The usual expectation when parties enter into a settlement agreement is that it will resolve disputes between them rather than trigger them. However, there have been a number of cases where this has not happened. Most recently, Interserve Industrial Services Limited v ZRE Katowice [2012] EWHC 3205 (TCC).
Interserve and ZRE entered into subcontracts for scaffolding and insulation at a power station in Pembrokeshire.
The subcontract contained dispute resolution provisions which provided that final settlement of disputes was to be by Arbitration.
Disputes arose regarding Interserve's entitlement to interim payments. These were resolved and documented in a Settlement Agreement. It set out provisions for payment of the "Outstanding Sum" on achievement of milestones. It confirmed that any other amounts becoming due would be dealt with in accordance with the subcontract. The Agreement was said to be governed by the laws of England and Wales and the courts of England and Wales were stated to have exclusive jurisdiction in respect of any dispute arising under the Agreement.
Following the Agreement, work continued on the remainder of the subcontract. However, disputes arose about non payment of sums which were said to have fallen due under the Agreement.
Interserve raised a court action, claiming entitlement to do so under the exclusive jurisdiction clause in the Agreement.
ZRE applied to have the court action put on hold and the dispute referred to arbitration in accordance with the dispute resolution provisions of the subcontract.
In reaching a decision, the judge noted that the settlement agreement was not made in full and final settlement of all claims, under the subcontract and the parties' obligations under the subcontract, remained to be performed.
He considered there was an implied term in the Agreement that disputes under it would be subject to the same dispute resolution procedure as the subcontract.
In doing so, he adopted the approach in L Brown & Sons Limited v Crosby [2005] EWHC 3503 (TCC). In this case, the parties entered into side agreements varying the terms of the contract. These did not contain separate dispute resolution provisions but, applying the "officious bystander" test, it was considered that an officious bystander would assume that the underlying contract provisions would apply.
He had to go further though, since in the Interserve case there was a dispute clause giving the English courts exclusive jurisdiction.
To recognise this, he made a distinction between a dispute resolution clause (such as that in the subcontract) and an exclusive jurisdiction clause (like that in the Agreement). He considered the subcontract dispute resolution clause was a self contained regime for the resolution of disputes. The exclusive jurisdiction clause supplemented that by making clear what laws should apply to any arbitration but did not trump it by substituting a new forum for disputes.
Comment
This is a surprising result. The Settlement Agreement stated which law was to apply and also which forum had jurisdiction over the dispute. Here, the courts were given exclusive jurisdiction. Normally, terms would not be implied where they are in conflict with express terms and here there was a clear express term in the Settlement Agreement which dealt with the method of resolving disputes under that Agreement.
The practical advice, in the light of this, would be to ensure that intentions are fully and clearly set out in any settlement agreement. In the unfortunate circumstances of an agreement still giving rise to disputes, this should at least ensure that the dispute is limited to the substantive issues as opposed to a preliminary (and possible expensive) skirmish over where the battle is to take place.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
