Mitsui Babcock Energy Services Ltd [2001] ScotsCS 150

This summary was provided by CMS Cameron McKenna LLP.

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

In determining "construction operations" under s105(2)(c) HGCR Act 1996, the adjudicator should look at whether the object of the "construction operation" was to further the activities described in s105(2)(c).

Lord Hardie, Outer House, Court of Session

13 June 2001

In September 1999, M and the first respondent (FWE) entered into a contract. FWE was required to deliver prefabricated equipment and piping to the site; M was to assemble the equipment into two complete boiler plants on land within a petrochemical complex operated by a BP company at Grangemouth. The boilers were constructed on behalf of and operated by CHP who was contracted to sell the steam to BP.

In July 2000, M issued a Notice of Adjudication concerning FWE's alleged failure to pay an invoice issued by M. The adjudicator declined to act on the basis that the contract work was excluded from the scope of the 1996 Act by virtue of s105(2)(c), as it was not a "construction operation'.

The issue for Lord Hardie was whether the assembly and installation of the two boilers took place on a site where the primary activity was the production or processing of chemicals, pharmaceuticals, oil or gas. M submitted that substantial weight should be attached to the definition of the site in the contractual documents (which referred to the CHP site, rather than the larger BP site) and that the commodity produced by both boilers was steam which would be sold by CHP to the operator of the petrochemical complex. FWE argued that the site should be construed as being the whole petrochemical complex and the proper approach was to identify the primary activity which the construction operations were intended to further, that is, to provide steam to the petrochemical complex which relates to chemicals and oils.

The court concluded that the correct approach is that in the case of ABB Power Construction Ltd v Norwest Holst Engineering Ltd. Section 105(2) should be read in the context of 105(1) and it was necessary to look at whether the object of the "construction operation" was to further the activities described in s105(2)(c). The court found that the installation of the two boiler plants was to further the installation of the primary activity of the processing of chemicals and oil on the petrochemical complex. It was significant that:

  • the CHP plant was described in site operational documentation as a development on the BP site;
  • when constructed, the boilers would be linked to the main complex;
  • the steam generated by the boilers would be supplied exclusively to the BP complex.

The exemption in s105(2)(c) was directed to the primary activity of the site and the fact that different companies owned or occupied their own discrete area of the petrochemical site was irrelevant to the primary activity on the site.

The adjudicator was correct to decline jurisdiction on this point. The petition was dismissed.

In determining "construction operations" under s105(2)(c) HGCR Act 1996, the adjudicator should look at whether the object of the "construction operation" was to further the activities described in s105(2)(c).

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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