Case No: HT/15/00215

[2015] EWHC 2975 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

7 Rolls Building

Fetter Lane

London, EC4A 1NL

Thursday 25 th June 2015

BEFORE:

MR JUSTICE STUART-SMITH

BETWEEN:

SEVERFIELD (UK) LTD

Claimant/Applicant

and

Duro Felguera Uk Limited

Defendant/Respondent

(Transcript of the Handed Down Judgment of

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MR HICKEY appeared on behalf of the Claimant/Applicant

MR WILLIAMSON appeared on behalf of the Defendant/Respondent

Judgment

As Approved by the Court

MR JUSTICE STUART-SMITH:

1. The claimant, [“Severfield”], applies for summary judgment to enforce the order of Mr R J Davis dated 26 April 2015 which is in a sum of something over £3 million. The defendant, [“Duro”], resists the application on the basis that Mr Davis has included in his award sums in relation to work that are not “construction operations”, within the meaning of section 104(5) of the Housing Grants Construction and Regeneration Act 1996 because it is said that they fall within the exception in section 105(2)(c) which excludes from the definition of “construction operations”:

“Assembly, installation or demolition of plant or machinery or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery on a site where the primary activity is… power generation.”

There is no doubt that what we are concerned with is a project where the primary activity is to be power generation.

2. The parties entered into a contract on 13 August 2013 for the design, supply and erection of steel structures by Severfield for Duro in its project to build a combined cycle gas technology power station at Carrington in Manchester. Severfield designed, fabricated, delivered and installed steelwork to various structures including the Turbine Hall and various Electrical Modules which supply electricity to the site and to the plant used for power generating. There is evidence that Severfield were not the only steelwork contractors in these areas.

3. As the works progressed, Severfield submitted applications for interim payments which were all the same general form and adopted the same general approach. The present dispute arises out of Application 15. According to Mr Bogg, its associate commercial director, when Severfield was preparing to refer the dispute to adjudication it was recognised that some aspects of its work included in Application 15 could be said to be excluded from the scheme by section 105(2)(c). Those works were therefore excluded from the referral to adjudication. However, Severfield included in the referral all fabrication and delivery elements of the works and the erection element of the contract works carried out in and to the Turbine Halls (£822,316.16) and the Electrical Modules (£229,127.77). These were the same sums as had been claimed for the steelwork erection in the Turbine Halls and to the Electrical Modules in Application 15.

4. Severfield also claimed sums in respect of Variations to the works in the Turbine Halls and to the Electrical Modules in Application 15 in respect of steelwork erection in the Turbine Halls and to the Electrical Modules. However, Application 15 included aggregated sums that did not discriminate between fabrication and delivery on the one hand and steelwork erection on the other. When it came to the referral to adjudication, Severfield calculated the proportion that erection bore to the aggregated sum for fabrication, delivery and erection in the main contract sums and applied that proportion to the aggregated sum in Application 15 for variations. In the case of variations to steelwork erection in the Turbine Halls, the proportion was 35 % (giving a net figure of £622,001.41). In the case of the variations to steelwork erection to the Electrical Modules it was 26 % (£63,387.92). There were other claims in respect of Variations to other areas including areas where Severfield had deliberately excluded a claim under the main contract works for erection because of its concern about the effect of section 105(2)(c).

5. At an early stage, Duro raised an issue of jurisdiction. It asserted that Severfield’s referral included works that were excluded by section 105(2)(c). In support of that it put in a technical note describing the works in the Turbine Hall and to the Electrical Modules; a report from Mr Neil Fitch, a quantity surveyor; and an opinion from Mr Adrian Williamson QC. On the basis of the technical note, Mr Fitch gave as his opinion on the Turbine Hall and on the Electrical Modules that the works (or some of them) should be excluded. Mr Williamson QC, on the basis of what Mr Fitch had said, endorsed Mr Fitch’s opinion.

6. Severfield responded on jurisdiction and on 7 April 2015 the adjudicator gave what he described as a non-binding ruling that he preferred Severfield’s approach as Duro’s approach involved something akin to a minute analysis of the work. Duro continued to engage with the process while reserving is position on jurisdiction. In due course, Mr Davis made his award which includes sums claimed for the contentious works in the Turbine Hall and to the Electrical Modules. Duro did not pay. Severfield issued these proceedings in the present application for summary judgment on 20 May 2015. It supported the application with what may fairly be described as a standard form of witness statement which did not address the question of jurisdiction in any detail.

7. Duro opposes the application primarily on the jurisdictional ground that it advanced before the adjudicator, namely that the adjudicator’s award included works which should be excluded by section 105(2)(c), although the manner in which it has put those submissions has modified and modulated. Further evidence has been put in by the parties. Duro has submitted a report from Mr De Silva of William J Marshall dated June 2015, which includes his analysis of the steelwork in the Turbine Hall and to the Electrical Module based on an inspection he made on 29 May 2015. Including exhibits it is over 50 pages long. His opinion in summarised at bundle 1, tab 9, page 13 where he says:

“7.4 Along the south-east elevation of the Turbine Hall there are significant elements of further steelwork. This further steelwork includes a series of cantilevered steel trusses that support pipework and a steelwork structure supporting the air intake units at high level.

7.5 I consider the cantilevered steel trusses supporting the pipework to be 'piperacks' and 'pipebridges' and therefore, as set out in Cleveland Bridge v Whessoe-Volker, the erection of such steelwork items should, in my view, be excluded on the basis of Section 105(2)(c) of the Act.

7.6 Similarly I consider that the steelwork supporting the air intake units should be excluded on the basis of Section 105(2)(c) of the Act. This is because in my view the air intake units are items of plant.”

8. In summary, he states that the main steelworks to the Turbine Halls should not be excluded, but goes on to identify other parts of the steelwork in the Turbine Hall and Electrical Modules that he says should be excluded. At tab 9, page 30, he provides schematics of the Turbine Hall which illustrate a typically complex area and he also provides photographs, to which I will refer in a moment.

9. Duro has submitted another report from Mr Fitch in which he accepts, in principle, that the adoption of a percentage based approach may be appropriate when seeking to separate out amounts for individual components from within an all-in rate, but he qualifies his acceptance by saying it must be established that the percentages that are used must produce a reasonably close estimation of the amounts of the individual components (in this case the erect only steelwork elements). He devotes much of his report (which with exhibits is over 230 pages long) to trying to show that the percentages adopted by Severfield do not provide a reasonable estimation of the actual cost. He also addresses the approach adopted by Severfield to Variations. His report was submitted on 17 June 2015. It is almost self-evident that submission of his report on that date did not leave time for a fully detailed reply from Severfield. That may reasonably be said to be, at least in part, a consequence of Severfield’s decision to put in a non-technical witness statement in initial support of their application.

10. In reply, Severfield has put in the statement of Mr Bogg. He raised the issue based upon Mr De Silva’s notes whether all of the steelwork identified by Mr Silva as falling within the exclusion was in fact included within Severfield’s works and says that some of it was not. The implication of that assertion is that it is not included in the sums submitted to or awarded by the adjudicator, but I cannot be sure whether that is right on the information available on this summary judgment application.

The Principles to be applied

11. In North Midland v AE & E Lentjes [2009] BLR 574, Ramsey J reviewed the relevant authorities and concluded that the intention of section 105(2)(c) was to exclude steelwork which formed an integral part of the machinery and which was directly and necessarily connected to the plant. It was therefore intended to be a narrow exclusion. He held that section 105(2)(c) was not intended to include all structural steelwork on the large site there being considered; see [63]. The item at issue in that case was large reinforced concrete silos. Ramsey J rejected the submission that they were “Part of the plant being assembled or stored” on the basis that the reference to plant or machinery is more consistent with components or items of plant. He regarded the silos as structures; see [77] to [79]. At [80] he made a statement of principle as follows:

“There will obviously be certain aspects of every contract which at the boundaries may either be argued to be construction operations or be argued to be within the exclusion. I respectfully agree with Judge Bowsher QC in ABB v Zedal at paragraph 27, cited with approval in paragraph 37 of Comsite, that “one cannot make sense of the Act by a minute analysis of the work to see what was plant and what was not. One must look at the work broadly .” That is not the same as giving the words of s.105(2) a broad or narrow meaning. What is required is for the works overall to be looked at broadly to see whether they came within the s.105(2) exception.”

He drew the distinction between the approach to be adopted on the one hand, giving words of section 105(2) a broad or a narrow meaning, and, on the other, making it clear that what is required is for the works overall to be looked at broadly to see whether they come within the exception.

12. A year later, Ramsey J addressed the applicability of section 105(2)(c) again in Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin & Ors [2010] BLR 415. The steelwork at issue in that case was described as pipe racks and pipe bridges. Ramsey J’s main statement of principle was at [45] where he said:

“As I observed in North Midland v Lentjes , the operations described in section 105(2) can generally be brought within the description of operations in section 105(1) so that the intention was to exclude a specific operation from the more general description of operations. The provisions of sections 105(2)(a) to (c) are aimed at excluding certain particular operations either generally or in specific industries. For those industries, instead of saying that all operations which would otherwise be construction operations are excluded, the reference is to particular operations on sites where the primary activity is one of the industries. The exclusion is therefore limited to those particular operations. The definition in section 105(2) has not been broadened by the use of such words as “ operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations.... ”, as has been done in section 105(1)(e). In addition, for the reasons set out in North Midland v Lentjes , the phrase “ assembly, installation… of plant or machinery ” in section 105(2)(c) should be construed narrowly by applying it only in cases where the work was assembly or installation of plant or machinery. All of those observations would suggest that the word “erection” in section 105(2)(c) should be given a narrow meaning.”

13. Applying that principle, he agreed with the submission of Mr Williamson QC (then appearing for the claimant) and held that only erecting the steelwork for the pipe racks and pipe bridges was excluded and prior design and fabrication was not. The report does not expressly state the use to which the supported pipes were going to be put, but it may reasonably be inferred (and Mr Williamson confirmed this to the court today) that they would have been for the transport of liquids and gases rather than the actual processing of them. Ramsey J’s ultimate decision in Cleveland Bridge was that because the dispute that had been referred to adjudication and on which the adjudicator had made her award included some works that were not building operations, the award was flawed and that it was not open to the court to adjust the award so as to sever that part which should not have been awarded; see [116] to [119].

14. Since the scheme provisions are only applied to “construction operations” (as defined) and the consequences of obtaining an award which includes matters that are not construction operations is that the award cannot be enforced (see the decision of Ramsey J in Cleveland Bridge) it must be for the claimant who seeks to enforce an award to satisfy the court that all matters that are included in the award were within the jurisdiction of the adjudicator. In this case, it means that the court must be satisfied that all of the steelwork erection included by Severfield in its referral to the adjudicator was properly regarded as “construction operations”.

15. The following observations may be made on the basis of Ramsey J’s two decisions: Firstly, the narrowness of section 105(2)(c) is a function of its terms. It only applies to “erection… of steelwork for the purposes of supporting or proving access to plant or machinery.” Second, while avoiding minute analysis, once the jurisdictional issue is raised, the court cannot avoid forming a view on whether or not contentious steelwork erection falls within or outside the scope of section 105(2)(c). Third, “plant or machinery” are not separately defined but are well recognised terms. So it was that Ramsey J was able to say with confidence that reinforced concrete silos were structures rather than being “plant or machinery” within the meaning of the sub-section and with equal confidence to say or at least necessarily imply that the pipes being supported on the pipe racks and pipe bridges were plant or machinery so that their supporting steelwork fell within the sub-section and therefore was not to be counted as construction operations. Fourth, it is to be noted that in neither case did Ramsey J hold that the reason why the steelwork was included or excluded was because what it supported was or was not directly involved in the primary process of the project overall. I respectfully consider that he was right not to do so because it is no part of the wording of section 105(2)(c) that the plant or machinery in question must be directly involved in the primary process. Put another way, pipework is plant whether it forms part of the primary processes or not. This approach has the added benefit of excluding an area of potential minute analysis about whether a piece of plant is an integral part of, say, a turbine or not.

16. Before turning to apply these principles to the present application I remind myself that the test for granting the claimant summary judgment is that set out in CPR 24.4; namely, that the defendant has no real prospect of successfully defending the claim or issue. I also remind myself that it is no part of today’s function to conduct a mini trial; nor am I in a position to do so, not least because of Severfield’s decision to start proceedings with a non-technical supporting witness statement, which means that no full response to Duro’s evidence is to hand.

Application of the Principles to the Facts of the Case

17. It seems to me that the question I have to answer is: Can the court be satisfied that the defendant has no reasonable prospect of showing that some of the steelwork for which Severfield has claimed falls within section 105(2)(c) leaving aside, of course, matters which could be regarded as de minimis . I can deal with this relatively shortly because, in the end, the relevant evidence is within a very narrow compass. I have already referred to paragraphs 7.4 to 7.6 of Mr De Silva’s report at bundle 1, tab 9, 13. Mr Bogg replies to this at bundle 2, tab 11, page 12 at paragraphs 51 to 53 where he says:

“...there is considerable doubt, and it is not clear that, the steelwork to which Mr De Silva refers is actually part of Severfield’s Works.”

18. There are two points to note: (1) Mr Bogg’s evidence is, to some extent equivocal; and (2) he is not himself a technician. There is no reason to believe he has direct knowledge and no drawings or technical evidence is given as to whether or not the steelwork is included. However, annexed to his report are copies of photographs originally disclosed by Mr De Silva, in which the original photograph has been annotated to indicate that there is a chunk of steelwork by others (which Mr Hickey might describe as being “plonked” there by others) but there is other steelwork, including a large cross brace member, which it is accepted was inserted by Severfield.

19. Mr Williamson said, on instructions, that the steel cross brace is an integral part of the support for the air intakes. Applying the principles that I have tried to outline, it is at least arguable that the air intakes are plant within the meaning of the section, even if they are not an integral part themselves of the turbines, and it appears at least arguable or that there is at least an issue as to whether or not they are supported by Severfield’s steel within the meaning of the section. Apart from observing that they are substantial cross braces, I have no information that would allow me to determine whether, in the context of this application as a whole, what I can see from the photographs would be regarded as de minimis; and I do not know what, if anything else, it is linked to. It follows that left to myself I would conclude that I was not satisfied that the defendant has no reasonable prospect of establishing that some or all of Severfield’s steelwork in that area fell within the exclusion of section 105(2)(c).

20. Turning to the Electrical Modules, Mr Hickey, rather charmingly described what he said was being done there as being a large section of steelwork on which “kit” (which I take to be another word for plant) had been “plonked”. Photographs of the Electrical Modules are to be seen at bundle 1, tab 9, pages 43 and 44. They do not allow a full appreciation of the steelwork to be achieved; however, it is apparent from photographs 7 and 8 that it is a substantial structure which has the appearance of being a steel structure designed to support plant. That point is made if one goes over the page to page 44 where one sees the busbar, which is a “massive piece of kit” (to use Mr Hickey’s phrase) which is clearly supported by the steelwork. It seems, in the context of an application for summary judgment, supremely unlikely that this was a case of unplanned “plonking”. A drawing that has been produced does not precisely answer the question, but it seems most unlikely that the steelwork which is shown in the photographs was designed and built for any other reason than to support large pieces of plant.

21. Mr Williamson has a third point which is based on Mr Fitch’s second report, namely that Severfield has over-claimed on its contract works by adopting too high a percentage proportion. It is to be remembered that one of Duro’s difficulties in the adjudication was that it did not issue a non-payment notice and so was not in a position to take such a point in the adjudication; but Mr Williamson said that Mr Fitch’s work shows that the sums claimed are excessive and therefore Severfield have claimed for matters not properly included. I have already referred to Mr Fitch’s statement that he has no objection, in principle, to adopting a percentage or a proportional approach in order to claim in respect of identifiable aspects of work, but he gives the qualification that it has got to be within reasonable estimation.

22. Once one accepts that adopting a percentage approach is reasonable in principle, the natural consequence of an exercise which shows that a party has over-claimed or under-claimed is to conclude that the party has claimed too much for the work for which they are claiming – not that they have claimed for other works as well. The consequence of that over-claiming would be that when, at some later stage in the contract, they come to claim for those other works, they will have less money in the contract price for those other works; but that is not an unusual state of affairs in construction contracts where, for reasons good, bad or indifferent, contractors often load different elements of contract pricing in different ways for different reasons. So, on the main contract works I am not persuaded by Mr Williamson’s point, though I readily accept that in this extempore Judgment I may not have done it the justice which it deserves. But it seems to me that his point achieves much greater force when applied to the Variations.

23. As I have said, Severfield applied the same percentage to an aggregate sum for Variations as they have done in relation to their main contract works. But there is no reason to assume that the same proportion of cost attributable to variations would be spent on erection as opposed to fabrication and delivery as would apply to the main contract works. This is reinforced by a list of variations, which is page 50 of Mr Fitch’s first report. In the normal way, it gives an outline description of what individual variations were for. On the basis of that description and other works, Mr Fitch has done an analysis at page 33 of his report, which raises what is clearly a triable issue, at least in respect of areas other than the Turbine Hall and the Electrical Modules, that issue being whether the sum claimed in relation to Variations bears any relation at all to a division between fabrication and delivery on the one hand and erection on the other. So, subject to one further argument, it is clear to me that there are triable issues which would prevent summary judgment being given.

24. Mr Hickey advances a further argument that the court simply cannot entertain Mr Williamson’s submissions. Mr Hickey says that the question of jurisdiction and whether or not his client had included claims for steelworks which should have been omitted because of section 105(2)(c) is a matter which mixes substance and jurisdiction so that the adjudicator could determine both without fear of interference from the court. He relies upon three decisions of Akenhead J. The three decision are: Air Design (Kent) Limited v Deerglen (Jersey) Limited [2008] EWHC 304 TCC, where he relies upon [22]; Camillin Denny Architects Ltd v Adelaide Jones [2009] BLR, 606 where he relies upon [30]; and Superblast v Story Rail [2010] BLR, 211 where he relies upon an Obiter passage at [35].

25. I accept Mr Williamson’s submission that these are scant authority for the proposition which Mr Hickey wishes to advance. Even if the principle that Akenhead J is there advancing is correct and there may be special cases where an adjudicator’s decision on jurisdiction cannot be challenged, I am not satisfied that the principle applies in the present case, for two reasons. The first is that if one looks at the adjudicator’s decision and assumes that he intended to incorporate his non-binding decision on jurisdiction into his decision, the basis upon which he made his decision was set out halfway down the page at 222; namely that:

“The Referring Party based on the foregoing assert that one therefore has to look broadly at whether the claimed steelwork would be integral with the plant to such a degree that they become indivisible and is directly and necessarily connected to the plant. I consider this is correct and the preferred view.”

This goes too far because, although words such as “integral with the plant” and “indivisible” and “directly necessary connected” are terms or phrases which are used in the authorities, that is not ultimately the test that is to be applied. The test that is to be applied is the test set out in section 105 and the question does not admit of being reduced or constrained in the way that the arbitrator did. The second reason is that I am not persuaded that the approach adopted by Ramsey J, particularly, I think, at [116] to [119] of Cleveland Bridge is wrong and therefore I should follow it. To the contrary, I think he is probably right for the reasons he gave and, on that basis, it is not open to the court in these circumstances to sever part of the adjudicator’s award or to sustain the adjudicator’s decision.

26. I fully accept that there may be cases (of which this may be one) where that approach may mean that unmeritorious, technical defences may be made which will deprive people of the cash flow which is the life blood of the construction industry; however, that is not, I am afraid, a sufficient reason for me to bend what I think are the applicable principles. It follows that leave to defend will be given.