Settlement Agreements and Alternative Dispute Resolution

In Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC) the Court held that the terms of a particular sub-contract were not incorporated into a letter of intent so the appointment of an adjudicator was not valid. The decision highlights the importance of ensuring that terms relating to alternative dispute resolution procedures are properly incorporated into contracts.

Volkerfitzpatrick issued a Letter of Intent (LOI) to Twintec. It required Twintec to carry out its works “in accordance with the documents below”. One of the documents referred to below was a standard form sub-contract (DOM/2). This is a standard form contract. The intention was that the LOI was to be replaced by a formal contract in due course but the parties failed to do this.

Subsequently there was a dispute between the parties and Volkerfitzpatrick served notice of adjudication on Twintec. In accordance with the clause in DOM/2 Volkerfitzpatrick applied to have an adjudicator appointed by the RICS.

Twintec sought an injunction. Its position was that the LOI was the binding contract and there was no adjudication provision in that document. Volkerfitzpatrick argued that the LOI was a binding contract and that the terms of the DOM/2 subcontract were incorporated into it.

The Court found that not every term of the DOM/2 contract had been incorporated into the LOI. It held that while the ‘primary obligations’ (for example, the programme, design and payment applications) were incorporated into the LOI the ‘secondary obligations’, such as the dispute resolution clauses, were not. The adjudicator had been appointed by Volkerfitzpatrick in a way which was not in accordance with the contract thus the adjudicator could not decide the dispute.

This decision highlights that when agreeing a contract it is important to make sure that it is clear what alternative dispute resolution processes are in place.

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