Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

summary

(1) In order to decide whether a contract was a contract for “construction operations” for the purposes of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) it was necessary to look at the nature of the work broadly. (2) Where a contract was partly for construction operations and partly for non-construction operations, in determining the part that related to non-construction operations the wording of s.105(2) of the Act should be interpreted narrowly. (3) Where an adjudicator’s decision simultaneously addresses matters relating to construction operations alongside matters relating to non- construction operations, the decision is generally not severable to allow that part which is within the jurisdiction to be enforced.  (4) However, where the adjudicator makes a decision on the whole dispute but also makes a decision which deals only with the part of the dispute which is within his jurisdiction then the decision on the whole dispute would not be enforceable or valid but there would be a valid decision on the part of the dispute which was within his jurisdiction.

Technology and Construction Court, Mr Justice Ramsey

background

Whessoe-Volker Stevin Joint Venture (the “JV”) employed Cleveland Bridge UK Ltd (“Cleveland”) to carry out works at the Dragon Liquefied Natural Gas terminal at Milford Haven pursuant to a bespoke contract (the “contract”).  The works included the supply, fabrication, delivery and erection of steel work in the form of piperacks and pipebridges, the construction of an equipment room/substation and compressor house, and the painting of all steel work.  There were considerable variations to the works and in March 2009 the JV agreed Cleveland 's Final Account for the work in the sum of £4,687,500 of which £317,500 plus VAT remained due to Cleveland. Cleveland invoiced the JV for this sum.  That sum was not paid, the JV contending that no further sum was due because of a settlement agreement that had been reached between the joint venture partners.  Cleveland commenced an adjudication against the JV.  The contract contained no provision for adjudication and it was common ground that any adjudication should be carried out in accordance with the Scheme for Construction Contracts. ("the Scheme").  The JV challenged the jurisdiction of the Adjudicator on the basis that the contract was not a construction contract because a proportion of the work was not construction operations for the purposes of the Act.  Cleveland contended that, even if part of the work was not construction operations, because of the nature of the dispute, this meant that in practice the Adjudicator could find that the whole of the outstanding amount was due and payable. In the alternative, insofar as the Adjudicator only had jurisdiction to award an amount to Cleveland in relation to the proportion of the Final Account which related to construction operations, Cleveland requested the Adjudicator to set out her decision on the basis of two alternatives: first, on the basis that she had jurisdiction to award the whole amount and secondly, on the basis that she was only entitled to consider the proportion of the outstanding amount which related to construction operations under the Act.  The Adjudicator decided to proceed on the basis that she had jurisdiction over the whole of the dispute.  She held that the JV's defences to Cleveland’s claim failed and that the JV should pay Cleveland  £317,500 plus VAT, in addition to interest and her fees.  The JV did not pay.  Cleveland therefore sought to enforce the award by way of summary judgment.

issues

Section 105(1) of the Act provides a list of the types of activity that constitute construction operations.  A contract for the execution of construction operations is a construction contract for the purposes of the Act.  Section 105(2) of the Act provides a list of operations that are not construction operations for this purpose.  These include (at section 105(2)(c)(ii)) the erection of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is the production, transmission, processing or bulk storage of gas.  Section 104(5) of the Act provides that where an agreement relates to construction operations, and other matters, the Act applies to it only so far as it relates to construction operations.

The Court was asked to consider the following issues:

  • Whether, as Cleveland contended, the work carried out by Cleveland came within the definition of construction operations under section 105(1) of the Act. 
  • Whether any part of the works, and if so, what part, came within the exceptions to the definition of construction operations under section 105(2) of the Act
  • In the event that there were both construction operations and works which were not construction operations, whether the decision of the Adjudicator could be severed to enforce that part of the decision which dealt with construction operations.  

judgement

The Court held as follows:

  • In order to decide whether a contract was a contract for construction operations it was necessary to look at the nature of the work broadly.  Even applying this test to this case, however, there were clearly significant and substantial works within section 105(2).  The contract  consisted in part of construction operations within section 105(1) of the Act and in part in operations which were not construction operations by reason of section 105(2)(c)(ii)
  • The list of operations that are not construction operations in section 105(2) should be construed narrowly.  In this case, the only operation which was excluded from being a construction operation by section 105(2)(c)(ii) was the erection of the steel work for the piperacks and pipebridges and not the prior activities of fabrication drawings, off-site fabrication or delivery to site of the fabricated steelwork.
  • The effect of section 104(5) was that the Adjudicator did not have jurisdiction to deal with the whole of the dispute referred to her but did have jurisdiction in relation to that part of the dispute which related to construction operations under the contract.  Where a party refers a dispute to an adjudicator who only has jurisdiction in respect of part of that dispute there is nothing in principle which prevents the adjudicator from making a decision as to that part of the dispute which is within his or her jurisdiction.
  • Having found that the Adjudicator had jurisdiction only in respect of part of the dispute it followed that her decision on the whole of the dispute was not a decision for which she had jurisdiction.  In general where a single decision is made relating to one dispute and the adjudicator does not have jurisdiction for some element of that dispute, the decision as a whole will not be valid and enforceable.
  • If, however, the Adjudicator had made a decision on the whole dispute but had also made a decision which dealt only with the part of the dispute which was within her jurisdiction then the decision on the whole dispute would not be enforceable or valid but there would be a valid decision on the part of the dispute which was within her jurisdiction.
  • Absent such a position, the decision could not be severed so that the part within the jurisdiction could be enforced because:
  • As a matter of interpretation of the statutory implied term in paragraph 23(2) of Part I of the Scheme there was no obligation on the parties to comply with part of any decision which was within the adjudicator's jurisdiction where part was made without jurisdiction.  There was no further implied term that the parties would comply with that part of a decision.
  • The parties only agreed to valid decisions being binding and did not agree that an adjudicator's findings on issues leading up to that binding decision would themselves be individually binding and enforceable.
  • The parties have to accept the decision "warts and all" and cannot come to the court to have a decision revised and replaced with what is or was thought to be right, unless the court is the ultimate tribunal. It is not right for the court to try and dismantle or reconstruct a decision.
  • Accordingly the decision of the Adjudicator was not enforceable and Cleveland's application for summary judgment should be dismissed.

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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