London Eco Homes Ltd v Raise Now Ealing Ltd [2025] EWHC 1505 (TCC)

Key Takeaways:

• A settlement agreement is unlikely to be considered a standalone Construction Contract for the purposes of the Construction Act and a statutory right to adjudicate is unlikely to arise.
• If the parties to a settlement agreement wish to include a right to adjudicate there should be express wording to this effect.
• By its very nature, the wording of a settlement agreement is ordinarily so closely connected to the underlying construction contract that it will be considered a variation to that contract.
• In the event a settlement agreement provides for the carrying out of Construction Operations, a statutory right to adjudicate will only arise in relation to those specific works and not the settlement agreement as a whole.

Background

In November 2021, Raise Now Ealing Ltd (RNE) employed London Eco Homes Ltd (LEH) as a building contractor on a construction project in West Ealing, pursuant to a JCT Intermediate Building Contract (the Contract).

The Contract contained the standard JCT suite of contracts dispute resolution clauses and, relevant to this dispute, Article 7 and clause 9.2 provided an express right to refer a dispute arising under the Contract to adjudication.

Various disputes did arise, but the parties entered into a settlement agreement dated 8 August 2023 (the Settlement Agreement). RNE failed to make the necessary payments in accordance with the Settlement Agreement and LEH referred that non-payment to adjudication, claiming the sum of £95,000.

Challenging the Adjudicator's Jurisdiction

During the adjudication, RNE contested the adjudicator's jurisdiction and claimed that LEH did not have a contractual or statutory right to adjudicate because:

• the Settlement Agreement did not provide an express right to refer a dispute to adjudication
• The Settlement Agreement was not a construction contract as defined by Sections 104 and 105 of the Housing Grants, Construction and Regeneration Act 1996 (the Act)

The adjudicator rejected RNE's challenge and proceeded to decide in LEH's favour.

Enforcement Proceedings

RNE refused to make the payment as required by the Adjudicator's decision and LEH issued enforcement proceedings in the Technology and Construction Court (TCC).

The key issue for the court to consider when deciding to enforce the adjudicator's decision was whether the adjudicator had jurisdiction. Briefly, the parties' positions were as follows:

RNE argued:

• The Settlement Agreement was a standalone contract and pointed to the absence of express adjudication terms.
• There was an entire agreement clause provided at clause 7 of the Settlement Agreement.   

LEH argued:

• The Settlement Agreement was a variation to the Contract and the adjudication provisions survived
• The Settlement Agreement was a construction contract under the Act because clause 2.7 of the Settlement Agreement provided for potential remedial construction works.

The Judgment

In dismissing RNE's defence and enforcing the Adjudicator's decision, DJ Baldwin held that:

1. The Settlement Agreement was not for carrying out Construction Operations:
   1. 1.1. Clause 2.7 of the Settlement Agreement did not provide for Construction Operations and thus did not create a standalone construction contract.
2.  
   1. 1.2. Clause 2.7 was relevant to the issuance of a warranty for the basement works insofar as if one was not provided, no payment would become due under the Settlement Agreement. In those circumstances, RNE was obligated to carry out all works necessary or modifications to obtain a valid warranty. 
3.  
   1. 1.3. Clause 2.7 of the Settlement Agreement did make provision for construction operations, namely for all necessary works or modifications which might be required for a sign off on the basement warranty. As such, section 104(5) of the Act is engaged (i.e. the Settlement Agreement is a hybrid construction contract).
4.  
   1. 1.4. However, this dispute between the parties arose not out of the provision of "necessary works or modifications", but rather out of the timing and/or acceptability of the provision of the basement warranty.
5.  
   1. 1.5. DJ Baldwin held that the dispute referred was not sufficiently connected with or related to construction operations to give rise to a statutory right to adjudicate.
6.  
7. 2.The Entire Agreement Clause was not effective
   1. 2.1. DJ Baldwin held that the only way that clause 7 of the Settlement Agreement could be read in a sensible way, that is to make commercial sense, was to imply the words "termination of the" before "JCT Contract". The clause might then be sensibly read or understood as to mean the entire agreement insofar as it related to the termination of the Contract only.
8.  
   1. 2.2. Clause 7 did not therefore impact the status of the Settlement Agreement because termination was not an issue in dispute (neither party had sought to terminate the Contract).
9.  
10. 3. The Settlement Agreement is a variation to the Contract
    1. 3.1. The wording of the Settlement Agreement expressly referred to and varied terms of the Contract and by way of example:

• The Contract provided a mechanism for termination by LEH on the grounds of default by RNE (clause 8.4).
• - The Settlement Agreement drew directly upon the original termination mechanism where the parties saw fit to ensure that it was agreed that both the default notice and the termination notice were deemed to have been accepted and served correctly "in accordance with the [JCT] Contract."
• - The Settlement Agreement then went on to vary the Contractual mechanism for determining a final sum due, by which RNE was to pay to LEH the agreed sum of £188,750 by way of the (defined) Termination Payment.

1. 3.2. The Court held that the wording of the Settlement Agreement was sufficiently connected to the wording of the Contract that it was to be considered a variation to the Contract and not a standalone contract.  

Discussion

The Court held that the Settlement Agreement was a hybrid construction contract and, in the event a dispute arose under the warranty obligation, a statutory right to refer a dispute to adjudication would have arisen. Whether or not a carefully worded referral notice would have circumvented this issue altogether remains to be seen. 

In this case, the settlement agreement was sufficiently connected to the contract which gave rise to a variation of the same and thus preserved a contractual right to adjudicate.

While this issue remains to be determined on the facts of each case and the specific drafting, it appears that a settlement agreement will seldom be held as an entirely separate contract because the very nature of a settlement agreement is usually directly connected to the terms of the underlying contract. If the settlement agreement was not so, one would question whether it would serve to settle a dispute at all. 

As with collateral warranties in the post Parkwood Supreme Court decision world, one way to ensure that parties are able to adjudicate under these documents would be to expressly incorporate a contractual right to adjudicate in the document itself.