Shepherd Construction -v- Mecright Ltd
The adjudicator had no jurisdiction to investigate the dispute as to the value of the sub-contract works on the basis that the parties had entered into an agreement in that connection before the adjudication
27 July, 2000
The contractor and the sub-contractor reached a settlement agreement as to the value of the sub-contract works. Despite this agreement the sub-contractor commenced an adjudication and identified the dispute as being the contractor's failure to make ?proper payment.? After the adjudicator's appointment the sub-contractor's claims consultant contended, for the first time, that the agreement had been made under duress, ie that the contractor had taken advantage of the sub-contractor's parlous financial position by compelling it to accept what the contractor had offered. The contractor applied to the court for a declaration that the adjudicator, who at the time of the hearing had begun an investigation into a dispute referred by the sub-contractor, had no jurisdiction to do so. Judge LLoyd granted the declaration on the basis of the settlement agreement having been made. But for the sub-contractor's plea that the settlement agreement had been entered into under economic duress, that agreement would have had the effect of extinguishing all the disputes when the adjudication proceedings were started with the results that there could have been no dispute capable of being referred to adjudication as to valuation or what had been the subject matter of the adjudication. A dispute about such a settlement agreement could not be a dispute under the sub-contract on the basis that it had the effect of replacing the original arbitration agreement. Whilst the settlement agreement was inherently void and therefore unenforceable and invalid since it could be avoided at the option of a party if that party were able to establish that it was entered into under economic duress, It nevertheless stood unless or until the court or an arbitrator reached a decision that it was entered into under economic duress and could not be deprived of its effect simply on the basis that a party elected to avoid it. Finally the sub-contractor had failed to elect to avoid the settlement agreement until after the adjudication proceedings had been concluded and the notice of avoidance was evidently invented as a tactical device to circumvent the problem that an adjudicator could not decide any dispute about the agreement. Advice Note A dispute about an agreement settling claims under a construction contract cannot itself be a dispute under that contract for the purposes of the Construction Act 1996.