Coulson J’s decision in Severfield (UK) Limited v Duro Felguera UK [2015] EWHC 3352 (TCC) could well be the first salvo in an attempt to amend a key part of the Housing Grants, Construction and Regeneration Act 1996 (“the Act”).
When the Act was introduced, certain industries and activities were excluded from being treated as construction contracts, despite otherwise being caught by the Act’s wide definition of “construction operations”. Power generation was one of the industries excluded by section 105(2) of the Act.
These exclusions can create problems in contracts like that in Severfield (in this case a contract for the erection of steel structures at two power generation plants in Manchester) partly caught by the Act (the steelwork not related to power generation) and partly excluded by it (the work related to power generation). How should the Act apply to this type of hybrid contract? And what happens if one party refers a dispute under a contract to adjudication?
Two earlier TCC decisions of Ramsey J (North Midland Construction PLC v AE and E Lentjes UK Limited [2009] EWHC 1371 (TCC) and Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC)) established the principle that the requirements of construction contracts to comply with the Act (including the fact that terms are implied into contracts that do not meet the Act’s requirements) shall only apply to those obligations subject to the Act’s terms.
However simple this principle sounds in theory, it can be difficult to apply in practice, especially where the parties (as here) may not have drafted the contract aware of the issues raised by hybrid contracts and the Act.
This prompted Coulson J, having rejected the claimant’s application for summary judgment, to end the judgment with some trenchant judicial comment. Having noted that a study of the debates in Hansard reveals that parliament was aware of the difficulties but decided to exclude “reasonably well” run industries such as power generation from the “punishment” of the new Act, the judge did not mince his words.
Parliament’s approach was “misconceived”: “Adjudication… is an effective and efficient dispute resolution process. Far from being a ‘punishment’, it has generally been regarded as a blessing by the construction industry. Furthermore, it is a blessing which needed then – and needs now – to be conferred on all those industries (such as power generation) which are currently exempt. As this case demonstrates only too clearly, they too would benefit from the clarity and certainty brought by the… Act.”.
In modern times, it is relatively rare to see a judge make quite such a bold comment in a judgment. Coulson J’s words have considerable force and come from the point of view of a lawyer who was a very distinguished practitioner before he became a judge and who has written the leading textbook dedicated to the Act and adjudication. It remains to be seen whether his comments will be the start of a campaign for removing the Act’s exemptions; or whether those industries which are excluded, like power generation, will continue to resist being caught by the Act’s terms.
Stuart Pemble is a partner at Mills & Reeve LLP
