Staveley Industries Plc (t/a EI.WHS) v Odebrecht Oil & Gas Services

Ltd

TECHNOLOGY AND CONSTRUCTION COURT JUDGE RICHARD HAVERY QC 28 February 2001

[2001] All ER (D) 359 (Feb)

Contract - Construction - Building works - Contract to supply and install fittings in modules. Modules to form living quarters for offshore oil rig - Whether modules forming part of land Whether construction contract - Housing Grants Construction and Regeneration Act 1996, ss 104 (6)(b), 105(1)(c).

The defendant, O, sub-contracted certain works to the claimant, S. Those works were for the supply and installation of fittings into steel modules which were being constructed in England. The modules were intended for use as living quarters for operatives of an oil platform in the Gulf of Mexico. They were to be towed to location and welded onto platforms which were supported by legs founded in the bed of the sea. A dispute arose between the parties and S applied under CPR Pt 8 for a declaration that the sub-contracts were construction contracts for the purposes of the Housing Grants Construction and Regeneration Act 1996 and thus subject to the dispute resolution provisions therein. O submitted that the modules were to `form part of the land' for the purposes of s 105(1)(c) of the 1996 Act, on the basis that the Interpretation Act 1978 defined land as including land covered by water and the platforms' feet were founded in the sea bed. O submitted that the platforms upon which the modules were to be welded were not land and that the reference to `the land' referred to the land on which the relevant construction operation was carried out. It argued that as the modules were to be moved, they could not form part of the land in England and, by virtue of s 104(6)(b) of the 1996 Act, the Act only applied to construction operations in England, Wales or Scotland. O cited Scottish authority to the effect that the definition in the 1978 Act confined land covered by water to tidal land and referred to s 567 2 of the Income and Corporation Taxes Act 1988 from which s 105 of the 1996 Act derived. Section 567(2) expressly included offshore platforms and O argued that the failure to make such an express inclusion in the 1996 Act demonstrated an intention that such platforms should be outside the scope of that Act.

The court ruled:

Structures which were, or were to be, founded in the sea bed below low water mark were not structures forming, or to form, part of the land for the purposes of s 105(1) of the 1996 Act. The absence of an express inclusion of offshore platforms as in the 1988 Act suggested an intention to exclude them from the ambit of the 1996 Act. Furthermore, on its true construction the expression `the land' in s 105(1) referred only to the land where the building or structure forming part of the land was situated when built, and that land, by s 104(6)(b), had to be in England Wales or

Scotland. On the evidence, the modules could not form part of the land in England and thus the 1996 Act did not apply to the subcontracts.

Argyll & Bute Divisional Court v Secretary of State for Scotland [ 1976] SC 248 considered.

Marc Rowlands (instructed by Hammond Stoddards Edge, Birmingham) for S. Stephen Furst (instructed by Masons) for O.

Martyn Gurr Barrister

Judgment

QUEENS BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

28 FEBRUARY 2001

JUDGE RICHARD HAVERY Q.C.

APPROVED JUDGMENT

1. 1 have before me an application made under the Civil Procedure Rules, Part 8, for a declaration that four contracts between the claimant and the defendant are construction contracts as defined by the Housing Grants Construction and Regeneration Act 1996 and are subject to the provisions of that Act. The specific provisions in question are those providing for adjudication of disputes arising under the contracts.

2. The contracts are subcontracts. The claimant is the subcontractor and the defendant is the main contractor. The subcontracts provide for the design, engineering, procurement, supply, delivery to site, installation, testing and commissioning of instrumentation, fire and gas, electrical and telecommunications equipment. `mere is no distinction, material for present purposes, between the subcontracts. The equipment was for installation in steel structures, called modules, constructed in a yard adjacent to the River Tees pursuant to the corresponding main contracts. The modules are intended as living quarters for operatives at an oil or gas rig in the Bay of Campeche in the Gulf of Mexico. They are three storeys high, 70 feet wide, 63 feet high and 145 feet long. They have been, or will be, placed on barges and towed out to the Gulf of Mexico where they will be welded on to platforms supported by legs founded in the bed of the sea. The platforms are several tens of metres above the sea bed.

3. The Act that I have mentioned, which I shall call `the Act', relates in Part lI to construction contracts. Its material provisions are as follows:

104.-(1) In this Part a "construction contract" means an agreement with a person for any of the following

(a) the carrying out of construction operations;

(2) References in this Part to a construction contract include an agreement

(a) to do .... design.... work in relation to construction operations.

(6) This Part applies only to construction contracts which -

(b) relate to the carrying out of construction operations in England, Wales or Scotland.

105.-(1) In this Part "construction operations" means, subject as follows, operations of any of the following descriptions -

(a) construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not);

(b) construction, alteration, repair, maintenance, extension, demolition or dismantling of any works forming, or to form, part of the land, including (without prejudice to the foregoing) walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;

(c) installation in any building or structure of fittings forming part of the land, including (without prejudice to the foregoing) systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or security or communications systems;

(2) The following operations are not construction operations within the meaning of this Part -

(d) manufacture or delivery to site of -

(iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems,

except under a contract which also provides for their installation;

4. Mr. Marc Rowlands, counsel for the claimant, submitted that the modules formed part of the

land when standing in the yard at Tees-side. I reject that submission. While construction was

taking place the modules were placed on stands approximately two metres above ground level.

The stands were either steel frames or concrete blocks. The modules were, of course, movable and

intended to be moved, albeit that moving them involved a considerable engineering operation.

They were not intended to be used at that location. It is clear that moving the modules did not, or at any rate was not expected to, damage the modules or the land.

5. Mr. Rowlands submitted that the subcontract work fell within both paragraph (a) and paragraph (c) of section 105(1) of the Act. There was, in my judgment rightly, no dispute that the inclusion of an operation within one of those paragraphs does not preclude it from inclusion in the other. Mr. Stephen Furst Q.C., counsel for the defendant, submitted that the subcontract work did not fall within paragraph (a) or paragraph (c). As to paragraph (a), Mr. Furst submitted that the installation of fittings, as opposed to their alteration, repair etc., did not fall within paragraph (a) since it was not construction or any of the other things mentioned in that paragraph. Mr. Rowlands relied on the decision of Dyson, J. in Nottingham Community Housing Association Limited v. Powerminster Limited [2000] B.L.R. 759. That was a case of repair and maintenance, but Dyson J. said this at p.762:

..... there is no warrant in paragraph (a) for distinguishing between different types of

operations carried out in relation to a building or structure. Take the construction of a

building. Paragraph (a) applies as much to the installation of a demountable wall

partition as it does to the installation of a central heating, air-conditioning, sanitation

system or any of the other fittings mentioned in paragraph (c). There is no distinction in

property law: once installed, they all become part of the land. Nor is there any other

basis, whether technical or founded on the ordinary use of words, for saying that the

installation of a demountable wall partition is, but the installation of heating systems etc.

is not, part of the construction of a building. Such systems are often complex, they are

usually integrated into the structure of the building; they may be very difficult to

disconnect and remove from the building.

6. 1 am not persuaded that all activities failing within paragraph (c) of section 105(1) necessarily

constitute construction so as to fall within paragraph (a). Certainly paragraph (c) is the only

paragraph that deals specifically with installation of equipment.

7. It was common ground that the installation work was of a kind described in paragraph (c) of

section 105(1). Mr. Furst submitted that for the work to fall within the paragraph the fittings had

to form part of the land; it was not sufficient that they could subsequently form part of the land. It

is notable that only the present tense "forming part of the land" is used in paragraph (c), whereas

in paragraphs (a) and (b) the corresponding expression is "forming, or to form, part of the land".

Mr. Rowlands submitted that the distinction was irrelevant. He submitted that the words "forming

part of the land" were simply descriptive of the kind of fittings intended to be included in the

paragraph. I acceded to his invitation to look at the relevant debates in Parliament concerning the

bill that was enacted as the Act. The words in paragraph (c) "fittings forming part of the land,

including (without prejudice to the foregoing)" were introduced into the bill in the House of Lords

by way of amendment moved by Lord Lucas, the relevant minister, on 22nd April 1996 (Hansard,

22nd April 1996, column 924). The phrase "fittings forming part of the land" was considered by

various speakers in the debate including Lord Ezra, who said this (ib., columns 925, 926):

My Lords, I share with other noble Lords who have spoken a slight incomprehension as to the meaning of the phrase. I believe that it is intended to generalise that part of the clause. If that is the case, I am very much in favour of it. It has already been made clear that what is stated in clause 103(1) is not exclusive, and the more that that is referred to throughout the clause the better. Clause 103(1) became section 105(1) of the Act. Lord Lucas said this (ib., col.926):

My Lords, I am delighted to confirm everything that the noble Lord, Lord Ezra, says. The amendment would indeed make the clause general whereas it was not so before. As to

the meaning of the phrase, "fittings forming part of the land", the general rule of law is that whatever becomes attached to the land becomes part of it. An object which was

attached to the land or which was attached to something which was itself attached to the land would be covered by the provisions. It does not matter whether it is easy to remove, such as something merely screwed to the wall, or whether the attachment is more substantial. Examples of such fittings "forming part of the land" would include a fireplace, panelling, a conservatory on a brick foundation or radiators bracketed to a wall. The dividing line between things which are fixed and not fixed might be the telephone on one's desk which is not fixed to the land and the socket in the wall which is. That is the sort of dividing line I would think of, but of course it is something that would be

determined in each individual case.

8. 1 am satisfied that the intention of the minister in moving the amendment was to generalise the matters included in the paragraph. Whether fittings which would not form part of the land until some time after their installation should be included in the paragraph was not under consideration. In my judgment the debate throws no light on the question whether the expression "forming part of the land" in paragraph (c) should be interpreted as including prospective as well as present attachment to the land. But the expression "forming part of the land" is not, in my judgment, purely descriptive of the fittings. The language of paragraph (c) requires the fittings to form part of the land at least prospectively, if not immediately upon their installation.

9. The question remains whether the modules were to form part of the land. Mr. Rowlands submitted that they were. The rigs were founded in the sea bed; and the Interpretation Act 1978 defined land as including land covered by water. Mr. Furst submitted (1) that "the land" was not any land, but was the land on which the relevant construction operation was carried out;(2) that the Act applied only to land within England, Wales or Scotland; and (3) that the rigs were not "land".

10. As to point (1), Mr. Furst submitted that in the context and given the use of the definite article, the land must mean the land where the operation was carried out. It is clear that the construction of, or the installation of fittings in, buildings or structures forming (in the present tense) part of land can take place only on the land where the building or structure is situated when built. The use of the definite article does, in my judgment, suggest that the expression "the land" refers to that land. As to point (2), the operations I have just mentioned do not fall within the Act unless they are carried out in England, Wales or Scotland, by virtue of the provision of section 104(6)(b) of the Act. Thus the completed buildings or structures must be in England, Wales or Scotland. That suggests that the same applies to structures that are to form part of the land.

11. Mr. Rowlands submitted that section 105(1)(a) and (c) extended to cases where, installation did not take place on the same land as that of which the structure, was to form part. He relied on the following passage in the judgment of His Honour Judge Thornton Q.C. in Palmers Limited v. ABB Power Construction Limited [1999] B.L.R. 426,432:

The nature, size and method of fixing into position of the steel structure and the boiler itself clearly have the consequence that the boiler forms part of the land once assembled and fixed into position. Indeed, it would be hard to conceive a more rigid and permanent structure than the steelwork in question. The fact that much of the boiler is assembled on site but away from its permanent resting place and then lifted into position cannot affect the conclusion that a construction activity is involved. Since much industrial plant will

be assembled and erected in this way and since such plant is expressly included in the

definition of a construction operation, the only reasonable conclusion is that ABB's work is a construction operation.

In my judgment, that passage has no bearing on the point. ABB's contractual work was the assembly and erection of the boiler. It was argued that that did not constitute a construction operation. Judge Thornton was dealing with that argument.

12. In support of his third point Mr. Furst relied on the case of Argyll & Bute D. C. v. Secretary of State for Scotland [1976] S.C. 248, a decision of the Second Division of the Court of Session. That case involved the construction of the Town and Country Planning (Scotland) Act 1972. "Land" was defined in section 275 of that Act, and the relevant part of the definition was that "land" included land covered with water. The relevant part of the definition contained in the Interpretation Act 1978 is the same, and applies to the Act unless the contrary intention appears. Counsel in Argyll argued that the sea bed was not land. Lord Wheatley, with whom Lord Leechman and Lord Thomson concurred, accepted the argument of counsel, observing that the basic distinction between land and sea still existed, and the inclusion of land covered with water in the definition of "land" was habile to include the seashore which, according to the tides, might or might not be covered by water. But that area was confined to tidal land.

13. None of the foregoing arguments in my judgment are conclusive. I have to consider them in the light of such intention of Parliament as may be deduced from the provisions of the Act and the mischiefs against which it was directed. Mr. Rowlands submitted that one of the mischiefs against which the Act was directed was the inclusion of `pay when paid' clauses in subcontracts. The subcontracts in question contained such clauses. In my judgment, that submission carries the matter no further. The relevant provisions of the Act are undoubtedly confined to construction contracts as defined. It is perfectly clear that they do not extend to shipbuilding. If the platforms were to be floating platforms, the Act would certainly not apply. The distinction between a floating platform and a platform founded in the sea bed appears to be irrelevant to any intention of Parliament, and any differential application of the Act arising out of it would appear to be accidental. Moreover, it is common ground that the provisions of section 105(1) are derived from section 567(2) of the Income and Corporation Taxes Act 1988. The provision corresponding to section 105(1)(a) of the. Act is section 567(2)(a). Where section 567(2)(a) has "structures (whether permanent or not), including offshore installations" section 105(1)(a) has "structures forming, or to form, part of the land (whether permanent or not)". That suggests an intention to exclude offshore installations from the ambit of the Act, or at least the absence of any intention to include them.

14. In the light of those considerations, I conclude that structures which are, or are to be, founded in the sea bed below low water mark are not structures forming, or to form, part of the land.

15. Accordingly, I declare that the Act does not apply to the subcontracts in question.