TCC discusses exceptions under Construction Act and other adjudication issues

In a recent case Ramsey J in the Technology and Construction Court (TCC) addressed a number of issues relating to the enforcement of an adjudicator's three decisions, including: (i) the application of the slip rule and jurisdictional challenges; (ii) the correct interpretation of ‘primary activity’ in section 105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act); and (iii) inconsistencies between Decisions made by the same Adjudicator.

2nd May 2014

Laker Vent Engineering Ltd v Jacobs E&C Ltd [2014] EWHC 1058 (TCC)

In a recent case Ramsey J in the Technology and Construction Court (TCC) addressed a number of issues relating to the enforcement of an adjudicator's three decisions, including: (i) the application of the slip rule and jurisdictional challenges; (ii) the correct interpretation of ‘primary activity’ in section 105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act); and (iii) inconsistencies between Decisions made by the same Adjudicator. 

Construction Act 1996

As many construction law practitioners will be aware, where a contract does not contain any written provision for adjudication - or where such provision exists but does not comply with the Scheme for Construction Contracts 1998 (the “Scheme”) - the only way for Adjudication to apply to that contract would be if it could be defined as a construction contract under the Construction Act.

Background

In the recent case of Laker Vent Engineering Ltd v Jacobs E&C Ltd, a sub-contract dated 30 March 2012, (“the Sub-Contract”) provided that Laker Vent Engineering Ltd (the ‘sub-contractor’) were to supply, fabricate and install pipe-work at Markinch Biomass Combined Heat and Power (CHP) Plant (“the Plant”) in Fife, Scotland. Under the principal contract with RWE Npower Renewables (Markinch) Limited (“RWE”), Jacobs E&C Ltd (the “contractor”) had contracted for the design, manufacture, supply, construction, installation, testing and commissioning of the Plant. 

Three adjudications

In October 2013, the sub-contractor commenced two adjudications and the same adjudicator was appointed by the Institution of Chemical Engineers (IChemE). A third adjudication was commenced in November 2013, again with the same adjudicator appointed. All three notices of adjudication referred to the Construction Act 1996 and the Scheme for Construction Contracts 1998. The parties agreed that the adjudicator would deliver all three decisions by 7 January 2014, which he did. A small correction was subsequently made to the first decision under the slip rule.

Court proceedings

The sub-contractor applied to enforce the adjudicator's three decisions, seeking summary judgment of a sum in excess of £808,000 plus VAT and the adjudicator's fees and expenses.

Issues discussed:

(i)    Use of slip rule 

The court considered whether the contractor had affirmed the adjudicator's decisions. In essence, the issue was whether a party could apply to the adjudicator under the slip rule to correct an error in his decision and, at the same time, maintain a general reservation of its rights to later challenge that decision. The court concluded "...with some hesitation", that a party may rely on a general reservation of rights and apply under the slip rule or make a payment; the contractor's general reservation of rights was sufficient to permit it to ask the adjudicator to correct his decision under the slip rule without waiving its right to later challenge that decision.

(ii)    What is a construction contract?

The Sub-Contract did not contain an adjudication provision. Therefore, as discussed above the only way for adjudication to apply under the Construction Act and the Scheme would be if the Sub-Contract was a construction contract under the Construction Act. 

The contractor argued that the Sub-Contract was not a construction contract because it was not an agreement for the carrying out of construction operations under s104(1). Instead, they argued that the work under the Sub-Contract comprised the assembly and installation of plant on a site where the primary activity was power generation. Such projects were expressly not “construction operations” under section 105(2)(c) of the Act.

The test under section 105(2)(c) is to determine what the ‘primary activity’ of the Sub-Contract site was. The Court found that when considering what the primary activity was, the whole site (i.e. the whole paper mill complex) was to be considered. Given this approach the court found that the primary activity was paper making, not power generation. 

The court gave several reasons for this decision, including:

  • that the aim of the power plant at that location was to provide steam and power, and the plant was providing steam and electricity to serve the whole “site”; 
  • the plant was generally described as being at the Tullis Russell paper mill, and, its postal address referred to the Tullis Russell paper mill; and
  • the fact that the plant was increased to contribute to the national grid 6% of Scotland’s renewable energy target was merely ‘incidental’.

Therefore the court rejected the contractor's argument that the parties' Sub-Contract was not a construction contract, holding that the primary activity of the site where the plant was built was paper making, not power generation.

(iii)    Inconsistency between the Adjudicator’s decision

The court rejected the contractor's argument that there was an inconsistency between the adjudicator's first and third decisions. The first adjudication was concerned with scope, EOT and prolongation costs; in contrast the third adjudication was concerned with the issue of the taking over certificate. 

The court held that:

  • as a matter of common sense, the three decisions were issued at the same time. Therefore the adjudicator had also reached the three decisions at the same time.
  • the adjudicator had not been inconsistent in his findings. It was held there was no "uncertainty or any conflict between the two decisions". Even if there had been conflict, the court commented that they should not review the adjudicator's findings of fact and law on an application to enforce an adjudicator's decision.
  • Whether or not adjudicator’s decisions are consistent was not an issue that went to the adjudicator's jurisdiction. The court held that the contractor's general reservation of rights were only in relation to jurisdiction. Therefore, an argument based on inconsistency was not covered, so by using the slip rule the contractor was precluded from raising an argument on these grounds.

Decision

Ramsey J held that the contractor had no real prospects of defending the summary judgment application and enforced the adjudicator's three decisions. 

Comment

The fact that the court enforced the adjudicator’s decision in itself is perhaps not surprising, given the courts' consistent approach to enforcing an adjudicator's decision in all but very limited circumstances.

However, this case is interesting because of the various issues discussed. In particular, it will perhaps come as a surprise to many practitioners that applying under the slip rule will not be seen as acceptance of the adjudicator’s decision. However, parties who wish to rely on this judgement must be careful, and ensure that any general reservation of rights is clearly worded. Parties should also be aware that in this case the general reservation of rights was limited to only jurisdictional issues.

It also may also be a surprise to practitioners that the contract was considered to be a ‘construction contract’. The court took a wide view in considering whether the contract was captured under the Construction Act, taking into account the whole ‘site’, rather than just the immediate ‘site’ of the works that were the subject of the contract under examination, that is, the Sub-Contract. This judgment may mean that more contracts and especially sub-contracts will now be considered caught by the provisions of the Construction Act.