Dawnvale Cafe Components Limited v Hylgar Properties Limited [2024] EWHC 1199 (TCC)

This recent decision should sharpen all practitioners’ minds when considering whether the wording of a settlement agreement will actually settle what the parties (or, at least, one party) intended. Neil Moody KC, sitting as a Deputy Judge of the High Court, also offers further guidance what constitutes ‘the same or substantially the same’ dispute. 

The Facts

Hylgar Properties Limited (“Hylgar”) contracted with Dawnvale Cafe Components Ltd (“Dawnvale”) in February 2020 for the design, supply and installation of the mechanical works (the “Works”) as part of the Beacon development in the Wirral (the “Contract”). The Works did not go according to plan and by November that year, the Contract had been terminated. It was, however, disputed which party had committed the repudiatory breach.

Hylgar referred a dispute to Adjudication in June 2021, alleging that Dawnvale had repudiated the Contract and that it was due repayment of £180,322.92 on the basis of a true valuation of the Works. The Adjudicator determined that Dawnvale had repudiated the Contract and it was required to repay the overpayment, plus VAT, plus interest, as well as the Adjudicator’s fees. Such payments were not made and Hylgar commenced enforcement proceedings.

Before the matter came before the TCC in Liverpool, the parties entered into a Settlement Agreement (via a Tomlin Order) whereby Dawnvale would pay the sums awarded but it would do so via instalments over a seven-month period. The key term for the purposes of these proceedings is at paragraph 4 of the Settlement Agreement which provides:

“This Settlement Agreement shall immediately be fully and effectively binding on the parties. The payment of the Settlement Sum is 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” [emphasis added].

In August 2023, Hylgar informed Dawnvale of its intention to commence another Adjudication, this time for sums (totalling circa £650,000) in respect of losses suffered as a result of Dawnvale’s repudiation of the Contract.

Part 8 Proceedings

In response, Dawnvale brought these Part 8 Proceedings, seeking:

1. A declaration that the Settlement Agreement precludes Hylgar from seeking further relief;
2. An order prohibiting Hylgar from seeking further relief in an Adjudication; and
3. A declaration that the dispute that Hylgar wishes to adjudicate is ‘the same or substantially the same’ as the dispute already decided in the first Adjudication.

In summary, Dawnvale’s arguments were that the Settlement Agreement should be construed widely and on the basis of its understanding that it settled all potential claims under the Contract. Further and/or alternatively, that Hylgar’s relief in relation to Dawnvale’s repudiatory breach of the Contract had already been determined and it could not have a ‘second bite at the cherry’.

The Judgment

The Judgment sets out a useful summary of the law relating to the construction of settlement terms, specifically focusing on the objective meaning of the terms “arising out of or in connection with” and “these proceedings”. The Judge disagreed with Dawnvale’s interpretation of paragraph 4 of the Settlement Agreement and held that:

1. The subjective understanding of the settlement terms by the parties is inadmissible;
2. The term “these proceedings” did not relate to the broader relationship between the parties, but instead referred to the specific enforcement action that had been brought by Hylgar in the TCC;
3. Hylgar’s prospective claims for further losses following Dawnvale’s repudiation could not be said to “arise from or be in connection with” the enforcement proceedings relating to the first Adjudication.

Accordingly, the agreement only settled the payment schedule relating to the Adjudication award and did not affect Hylgar’s right to pursue other money claims under the Contract. The Judge highlighted that, had a settlement of any and all future claims been the intention of the parties, this could have been easily achieved. Specifically, the settlement terms could have referred “to all claims arising from or in connection with one or all of ‘the contract’, ‘the works’ or ‘the dispute(s)’” instead of being limited to “these proceedings”.

In respect of Dawnvale’s claim that, in any event, Hylgar could not ‘re-adjudicate’ its entitlements following its repudiation, the Judge held that this argument had no merit. It was clear that the first Adjudication established a) that Dawnvale was in breach; and b) that it had been overpaid by reference to the true value of the Works. Notwithstanding that the new claims also relate to the repudiation (i.e. the same cause of action), the heads of loss are entirely different and there is no overlap between the sums previously awarded. The Judge noted a point of policy whereby, if Dawnvale’s argument was correct:

“… a referring party would be required to bring its entire claim encompassing all its heads of loss to adjudication at the same time. But (as with the consequential losses in this case) some heads of loss (for example delay) may not become apparent for some time. Such an approach would lead to delay in referring matters to adjudication and could obstruct rather than promote cashflow. That would not be consistent with the overriding approach to adjudication which is to avoid undue technicality, facilitate cashflow and pay now, argue later.” [36]

Conclusion

This Judgment is a cautionary tale, highlighting the importance of the wording used in settlement agreements. In this instance, Dawnvale did not achieve a settlement of all claims in respect of the Contract and is now faced with a further claim, for a significant sum. Careful thought needs to be given to be given to the precise words used in order to properly reflect the parties’ intentions. Further, the strict “objective” test that the courts apply to construction of agreements means that parties cannot seek to re-write history by reference to what they ‘thought’ they were settling.

On the basis of the present facts, the Judge’s finding that the disputes are not “the same or substantially the same” is unsurprising. However, the decision does reinforce the pro adjudication stance taken by the courts. 

Having thought that the matter was resolved, Dawnvale must now prepare for Adjudication 2…