Can parties adjudicate a dispute arising under a settlement agreement: recent court guidance in London Eco Homes Ltd v Raise Now Ealing Ltd [2025] EWHC 1505 (TCC)

Summary

Parties have the option to adjudicate an issue arising under a contract if:

1. there is an express right to adjudicate in the contract; or
2. there is an implied right to do so on the basis that the contract concerns the carrying out of “construction operations” under section 104 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”).

The court’s focus in the recent case of London Eco Homes Ltd v Raise Now Ealing Ltd [2025] EWHC 1505 (TCC) was  whether an adjudicator’s decision arising from an alleged breach of the terms of a settlement agreement should be enforced.

In that case, while the court decided that the settlement agreement was not a construction contract in its own right, the court held that the settlement agreement constituted a variation to the original building contract such that the adjudicator had jurisdiction to determine a dispute which arose under it.

As such, the court enforced the adjudicator’s decision.

This case will be of particular interest to anyone negotiating settlement agreements, particularly those who are regularly negotiating hybrid agreements such as a settlement agreement combined with the carrying out of remedial works which are quickly becoming a common feature in the post Grenfell landscape.

Background

The Defendant, Raise Now Ealing Limited (“RNEL“), engaged the Claimant, London Eco Homes Limited (“LEH”), under a JCT Intermediate Building Contract (the “Original Contract”) in respect of a construction project in West Ealing, London. The Original Contract contained an express right for the parties to refer any dispute arising under it to adjudication.

Various disputes arose between the parties during the works, and which were subsequently the subject of a settlement agreement entered into by the parties on or around 8 August 2023 (the “Agreement”). The Agreement did not contain an express right for the parties to refer a dispute(s) to adjudication.

RNEL failed to pay LEH the settlement sum in accordance with the agreed instalment payments, following which the parties agreed an amended payment schedule on 25 September 2023. RNEL failed to adhere to the amended payment schedule and as a result LEH referred the matter to adjudication.

RNEL raised a jurisdictional argument citing that the Agreement did not permit adjudication as the forum for dispute resolution. The adjudicator dismissed RNEL’s jurisdictional challenge and awarded LEH £95,000 together with interest. RNEL did not make payment as ordered or at all.

LEH therefore commenced enforcement proceedings in early October 2024.

The primary issue the court had to determine was whether the Agreement constituted a construction contract such that the adjudicator had jurisdiction to determine any disputes arising under it. If so, the adjudicator’s award would then be enforced.

The issues

Was the Agreement a construction contract?

LEH argued that the Agreement was a construction contract in its own right, a contention which was primarily founded on the basis that clause 2.7 of the Agreement provided for LEH to carry out construction works; specifically it required LEH to undertake “all necessary works or modifications” which were required for a warranty to be signed off in respect of the basement works. One payment under the Agreement was made conditional on LEH procuring that warranty.

While the court accepted that the Agreement provided for “construction operations” (per clause 2.7), the majority of that document it said related to matters which did not fall within that definition (principally, the terms of settlement which the parties had agreed). The court’s view was that the dispute between the parties arose not out of the provision of "necessary works or modifications" regarding the warranty, but out of the timing and/or acceptability of the provision of that document.

As a result, the court ruled that the dispute which had been referred to the adjudicator “was not sufficiently connected with or related to construction operations”, such that the right to refer disputes to adjudication under section 108 of the Act was not engaged.

That finding highlights one of the issues with the implied adjudication provisions in construction contracts. The Act, and in turn adjudication, only applies to the extent that construction operations are involved. In this case, the judge found that there was a hybrid contract with adjudication applying to some breaches of the Agreement and not others. The court previously grappled with similar issues (see for example Severfield (UK) Limited v Duro Felguera [2015] EWHC 3352 (TCC)) noting that whilst not ideal, the Act envisages such a situation.

Did the Agreement vary the Original Contract?

LEH argued in the alternative that the Agreement constituted a variation of the Original Contract, such that the dispute resolution provisions contained in that contract applied equally to any dispute which arose under the Agreement.

In response, RNEL asserted that the Agreement was a standalone document and that it superseded, and in fact replaced, the Original Contract (which was terminated on or around 22 June 2023). As such, any dispute(s) arising under it was to be resolved by reference to the dispute resolution provisions expressly set out in the Agreement (which, as above, did not include an express right to adjudicate).

The court found that the Agreement was a variation of the Original Contract. In arriving at that conclusion, the court considered the following factors to be material:

1. the Original Contract provided a mechanism for termination by RNEL on the grounds of default by LEH;
2. the Agreement drew directly upon the original termination mechanism both in its Recitals and in Section 1, where the parties recorded their respective agreement that both the default notice and the termination notice were deemed to have been accepted and served correctly “in accordance with the JCT Contract”; and
3. the Agreement went on to vary the mechanism contained in the Original Contract for determining the final sum due under it, by RNEL agreeing to pay LEH the sum of £188,750 by way of the Termination Payment in return for the ”full and final settlement of the final account in relation to the Project and the JCT Contract…”.

Accordingly, the adjudication provisions in the Original Contract applied to the terms of the Agreement and the adjudicator’s decision was enforced.

Key Takeaways

It is always worth considering an express agreement to adjudicate in a settlement agreement, if that is what the parties envisage as the most appropriate mechanism to resolve disputes. That avoids any subsequent jurisdictional arguments about the availability of adjudication as a dispute resolution forum.

If a settlement agreement includes a requirement for the carrying out of construction operations, adjudication will apply to the extent of those construction operations which parties (except for residential occupiers) cannot contract out of. Parties who do not provide an express adjudication clause would therefore be creating a hybrid contract whereby the Act applies to some provisions but not others, which may be unsatisfactory for the parties.

Care ought to be taken when drafting settlement agreements making it clear whether the settlement agreement supersedes the original contract or varies the original contract in order to avoid any unintended consequences. Interestingly, in London Eco Homes, the judge found that there was a variation to the Original Contract despite the parties agreeing that the Original Contract had in fact come to an end (i.e., it was terminated) some months prior to the Agreement.

Finally, it is also noteworthy that the court commented on the current “direction of travel of the civil law” towards encouraging disputes to be determined via ADR, rather than litigation, observing that the judgment in BDW Trading Limited v Ardmore Construction Limited [2024] EWHC 3235 (TCC) – which held that building safety cases can, in principle, be referred to adjudication – was a recent example of the court adopting that approach (albeit the judgment in BDW is currently under appeal).

The judgment in London Eco Homes is very much in keeping with that emerging theme.