Telephone: +44 (0)151 647 8862

    

 

Image

A Milestone Judgment

Construction Contract or not a Construction Contract?  That was the question posed by Kerrigans' Mark Wright in the recent case of Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture [2010].  Mr Justice Ramsey had to determine whether work carried out by Cleveland Bridge on behalf of the Joint Venture (which was the subject of a reference to statutory adjudication) was carried under a construction contract as defined by section 104 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”).

In this case, Mr Justice Ramsey came to the conclusion that some of the work carried out by Cleveland Bridge fell within the definition of construction operations found at section 105(1) of the Act (thereby falling within the definition of a construction contract) and that by virtue of section 105(2) of the Act some of the work did not. He then had to decide whether a dispute referred to statutory adjudication, which concerned both elements of the work could validly be referred to adjudication.
The JV was the main contractor for the construction of the Dragon Liquified Natural Gas terminal at Milford Haven. The project consisted of constructing pipelines to bring liquefied gas ashore from shipping tankers to on-shore storage tanks and from the storage tanks to a reheating facility where the liquefied gas was reheated to ambient temperature to re-gasify it. The gas was then pumped into the national gas system as and when required. A safety flare was also required in the event of an excessive build up of gas pressure.
Cleveland Bridge was contracted by the JV to construct structural steelwork to support some of the pipework. It was also contracted to construct buildings to house a compressor and a sub-station and control room. A dispute arose between the JV and Cleveland Bridge concerning payment of the outstanding balance of the final account. Cleveland Bridge sought to adjudicate the dispute and the Adjudicator found in its favour. 
The JV contended from the outset that the Adjudicator did not have jurisdiction to determine the dispute and refused to honour the Adjudicator’s Decision so Cleveland Bridge commenced court proceedings to enforce it.Section 105 of the Act excludes various operations from the definition of “construction contracts”. One of those items (at section 105(2)(c)) is “steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is ... (ii) the production, transmission, processing or bulk storage of gas.
Mr. Justice Ramsey found that the structural steel supporting the pipework fell within the definition of the section 105(2)(c)(ii) exclusion but that the construction of the buildings for the compressor and the sub-station and control room did not. On the basis that some of the work fell within the definition of a construction contract and some of the work fell within the definition of excluded work was Cleveland Bridge entitled to adjudicate?
Section 104(5) of the Act states “Where an agreement relates to construction operations, and other matters, this Part applies to it only so far as it relates to construction operations.”
Mr. Justice Ramsey found that only one dispute was referred to adjudication by Cleveland Bridge and that the adjudicator only decided one dispute. 
In a very detailed analysis of the law he came to the conclusion that it was not possible to sever those parts of a single dispute which fell within the definition of construction operations from those parts which did not and in consequence the Adjudicator did not have jurisdiction to come to the Decision she reached. 
In summary Mr. Justice Ramsey found:
(1)    The sub-contract entered into between Cleveland Bridge and the JV consisted of construction operations as defined by section 105(1) of the Act and operations which were not construction operations by virtue of section 105(2)(c)(ii) of the Act.
(2)    Only one dispute had been referred to adjudication.
(3)    The Adjudicator did not have jurisdiction to determine disputes concerning operations which were not construction operations.
(4)    The Adjudicator’s Decision concerned operations which were construction operations and operations which were not.
(5)    Because the adjudicator had no jurisdiction to determine matters concerning operations which were not construction operations and because only one dispute had been referred to adjudication, the Decision was not enforceable.
The lesson to be learnt from the case is that if part of a dispute referred to adjudication concerns construction operations and part does not, the adjudicator must have the power to sever that part outside his or (as in this case) her jurisdiction otherwise the whole of the decision will be unenforceable. Alternatively, more than one dispute should be referred to adjudication. The problem is, the statutory adjudication provisions only allow an adjudicator to determine one dispute and unless the parties agree to allow the adjudicator to sever elements of the dispute or to determine more than one dispute, the adjudicator does not have jurisdiction to do so.
To read the full judgement please click on this link http://www.bailii.org/ew/cases/EWHC/TCC/2010/1076.html
 
The information provided in this article is not a comprehensive analysis of the law and must not be treated as a substitute for legal or professional advice.  To the extent permitted by law, Kerrigans will not accept or otherwise be held liable for any loss or damage incurred in relying upon the contents of this article. Should you require any legal or professional advice about any of the topics covered in this article we recommend that you contact Kerrigans.

04/12

Return to article list