Adjudication
Yarm Road Limited v Costain Limited (2001) TCC

© Daniel Atkinson 2002 17 January 2002

In Yarm Road Limited v Costain Limited (2001) TCC the issue was whether a sub-contract between the parties dated 14th August 1998 was a construction contract within the meaning of section 104 of that Act.

The work involved was a road widening Junctions 18 to 19 of the M5 motorway. Costain was the main contractor and the employer the Secretary of State for Transport. The main contract was concluded in June 1995 under ICE 5^th Edition. Costain sub-contracted part of the works to Cleveland Structural Engineering Limited by a sub-contract 7th August 1995 on the FCEC Blue Form 1984, with amendments.

In November 1996 Cleveland changed its name to Redpath Dorman Long Limited. By a novation agreement dated 14th August 1998, the sub-contract was novated in favour of the Yarm Road. A supplemental agreement was also concluded on 10^th August 1998 between Costain and Redpath varying the provisions for valuation and for reimbursement of the sub-contractor.

The novation agreement was between Redpath, Yarm Road and Costain and stated to be supplemental to the sub-contract of 7th August 1995. The novation agreement provided for Redpath to be released and discharged from the sub-contract, and for Yarm Road to perform the sub-contract and to be bound by the terms as if it was a party to the sub-contract instead of Redpath.

It was common ground that the operations provided for by the sub-contract were construction operations within the meaning of section 105 of the Act. It was common ground that the novation agreement discharged the original sub-contract of 7th August 1995 and created a fresh sub-contract. Judge Havery decided that even if that were not the case, the novation agreement was an agreement for the carrying out of construction operations.

Costain’s principal argument was that if the Act applied to the novation agreement this would have the effect of giving the Act retrospective effect. Judge Havery accepted that unless the contrary intention appears an enactment is presumed not to be intended to have a retrospective operation.

Costain argued that Section 104(1) of the Act was meant to refer to new provisions and the novation agreement did not make new provision for the carrying out of construction operations. The same operations were already provided for by the sub-contract. The novation was contrasted with three other situations. First a further sub-letting would create a sub sub-contract for the first time. Second a further sub-contract, entered into after determination of the sub-contract under Clause 17(1) of the blue form would make a new provision because the works in the new sub-contract would be only the works that remained to be done. In contrast under the novation agreement Yarm Road had undertaken liability for all the operations under the sub-contract. Third where a formal contract was entered into after the works had been started under, there was a new provision because until the formal contract came into being there was only a relationship of quasi contract or only an "if-contract"

Costain argued that if the novation agreement fell within the Act, then Yarm Road would enjoy the right under section 108(2) to refer a dispute to adjudication at any time, which could relate to work done as far back as 1995. Yarm Road could claim for interest by way of damages for breaches of contract occurring in 1995, 1996 and 1997, on the basis that monies were withheld in the absence of a proper withholding notice. Treating Part 2 of the 1996 Act as applying retrospectively in that way would mean that Costain were potentially liable in damages for failure to serve a withholding notice in 1995, 1996 or 1997, when the withholding notice regime itself had yet to be conceived.

Judge Havery accepted that if anomalies existed that they were potentially serious. Reference was made to the decision of His Honour Judge Anthony Thornton QC in The Atlas Ceiling and Partition Company Limited v Crowngate Estates (Cheltenham) Limited where the effect of a formal contract made after 1st May 1998 was that work carried out before that date pursuant to a letter of intent was retrospectively subjected to the regime of Part 2 of the 1996 Act. Judge Havery stated that for present purposes he assumed that the anomalies existed, but was not to be taken as deciding that the enactments in Sections 109-113 of the Act were retrospective.

It was held that the wording was clear and the effect inescapable, that the novation agreement fell within Sections 104(1)(a) and within Section 104(6)(a). Judge Havery declared that Yarm Road was entitled to pursue two disputed claims against Costain by way of Adjudication under the 1996 Act.