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Adjudication
Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC)

© Daniel Atkinson 08 June 2010


KEYWORDS: Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC), ABB Zantingh Limited v Zedal Building Services Limited [2001] BLR 66, Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10, Cantillon Limited v Urvasco Limited [2008] BLR 250, Farebrother Building Services Limited v Frogmore Investments Limited [2001] CILL 1589, Fence Gate Limited v James R Knowles Limited (2002) 84 Con LR 206, Gibson Lea Interiors Limited v Macro Self Service Limited [2001] BLR 407, Griffin v Midas Homes Ltd (2001) 78 Con LR 152, Homer Burgess Limited v Chirex (Annan) Limited [2000] BLR 124, Homer Burgess Limited v Chirex (Annan) Limited (No 2), Investors' Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, KNS Industrial Services (Birmingham) Limited v Sindall Limited (2001) 75 Con LR 71, North Midlands v AE &E Lentjes [2009] BLR 574, Palmers Limited v ABB Power Construction Limited [1999] BLR 426, Pepper v Hart [1993] AC 593, RSL (South West) Limited v Stansell Limited [2003] EWHC 1390 (TCC), Shimizu Europe Limited v Automajor Limited [2002] BLR 113, Housing Grants Construction and Regeneration Act 1996, Section 104(5), Section 105(1), Section 105(2)(c), adjudication, enforcement, statutory interpretation, subcontract, objection to jurisdiction, partial jurisdiction, construction operation, part construction operation, construction contract, erection, steelwork, installation, severance, severability, one dispute, Mr Justice Ramsey.

In Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC) the adjudicator's decision related to a subcontract for works at the liquified natural gas terminal at Milford Haven. Cleveland Bridge applied for enforcement of the adjudicator's decision. The Joint Venture resisted the application on two alternative grounds.

  1. The agreement between Cleveland Bridge and the Joint Venture was not a construction contract because certain operations fell within the exception in s.105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996.
  2. To the extent that the works under the subcontract fell partly within construction operations under section 105(1) and partly under the exceptions in section 105(2) the adjudicator did not have jurisdiction in relation to the elements of the work that did not come within the definition of construction operations and the Decision should not be enforced.

Ramsey J. identified the three logical steps in determining whether the Adjudicator had jurisdiction to determine the claim referred where there was an issue whether the work came within the definition of construction operations.

  1. It had to be determined whether under section 105(1) the relevant work carried out by Cleveland Bridge came within the definition of construction operations.
  2. The next question was whether any part of the work and, if so, what part came within the provisions of section 105(2) which were not construction operations within the meaning of the Act.
  3. To the extent that there were construction operations and works which were not construction operations, the question then arose as to the effect of this on the jurisdiction of the Adjudicator and on the enforceability of her Decision. In that respect section 104(5) was relevant which provides:
    "Where an agreement relates to construction operations, and other matters, this Part applies to it only so far as it relates to construction operations."

Construction Operations under Section 105(1).

Cleveland Bridge submitted that all the works were to be classified as construction operations under Section 105(1) of the 1996 Act. It submitted that it was only the erection works for the steel work in the form of piperacks and pipebridges which might potentially come within Section 105(2). It was submitted that the erection work for the steel work to the piperacks and pipebridges amounted to only 18.2% of the final account value. In such circumstances it was submitted, the element of work which might come within section 105(2) was so small that as a matter of fact and degree that work would not be excluded by section 105(2) and the whole of the work to be carried out under the Subcontract would be treated as construction operations within section 105(1) of the Act. The Joint Venture submitted that significant and substantial work in relation to the piperacks and pipebridges formed part of the Services under the Subcontract and that this work came within the exception in section 105(2)(c)(ii).

Ramsey J. referred to North Midlands v AE &E Lentjes [2009] BLR 574 and ABB Zantingh Limited v Zedal Building Services Limited [2001] BLR 66 and identified the following principles:

  1. The relevant works are to be looked at broadly to see whether or not they come within the exception in section 105(2).
  2. The question must be a matter of fact and degree where inevitably there will be grey areas.
  3. It was not the intention of the 1996 Act for there to be a minute analysis to find an item which arguably was a construction operation or was within the exclusion, so as to defeat the purpose of giving or excluding the rights of the Act to what on a straightforward and commonsense analysis is a contract for construction operations within section 105(1) or excluded operations under section 105(2).

Ramsey J. applied the above principles to the facts of the instant case. He held that in relation to the piperacks and pipebridges, when looked at on a straightforward and commonsense analysis, the relevant operations relating to that steelwork come within the excluded operations under section 105(2). He held that not all the works in the instant case could be classified as construction operations under section 105(1). Instead there were clearly significant and substantial works within section 105(2). He then turned to the second question and considered the precise scope of the work to the piperacks and pipebridges which was excluded under the provisions of section 105(2)(c)(ii).

Operations excluded under Section 105(2).

It was common ground that the work carried out under the Subcontract was carried out on a site where the primary activity was the production, transmission, processing or bulk storage of gas. The issue between the parties was whether the element of the work within the excluded operations was all the work to the "steelwork for the purposes of supporting or providing access to plant or machinery" or whether it is limited to the "erection" element of that steelwork.

Ramsey J. held that the approach to the construction of this legislation was on the basis of the objective meaning being the "meaning which the instrument would convey to a reasonable person having all the background knowledge that would reasonably be available to the audience to whom the instrument is addressed" as stated by Lord Hoffmann in Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10, referring to Investors' Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896.

Ramsey J. made observations which suggested that the word "erection" in section 105(2)(c) should be given a narrow meaning.

  1. The operations described in section 105(2) could generally be brought within the description of operations in section 105(1) so that the intention was to exclude a specific operation from the more general description of operations.
  2. The provisions of sections 105(2)(a) to (c) were aimed at excluding certain particular operations either generally or in specific industries. For those industries, instead of saying that all operations which would otherwise be construction operations were excluded, the reference is to particular operations on sites where the primary activity is one of the industries. The exclusion is therefore limited to those particular operations.
  3. The definition in section 105(2) had not been broadened by the use of such words as "operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations....", as has been done in section 105(1)(e).
  4. For the reasons set out in North Midland v Lentjes, the phrase "assembly, installation… of plant or machinery" in section 105(2)(c) should be construed narrowly by applying it only in cases where the work was assembly or installation of plant or machinery.

Ramsey J. compared the wording of Section 105(2)(c) to the wording in Section 105(1)(a), (b), (e) and (f) and concluded that on a natural meaning "erection" in Section 105(2)(c) did not include fabrication drawings and connection design, fabrication of steelwork off-site or the delivery of fabricated steelwork to site. He considered that erection of steelwork essentially covers the operations of lifting the steelwork into position and connecting it together.

Ramsey J. then examined other terms of the 1996 Act to ascertain whether despite the ordinary meaning of "erection" a different particular meaning could be derived when the words were read in context.

  1. The word "erection" was not used elsewhere except in Section 105(1)(e) where there is a reference to "erection… of scaffolding". Ramsey J. did not consider that this indicated "erection" itself included all preparatory works because this was part of a non-exclusive list of operations which were preparatory to other construction operations.
  2. The definition of "drilling for, or extraction of, oil or natural gas" in Section 105(2)(a) covered drilling and extraction operations. The assembly and installation of drilling machinery on a site where the primary activity was the production of oil or gas would be covered by section 105(2)(c). A contract which was just for the manufacture and delivery to site of drilling equipment would be excluded by section 105(2)(d)(i) unless the contract also provided for the installation of the equipment. If it did then the "installation... of plant and machinery" would be an excluded operation under section 105(2)(c) but the manufacture or delivery to site of the equipment would not. Ramsey J. considered that there was no reason why the word "drilling" needed inherently to include the manufacture or delivery to site of drilling equipment or its assembly and installation on site. Those matters were dealt with in a particular way under section 105(2)(c) and (d).
  3. Equally in relation to section 105(2)(b) "extraction (whether by underground or surface working) of minerals; tunnelling or boring, or construction of underground works, for this purpose" covered the tunnelling, boring, construction of underground works and extraction operations. Otherwise, depending on the primary activity at the site, assembly any installation of the machinery might also be excluded under section 105(2)(c) and, depending on whether installation was included, manufacture or delivery to site of equipment to extract minerals might also be excluded under section 105(2)(d). Ramsey J. considered that operations for the extraction of minerals did not include manufacture and delivery to site of equipment or machinery and assembly or installation of that plant or machinery on site since other subsections deal with those matters.
  4. Although often the value of pieces of plant form the major part of supply and installation contracts whilst the value of the installation part will be much smaller, the general position under section 105(2)(d) was that the operations of the manufacture and delivery to site of equipment, plant or machinery were excluded but that when installation is included it was not be excluded from the provisions of the Act. In such circumstances there was a distinction between "manufacture or delivery to site" and "installation". Ramsey J. considered that the words "assembly, installation… of plant or machinery" in section 105(2)(c) did not include "manufacture or delivery to site" since those words are not used in that way in section 105(2)(d).

Ramsey J. concluded from the above textual analysis that that if "assembly, installation…..plant or machinery" in section 105(2)(c) did not include "manufacture or delivery to site of ….plant or machinery", there was no reason why "erection… of steelwork" should include "manufacture or delivery to site of….. steelwork".

Ramsey J. held that on his reading of the statute the meaning of the word "erection" was unambiguous in answering the question whether it only covered operations in lifting and connecting the steelwork after it has been delivered to site or whether it also included the preliminary stages starting with the fabrication drawings, leading to the steelwork fabrication and then the delivery of the steelwork to site. He held that there was no absurdity in limiting the excluded operations in section 105(2)(c) essentially to operations which are carried out on-site at the process engineering site. Therefore, despite the fact that both parties referred to it, he held that the Pepper v Hart criteria did not apply so as to make the Parliamentary material admissible.

Although not necessary for his decision, Ramsey J. considered the potentially relevant Parliamentary material. He concluded that there was nothing within the Parliamentary material to suggest that the use of the word "erection" included operations prior to rather than during the erection of the steelwork on site. The word "construction" being changed to "assembly" indicated that the meaning was limited to that work. In the context of steelwork, "construction" would similarly be "erection" not the preliminary steps as referred to in section 105(1)(e).

Ramsey J. held in relation to the Services under the Subcontract in the instant case, the only operation which was excluded from being a construction operation by section 105(2)(c)(ii) was the erection of the steel work for the piperacks and pipebridges and not the prior activities of fabrication drawings, off-site fabrication or delivery to site of the fabricated steelwork. Ramsey J. then considered how this division affected the decision of the Adjudicator.

Section 104(5) Mixed Contracts and the Right of Adjudication.

Ramsey J. observed that Section 104(5) of the 1996 Act provided that :
"Where an agreement relates to construction operations, and other matters, this Part applies to it only so far as it relates to construction operations."

Ramsey J. observed that the the statute contemplated a position where one agreement related to both construction operations under section 105(1) and operations which were excluded by section 105(2). He held that the right to refer disputes to adjudication under section 108, the entitlement to stage payments under section 109, the provisions as to dates of payment under section 110, the provisions as to notice of intention to withhold payment under section 111, the right to suspend performance for non payment under Section 112 and the prohibition of conditional payment provisions under section 113 would only apply to the Subcontract in the instant case, insofar as the Subcontract related to construction operations.

Ramsey J. examined the various authorities to determine how the position envisaged by Section 104(5) affected the enforceability of an adjudicator's decision. He referred to his observation in North Midland v Lentjes that in the circumstances envisaged by Section 104(5) unless any dispute was limited to civil works, rather than being a more general dispute as to payment, delay or disruption of the works overall, it would be impossible to apply the adjudication provisions of the Act to only part of the dispute.

Amongst the authorities Ramsey J. referred to Fence Gate Limited v James R Knowles Limited (2002) 84 Con LR 206 where His Honour Judge Gilliland QC considered that section 104(5) was intended to make clear that where a contract relates both to construction operations and to other activities, the contract was to be treated as severable between those parts which relate to construction operations and those parts which relate to other activities and the Part II and the provisions for Adjudication were to apply to the contract only in so far as the contract relates to construction operations.

Ramsey J. held that in the instant case there was only one dispute under one agreement referred to adjudication. That dispute was whether the sum of £317,500 plus VAT agreed in the final account was due and payable to Cleveland Bridge from the Joint Venture. That depended on the resolution of the issues on the effect of the settlement agreement on the payment due to Cleveland Bridge. The effect of section 104(5) was that the whole of that dispute could not be referred to adjudication. That did not converts the single dispute into two disputes, rather only part of the dispute was referable to adjudication; the other part was not.

In the Notice of Referral Cleveland Bridge sought the decision of the Adjudicator both on the whole of the dispute and also, on the basis that they were wrong as to the scope of construction operations, on the part of the dispute which arose under the Subcontract and which related to construction operations. Cleveland Bridge requested the Adjudicator to set out her decision on the basis of two alternatives: first, on the basis that she had jurisdiction to award the whole amount and secondly, on the basis that she was only entitled to consider the proportion of the outstanding amount which related to construction operations under the Act.

Ramsey J. held that the effect of section 104(5) was that the Adjudicator did not have jurisdiction to deal with the whole of the dispute referred but did have jurisdiction in relation to that part of the dispute which related to construction operations under the Subcontract. He held that, in principle, the adjudicator was not prevented from making a decision as to that part of the dispute which was within his or her jurisdiction. The fact that part of the dispute related to matters over which an adjudicator had no jurisdiction did not prevent the adjudicator from exercising the jurisdiction that he or she had.

Ramsey J. considered that there was no objection to the way in which the Notice of Adjudication or the Notice of Referral were drafted which meant that, to the extent that the dispute was within the Adjudicator's jurisdiction, she could give a valid decision.

Ramsey J. then considered how the principle of severability applied in the context of Section 104(5) and how the adjudication provisions were to be applied to only part of the agreement.

Enforcement and Severability.

Ramsey J. held that the effect of section 104(5) was to make the parts of the services which relate to construction operations the subject of further implied terms by the operation of sections 108, 114(4) and the Scheme. He held that this did not amount to statutory severance of the Subcontract but rather in respect of certain construction operations it imposes additional obligations by way of implied terms. Although the question of severance of the Subcontract was raised in argument, Ramsey J. held that that was not an accurate reflection of the process under section 104(5) of the Act.

Ramsey J. considered that If the Adjudicator had made a decision on the whole dispute but had also made a decision which dealt only with the part of the dispute which was within her jurisdiction then the decision on the whole dispute would not be enforceable or valid but there would be a valid decision on the part of the dispute which was within her jurisdiction. However the Adjudicator had not provided a decision which dealt with Cleveland Bridge's alternative position that she had jurisdiction as to part of but not the whole of the dispute, because she decided wrongly that she had jurisdiction over the whole dispute and her Decision was a single decision in relation to that whole dispute. The question then was whether the decision was severable so that the part within the jurisdiction could be enforced.

Ramsey J. held that as a matter of interpretation of the statutory implied of Scheme paragraph 23(2) term, it did not impose an obligation on the parties to comply with the part of any decision which was within the adjudicator's jurisdiction where part is made without jurisdiction. He held that there was no further implied term that the parties will comply with that part of a decision.

Ramsey J. held that where a decision is made, part of which is outside the adjudicator's jurisdiction, the whole of the decision is not enforceable and the contractual agreement to be bound by that decision does not apply. The court cannot nor should not intervene and say what the Adjudicator may have found to be the value of the work relating to the element of the Subcontract within her jurisdiction. Once the decision as to the total amount to be paid has been successfully attacked, it could not be said that any other amount had been determined by the adjudicator to be due in a way which was binding.

Ramsey J. then considered whether, if it were permissible for the court to open up the decision to make an enforceable one, it would be possible to sever the decision in the instant case, although not necessary in view of his decision. He found that in the circumstances the Court was unable to sever the Decision to award a sum for the relevant part referable to construction operations which was within the Adjudicator's jurisdiction.

Conclusion.

Ramsey J. held the decision of the Adjudicator was not enforceable and Cleveland Bridge's application was dismissed.

Commentary.

The powerful analysis of Ramsey J. of the extent of mixed contracts clarifies this complex area of law. The decision shows that the exclusions under Section 105(2)(a), (b) and (c) are limited to operations on the site and not to ancillary nor preparatory operations.

A solution to the problem of how to obtain enforceable adjudication decisions in statutory adjudications is partially answered by ensuring that an adjudicator gives a decision which separates the various parts which may be within from those outside the adjudicator's jurisdiction.

The problem however remains where the matter cannot be separated such as in cases of delay and disruption.