Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, jurisdiction, primary activity, Section 105(2)(c), Lord Hardie, |
The issue in Mitsui Babcock Energy Services Ltd v Foster Wheeler Energia OY (2001) was whether the Act applied to the contract and in particular whether the exemption under Section 105(2)(c) applied.
Mitsui and Foster entered into a contract in which Mitsui was required to assemble on site the equipment and piping into two mechanically completed boiler plants, namely the Heat Recovery Generating Boiler (the “HRSGB”) and the Additional Boiler (the “AB”). The HRGSB and the AB were located on two vacant pieces of land within the petrochemical complex at Grangemouth and were to be constructed on behalf of and operated by Grangemouth CHP Limited (“CHP”) to supply steam to BP Oil Grangemouth Refinery Limited.
The issue for determination was whether the assembly and installation of the HRSGB and AB were on a site where the primary activity is the production or processing of chemicals, pharmaceuticals, oil or gas.
It was argued that the construction site in this case should be treated as a separate entity from the petrochemical complex for the purposes of Section 105(2)(c) of the 1996 Act. Lord Hardie did not accept this but confirmed and adopted the approach taken by Judge Lloyd in ABB Power Construction Limited v Norwest Holst Engineering Limited. The test was whether the object of the “construction operation” was to further the activities in Section 105(2)(c). The object of this subsection is that all construction operations necessary to achieve the aims and purposes of the owner or of the principal contractors, as described in it, would be exempt.
Applying that test, Lord Hardie held that the installation of the HRSGB and the AB was to further the primary activity of the processing of chemicals and oil on the petrochemical complex. That purpose was illustrated by the fact that the CHP plant was described as a development on the BP site and that when constructed it would be linked to the main complex by various connections, including steam connections. It was also significant that the steam generated by the HRSGB and the AB would be supplied exclusively to the BP complex, that on completion the HRSGB would form part of the CHP plant and that although the HRSGB and AB were two independent steam generating plants they were linked by virtue of their common product delivery pipeline.
It was not relevant that a separate company was established to construct, own and operate the CHP plant or that the construction site was leased by the owners of the petrochemical complex to the owners and operators of the CHP plant. The exemption in section 105(2)(c) was directed to the primary activity on a site. The legislation is silent about the question of ownership or occupation of the site. It was held that the reasons for such silence were obvious when it was considered that a site, where the primary activity is the processing of chemicals, may involve separate processes by different companies each contributing to the primary activity of the processing of chemicals. The fact that each of these companies owns or occupies their own discrete area of the petrochemical site was irrelevant to the primarv activity on that site.
It was held that in all the circumstances of this case, the operations undertaken by Mitsui were exempt operations within the meaning of section 105(2)(c)(ii) of the 1996 Act.