Captiva Estates Ltd v Rybarn Ltd [2005] EWHC 2744 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Section 6 of the Construction Contracts Exclusion Order 1998, Statutory Instrument 1998 No 648 is not concerned only with unconditional agreements; a contract containing the grant of an option to take a leasehold or freehold interest in the land on which construction operations take place would fall within the ambit of section 6 of the Exclusion Order.  Further, the grant or disposal of the leasehold or freehold interest of the land does not need to relate to the whole of the land on which the principal construction operations take place under the contract.

Judge David Wilcox

Technology and Construction Court

Captiva entered into a written contract with Rybarn whereby Rybarn agreed to construct 28 residential flats and 28 parking spaces (either above or below ground) for those flats (the “Contract”). 

A dispute arose between the parties and Rybarn commenced adjudication proceedings in October 2005 and an adjudicator was appointed.  Captiva disputed the validity of the adjudication and commenced Part 8 proceedings seeking declarations that a) the Contract was a development agreement within the meaning of the Construction Contracts Exclusion Order 1998, Statutory Instrument 1998 No 648 (the “Exclusion Order”) and therefore the Contract was excluded from Part 2 of the HGCRA, b) that the adjudication was therefore invalid and c) that the adjudication had no jurisdiction to determine the dispute.  Rybarn discontinued the adjudication so the Court only needed to consider whether the parties had a statutory right to adjudicate. 

There was no express provision in the Contract requiring adjudication.  Rybarn maintained that the Contract was a “construction contract” under the HGCRA 1996 (the “Act”) and therefore the parties had the right to refer a dispute to adjudication pursuant to section 108 of the Act.  Captiva disputed this and argued that the Contract was a development agreement within the meaning of the Construction Contracts Exclusion Order 1998, Statutory Instrument 1998 No 648 (the “Exclusion Order”) and therefore the Contract was excluded from Part 2 of the HGCRA.  This is the first case that considers the application of the relevant provisions of the Exclusion Order.

Section 6 of the Exclusion Order provides that:

“1.  A construction contract is excluded from the operation of Part 2 if it is a development agreement within the meaning given below.

2.  A contract is a development agreement if it includes provision for the grant or disposal of a relevant interest in the land on which takes place the principal construction operations to which the contract relates.

3.  In paragraph 2 above a relevant interest in land means –

            (a) a freehold; or

(b) a leasehold for a period which is to expire no earlier than 12 months after the completion of the construction operations under the contract.”

The question was therefore whether the Contract included a provision for the grant or disposal of a relevant interest in the land on which Rybarn had carried out the construction operations.  The consideration by Captiva for the works under the Contract was the payment of a fixed sum of £1.15million to Rybarn, together with a grant to Rybarn of an option to purchase for the leases of 7 of the 28 flats, and their respective parking bays for 10 years.  

Rybarn argued that the option to purchase did not fall within the ambit of a grant or disposal of a freehold or leasehold interest in the land; it was merely an option to call for the leasehold interest in certain of the flats.  Rybarn relied on the fact that there was no entitlement to exercise the option until the relevant stage of the construction works had been reached.  The Court dismissed this argument, holding that there was nothing in the Exclusion Order which provides that it is only concerned with unconditional agreements.

Rybarn also contended that, even if there was a provision for the disposal or grant of the land in the Contract, it still did not fall within the terms of the Exclusion Order as the principal operations took place on the whole of the site and the option was granted for only 7 out of 8 of the flats.  Rybarn submitted that the plain purpose of s6 of the Exclusion Order is to exclude contracts that provide for both the carrying out and the construction operations on the land and the grant of freehold or leasehold in excess of 12 months for the same land.  The Court disagreed; it held that the qualifying adjective “relevant” relates to the interest in the land and not to the land itself.

Accordingly, the Court held that the option was a grant or disposal of a relevant interest in land and clearly fell within section 6.2 of the Exclusion Order.  Further, the contractual provisions satisfy the requirements of s2 of the Law of Property Miscellaneous Provisions Act 1989.  Accordingly, the Court held that the Contract was excluded from Part 2 of the Act and therefore the adjudication commenced was invalid and that the nominated adjudicator had no jurisdiction.

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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