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Compromise Agreements and Adjudication © Daniel Atkinson 2000 15th February 2000 Disputes often arise in building contracts and as often as not are resolved by the parties without recourse to adjudication, arbitration or the courts. Sometimes the dispute is settled by a compromise agreement in which one party will agree to pay in full and final settlement of all claims or in exchange for certain works being executed. Unfortunately disputes may arise in relation to the work in the compromise agreement. The issue then is whether such a dispute can be referred to adjudication. This happened in Latham Construction Limited v Messrs Cross (29/10/99) TCC County Court. Latham had applied to adjudication for payment of £5000 that had been withheld by Cross. Latham’s application was under the original building contract, but they also referred to a compromise agreement which they considered did not have effect. Cross on the other hand relied on the compromise agreement and argued that the adjudicator did not have jurisdiction to decide the issue. The adjudicator decided that there was a compromise agreement. He did not however decide that he did not have jurisdiction and then withdraw, but instead decided that Cross were not entitled to withhold the £5000 under the compromise agreement and ordered Cross to pay. Payment was not made and Latham applied for summary judgment. It was held that once the adjudicator had found that the compromise was in existence, then there was a reasonable prospect of success for Cross to argue that the adjudicator was wrong to make the decision he did, that he did not have any jurisdiction to make the decision he did and therefore the "parasitic orders" of the adjudicator were inappropriate and wrong in all the circumstances. Summary judgment was therefore refused. The Court expressly stated that it made no declaration as to the eventual resolution of the case. The question therefore remains - can a compromise agreement ever be considered a construction contract under the HGCR Act 1996? If part of the compromise agreement relates to construction operations, as defined by the Act, then it is difficult to see why that part of the agreement should not be caught by the Act. Indeed, Section 104(5) allows the Act to apply to only that part of an agreement which relates to construction operations. In practice many commercial settlements do involve agreement to carry out additional works to the benefit of both parties. It would be odd indeed if such agreements were outside the Act simply because of the manner in which they were agreed. |
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