Palmers Limited v ABB Power Construction Limited (Aug 1999) TCC   © Daniel Atkinson 1999

The decision in Palmers Limited v ABB Power Construction Limited (Aug 1999) TCC answers several questions on the interpretation of the Housing Grants Construction and Regeneration Act 1996, which are important to anyone involved in the administration of contracts and the resolution of disputes.

The difficulty arises from the attempt by Parliament to limit the Act to the UK construction industry, which is not easily defined. The adopted solution is to limit the Act to "construction contracts" which are defined in the Act in terms of "construction operations". The term "construction operations" is defined in the Act at Section 105(1) and is in general terms in order to encompass all of the construction industry whilst excluding other parts of the UK industrial sector. The device that has been used is to limit "construction operations" to operations on buildings or structures "forming, or to form, part of the land". The meaning of the reference to land is crucial to defining the scope of the Act and the decision in Palmer provides some guidance.

Within the above restriction the term "construction operation" is widely defined to encompass most operations considered to be part of the construction industry. It includes the main types of operations such as construction, refurbishment and demolition of buildings or structures forming part of the land. It extends to installations in buildings or structures forming part of the land. It also applies to those operations which are related to the main operations such as cladding or those which allow the main operation to proceed such as erection, maintenance or dismantling of scaffolding expressly referred to in Section 105(1)(e).

Certain operations are excluded from the Act under Section 105(2). In particular Section 105(2)(c) excludes assembly or installation of plant or machinery on sites where the primary activity is nuclear processing, power generation, water or effluent treatment or processing works. The difficulties of excluding sectors of the UK industry such as the process industry which inevitably require construction activities is apparent from the terminology used. These difficulties cast doubt on the exact scope of the Act and not least the relationship between the inclusive Section 105(1) and the exclusive Section 105(2). The decision in Palmer shows the approach to be taken to interpret and reconcile the two sections.

In Palmer, ABB’s work involved the assembly and erection of a heat recovery steam generator (HRSG) boiler as part of a cogeneration plant to be used for power generation. Part of this work included the erection of a structural steelwork frame to support and provide access to the boiler and associated pipework. Palmer’s work was to provide temporary scaffolding around and above the structural frame to enable the erection of the boiler to take place, and to constantly adapt the scaffolding to facilitate the on-going erection works. Disputes arose as to the adequacy of the number of personnel provided to adapt the scaffolding. ABB purported to operate the set-off clause in the contract against sums that Palmer alleged were due for payment, and Palmer purported to serve a notice stating its intention to exercise its statutory entitlement to suspend performance. Palmer also served a Notice of Adjudication.

The first issue was whether the work carried out by Palmer was within the scope of the Act and therefore whether the Adjudicator had jurisdiction to deal with the matter. In order to decide it was necessary first to consider whether ABB’s work was a construction operation. Palmer’s work was not the main operation, but an operation that either was preparatory to or for rendering complete ABB’s work. If ABB’s work was not a construction operation then the scaffolding work could not be a construction operation under Section 105(1)(e).

It was argued that erecting steelwork and assembling and erecting the boiler and associated pipework was not a "construction operation" under Section 105(1) since it was not covered by any of the statutory descriptions. It was observed that the definition of works that formed part of the land was extensive and included power lines, telecommunications apparatus and industrial plant. It was held that it was clearly envisaged that the assembly and fixing to the land of industrial plant and similar features was included within the definition of both "construction operations" and "construction" in the Act. The fact that much of the boiler was assembled away from its permanent resting place then lifted into position did not affect the above interpretation. Much of industrial plant would be assembled and constructed in this way, but such work was expressly included in the definition of "construction operation". The nature, size and method of fixing of the steel structure and the boiler meant that once assembled the boiler formed part of the land. This interpretation is a common sense approach to the meaning of "forming part of the land" emphasising as it does the physical connection necessary either directly to land or a structure connected to land. It is therefore difficult to envisage any construction works which will not form part of the land. The manufacture of vehicles, vessels or machines which travel on or in land, sea or air will clearly not be within the Act.

It was then argued that ABB’s work was excluded by Section 105(2)(c) and therefore not a "construction operation" and that in consequence Palmer’s work could not be a "construction operation". This was not accepted. It was common ground that ABB’s work was excluded by Section 105(2)(c). It was held that Section 105(1)(e) which referred to scaffolding made the ancillary works "construction operations" if they were ancillary to the operations described in Section 105(1). Some of the operations described in Section 105(1) were excluded from being "construction operations" by Section 105(2), but they were still operations for the purpose of Section 105(1)(e). Although this might lead to a contractor’s main contract being outside the Act and his subcontract within the Act, such a possibility was already envisaged by other provisions of the Act and indeed by the debate in Parliament.

This therefore disposed of the first issue and it was held that the contract between Palmer and ABB was a construction contract under the Act.

The second issue was whether Palmer was entitled to be paid the amount in its application. ABB had not given notice of set-off precisely on the terms required under Section 111 of the Act, since they had not stated the amount they proposed to withhold. It was held that since the final date for payment had passed, no effective notice of withholding could now be served. It was held that the sum applied for should be paid and that it could not now be the subject of any set-off by ABB. This part of the decision emphasises that a party can only raise issues of set-off against an applied payment, within the periods provided by the Contract. If such notice is not given, then set-off cannot be raised in an application for summary judgment for payment on the application.

The final issue was whether the court should declare the party’s rights or whether it was more appropriate to allow the adjudicator to deal with the disputes first. It was held that the adjudication scheme under the Act related only to disputes arising under a construction contract and that this did not include a dispute as to whether there was a construction contract at all, which was a dispute as to jurisdiction. The adjudicator had no statutory power to resolve disputes about his jurisdiction. It was held that in that case it was more appropriate for the court to intervene. In this respect it is useful to record the speed with which the issues were resolved by the courts. The issues were heard 4 days after the claim was issued and 10 days after the validity of the adjudication was first challenged. Judgment was handed down 13 days after the dispute in question arose.

The question remains - what should an adjudicator do when faced with a challenge as to his jurisdiction. It is suggested that the Adjudicator should carry out sufficient investigation to establish for himself whether he has jurisdiction. If he decides he does not then he should withdraw. If he decides that he does have jurisdiction then he should advise the parties that he will continue to decide the substantive matters in dispute. It is then for either party to apply to the court for a declaration. The party challenging jurisdiction can of course simply wait for enforcement of the decision by summary judgment and then raise the issue of jurisdiction and validity of the decision.