Construction Disputes & Settlement Agreements: Why it is Important to Hit the Nail on the Head

In the recent case of Dawnvale Café Components Ltd v Hylgar Properties Ltd the Technology and Construction Court (TCC) examined the scope of a settlement agreement and considered whether its terms prevented the commencement of a threatened second adjudication.

BACKGROUND

Hylgar Properties Limited (“Hylgar”) entered into a contract with Dawnvale Cafe Components Ltd (“Dawnvale”) for the design, supply and installation of the mechanical works in 2020. However, the work did not go to plan and nine months later the contract was terminated. Both parties claimed that the other had committed a repudiatory breach.

Hylgar referred the dispute to an adjudication. The adjudicator sided with Hyglar and determined that Dawnvale had committed a repudiatory breach of the contract such that Dawnvale was ordered to repay the overpayment (plus VAT and interest, as well as the adjudicator’s fees). When Dawnvale failed to pay, Hylgar commenced enforcement proceedings. The enforcement proceedings were ultimately stayed on 24 August 2021 by virtue of a Tomlin order (a form of consent order used where the parties have agreed terms of settlement) entered into by the parties which was stated to be "in full and final settlement of any and all claims the Claimant may have against the Defendant arising from or in connection with these proceedings".

More than two years after the original adjudication, Hylgar wrote to Dawnvale claiming further losses, including those which had resulted from the same repudiatory breach that was central to the 2021 adjudication. As part of the 2023 dispute, Hylgar threatened Dawnvale with adjudication proceedings if they did not pay the further losses. Dawnvale’s solicitor challenged Hylgar’s position on the basis that the Tomlin order settled "any and all claims arising from the dispute between the parties" and sought, amongst other things, an order prohibiting Hylgar from referring its proposed dispute to adjudication.

Having considered leading case law authorities, the judge rejected Dawnvale’s claim that the Tomlin order prevented a new claim because it only covered the payment schedule for the adjudication award. The judge considered that if the parties, being two commercial parties who acted with the benefit of legal advice, had intended to settle all potentially related future claims, they would have said so by using express wording in the Tomlin order to this effect.

IMPLICATIONS

The judgement in Dawnvale v Hylgar therefore acts as a stark reminder that precise language should always be used in settlement agreements to ensure they ‘hit the nail on the head’ and reflect the parties’ true intentions.

At Davidson McDonnell, our Commercial Litigation team has extensive experience advising on settlement agreements and would be happy to assist you with any queries that you may have.

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