".

Works started in January 2014 and until April 2015, Maher had made 16 payment applications and was paid £466,832. On 28 September 2015, Maher issued its final payment application (No. 21) seeking a further sum of £297,149.  Agreement was apparently reached over telephone discussion and email that Maher would be paid £253,169 and that Murphy would prepare the necessary paperwork. No such paperwork was received and neither was payment. 

Maher issued a Notice of Adjudication on 7 April 2016. Murphy ran two arguments on jurisdiction, namely that:

  1. Because of deficiencies in the Subcontract (it provided that the TCC was the nominating body) Maher should have applied for an adjudication under the Scheme; and
  2. There was not a dispute "arising under or in connection with" the Subcontract as the dispute arose in relation to the alleged settlement agreement, and that was, in effect, a standalone agreement. 

In order to address the nominating body issue, Maher served a second Notice of Adjudication on April 19th 2016 and applied to RICS again under the Scheme as amended. So the issue that actually came before the court was limited to the second challenge (although the Court did say that it considered the error in the nominating body was not fatal to the adjudication provisions in the Subcontract). 

Decision

Sir Robert Akenhead carried out a thorough review of the relevant case law and came to the conclusion that the adjudicator did have jurisdiction to deal with the dispute. The key issues were:

  1. The Fiona Trust principles (which relate to arbitration) are a useful analogy in adjudication. The key principle is best summarised by Lord Hoffman who stated:  "In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction."
  2. The NEC adjudication provisions permit disputes "arising under or in connection" with the Subcontract, and that was wider than Section 108 (1) – (4) of the Housing Grants Act 1996. As such, this language covers disputes arising out of an alleged settlement agreement on the basis that that latter agreement undoubtedly arose in connection with the Subcontract. 
  3. As the judge himself put it: "If Murphy was right, save by ad hoc agreement, one could never adjudicate in a construction contract on an interim or final account which had been agreed in some binding way; that makes commercial and policy nonsense in circumstances in which such agreements must occur all the time and should be encouraged and supported by retaining the right to adjudicate if one party seeks to challenge the settlement on one basis or another.
  4. Even though he did not have to decide the issue, he commented obiter that he would have held that the alleged settlement agreement was a variation of the Subcontract. 

Conclusion

It is evident from this judgment that parties may well find themselves embroiled in adjudication even if they have entered into a settlement agreement.

Interestingly, Sir Robert Akenhead, in his final paragraph, stated: 

"I would be sympathetic to an application for permission to appeal, albeit only on the basis that it would be helpful for there to be an appellate decision on the issues raised and that it is arguable that previous decisions may leave some uncertainty in this arguably important area of construction law." 

So do watch this space for an appeal as this case does have such wide implications.