The right to refer a dispute to adjudication under the Housing Grants, Construction and Regeneration Act 1996 (“the Act”) is dependent upon the works which are the subject of a contract being considered “construction operations” pursuant to Section 105 of the Act. Section 105(2)(c)(i) provides that where the primary activity on a site is power generation it is not a construction operation for the purposes of the Act. Therefore, the statutory right to adjudication will not apply in such a scenario.
The question of what is the primary activity at a site recently came under scrutiny in the case of Engie Fabricom (UK) Limited v MW High Tech Project UK Limited  EWHC 1626 (TCC). MW High Tech Project UK Limited (“MW”) had been appointed by Energy Works (Hull) Limited under an EPC contract to carry out the design and manufacture of the installation of a fluidised bed gasification plant at Cleveland Street, Kingston Upon Hull. MW then instructed Engie Fabricom (UK) Limited (“Fabricom”) as a sub-contractor to carry out the installation of the plant (“the Sub-contract”).
The Technology and Construction Court (“TCC”) was asked to consider whether the Sub-contract works constituted construction operations within the meaning of the Act so that an adjudicator appointed to determine two disputes between the Parties relating to payment had jurisdiction to determine those claims.
The key issue was whether power generation was the primary activity on the site so as to bring the Sub-contract works within the exception set out in section 105(2)(c)(i).
MW argued that “…the Sub-contract was for the installation of plant on a site where the primary activity is power generation. Section 105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 as amended provides that such works are not construction operations… Therefore, there was no statutory or contractual right to refer the disputes to adjudication” (Paragraph 4).
As such, MW contended that the adjudicator lacked jurisdiction to make a decision regarding the payment issues as the Sub-contract provided at clause 47:
“47.1 This clause 47 applies only to the extent (if any) required by the Construction Act 1996, as amended
47.2 …either party shall have the right to refer any dispute or difference…as to a matter under or in connection with the Subcontract to adjudication…”
Fabricom’s case on the other hand was that the primary activity of the site is the disposal and thermal treatment of waste. Power generation is merely a secondary or ancillary activity. Therefore the adjudicator had jurisdiction to decide the disputes referred by Fabricom. Both parties adduced expert evidence as to the question of what was the primary purpose of the site.
The TCC noted that the exclusions in Section 105(2) must be construed to give proper effect to the Act. O’Farrell J considered that the issue of the primary purpose of the site is a question of fact that turned on “whether the primary activity at an energy from waste plant is power generation or waste treatment” (Paragraph 2).
O’Farrell J assessed the matter based on the following principles:
- A site will not fall within the section 105(2) exception if power generation is a secondary or ancillary activity (ABB Zantingh Limited v Zedal Building Services Limited  BLR 66 (TCC)); and
- That identifying the primary activity at the site is a question of fact (Laker Vent Engineering Ltd v Jacobs E&C Ltd  EWHC 1058 (TCC))
O’Farrell J found from the factual evidence put forward by each of the parties that the primary activity on the site was power generation and therefore:“…On a proper construction of the Sub-contract and the 1996 Act, the Sub-contract works do not constitute construction operations within the meaning of the 1996 Act and therefore there was no statutory or contractual right to refer the disputes to adjudication…” (Paragraph 155)
This conclusion was partially formed on the basis that the EPC Contract under which MW was appointed was “…very strong evidence that the primary purpose of the plant is energy generation…The overriding contractual requirement is for the facility to operate as a power plant” (Paragraph 150).
The decision here is a reminder that careful drafting is required when preparing contracts for Energy from Waste plants.
If the parties wish to ensure they have the ability to refer any disputes for adjudication, they may wish to include an express contractual right to do so. This will avoid any tactical skirmishes regarding whether (or not) the statutory right provided to adjudicate provided by the Act is available.
Written by Matthew Phipps and Hannah Plummer