Variations and HGCR 1996

The Housing Grants Construction and Regeneration Act 1996 applies to construction contracts which are entered into after 1st May 1998(Section 104(6)). With the passage of time it would be expected that objections to jurisdiction based on Section 104(6) would disappear. That is not the case. The problem that remains and is of practical interest on large projects, is the effect of an agreement made after 1st May 1998 but which is supplemental to a main agreement made before 1st May 1998. Does the revised agreement fall under the Act?

In Earls Terrace Properties Limited v Waterloo Investments Limited (2002) Waterloo undertook to manage the development of properties at Earls Terrace for Earl in an agreement between them dated 4th December 1996. The parties entered into a variation agreement by deed dated 20th July 1998 that varied the 1996 Agreement. Waterloo served a Notice of Adjudication on 28th January 2002. On 6th February 2002 Earl sought a declaration that the person appointed to act as adjudicator had no jurisdiction to act. Judgment was given on 14th February 2002.

It was not in dispute, at least in the instant proceedings, that the 1996 Deed Agreement was a construction contract within the meaning of the Act. One issue then was whether or not the 1998 Deed Agreement could itself be considered a construction contract falling under the Act. Judge Seymour recognised the possibility that an agreement varying a construction contract made before 1st May 1998 may itself be a construction contract as defined in the Act. In that case it was likely that the Act would apply at least to the variation agreement and possibly, although Judge Seymour expressed no view on this issue, there may be some scope for the application of the Act to the original agreement by reason of the variation agreement. He found however that the variations in the 1998 Deed Agreement were simply sums of money with no change in the services or the period for performance. The Deed Agreement was not therefore a construction contract under the Act.

The interesting argument raised by Waterloo was based on distinguishing the 1996 Agreement from the agreement as varied by the 1998 Deed Agreement, the revised contract. The 1996 Agreement did not fall under the Act when it was made. The revised contract was entered into in its new form on 20th July 1998 when the original contract was varied and that was the relevant date for purposes of Section 104 of the Act.

Judge Seymour did not accept Waterloo’s analysis. He decided that Waterloo’s analysis would lead to a rather bizarre consequence. He held that by Section 104(6) of the 1996 Act, Parliament plainly intended that the far reaching, and to some extent possibly draconian, provisions of the Act should only apply to construction contracts which were made at a date after which the parties making the contract were aware that the provisions of Act were going to apply to that contract. He held that Parliament did not wish to bring within the scope of the Act contracts that were made at a time when the parties could not have envisaged that provisions of the Act would be thrust upon them.

Judge Seymour held that the effect of the Deed Agreement 1998, varying the 1996 Agreement only in relation to fees, was not retrospectively to drag bawling and screaming within the 1996 Act the 1996 Agreement which, when made, did not fall within the scope of that Act. On that basis the declaration sought by Earls was made that the adjudication was void and of no effect, and that the appointed person had no jurisdiction to act as an adjudicator.

It does appear therefore that the effect of agreements after 1st May 1998 between the same parties that do not change the nature of the construction operations in the main agreement, will not be caught by the Act. We must wait to see what other types of supplemental agreement may be caught by the Act and may have retrospective consequences.