Midland Expressway Ltd (MEL) v Carillion Construction Ltd (CAMBBA) (No2) [2005] EWHC 2963 (TCC

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

This is a particularly important case for those involved in PFIs and PPPs. It concerned the construction of the new M6 toll road, near Birmingham.

  • The contractual arrangements for the PFI involved a special-purpose vehicle (SPV) company entering into a concession agreement with the Secretary of State for Transport, under which the SPV agreed to design, build and operate the M6 toll road.
  • The SPV’s design and construct operations were subcontracted to a contractor, which was a consortium of large construction companies.
  • The subcontract contained “equivalent project relief” provisions which, in effect, limited the subcontractor’s entitlement to payment for such matters as variations, and compensable delay, to the amount which the SPV was able to recover from the Secretary of State under the concession agreement. One of the mechanisms by which the subcontract purported to do this was to restrict the right of the subcontractor to adjudicate an issue until a corresponding adjudication was brought between the SPV and the Secretary of State.

During the project, the subcontractor made certain claims for additional payment due to variations. The SPV, in turn, sought to pass those claims up the line to the Secretary of State. Before there was any final resolution of those claims between the Secretary of State and the SPV, the subcontractor sought to institute an adjudication against the SPV. The SPV then brought legal proceedings, seeking orders that the subcontractor was not entitled to proceed with any adjudication until the SPV had brought an adjudication against the Secretary of State, under the concession agreement. In short, the SPV’s contention was that the “equivalent project relief” provisions and adjudication provisions of the subcontract prevented an adjudication from going ahead at that point.

In opposing this application, it was argued for the subcontractor that the “equivalent project relief” and adjudication provisions in the subcontractor were unenforceable to the extent that they cut across the subcontractor’s statutory entitlement, under the Housing Grants, Construction and Regeneration Act, to commence an adjudication “at any time” (section 108(2)(a)). It was argued that the legislation does not permit contractual schemes which postpone the point at which a party may commence an adjudication. These arguments were accepted by Jackson J in the Technology and Construction Court, who held that the adjudication provisions were either invalid, or at the very least they ought to be read in such a way as to be compliant with the legislation. Either way, the result was the same, i.e. the adjudication provisions of the contract fell away, leaving the Scheme for Construction Contracts to apply. Similarly, the “pay when paid” aspect of the “equivalent project relief” provisions was held to infringe the prohibition on such clauses (section 113 of the Act).

The repercussions of this case for PFI and PPP projects are significant. The purpose of “equivalent project relief” provisions is to ensure that SPV companies act as conduits for contractor claims, without having to bear a residual economic liability for those claims. Limiting a subcontractor’s right to bring an adjudication is a device that has been used to try to meet this objective, but in light of Midland Expressway v Carillion that will no longer be an option.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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