The long arm of the law – how far does the Construction Act reach
We are all now familiar with the idea that the Construction Act applies to construction contracts. Occasionally cases come along which make us think about what constitutes a construction contract. The Act has some detailed provisions to guide us. First, the contract must be for construction operations. Section 105(1) tells us what they are. There are then a number of exceptions which are taken outside the scope of the Act. The exceptions are identified in section 105(2). The exceptions are a hotch-potch of areas where, for one reason or another, Parliament was persuaded the Act was not needed.
How all this works and the difficulties it creates were explored in the recent case of Laker Vent Engineering Ltd (“Laker”) v Jacobs E&C Ltd (“Jacobs”)  EWHC 1058 (TCC) in which the court considered whether the exception relating to sites where the primary activity is (or will be) power generation applied.
Under a sub-contract Laker agreed to supply, fabricate and install pipe-work at a combined heat and power plant in Fife. They were engaged by Jacobs who, in turn, were engaged under a main contract by RWE Npower Renewables (Markinch) Limited. The works were to be carried out on land leased to RWE by a firm called Tullis Russell. That land formed part of a larger site owned by Tullis Russell. The remainder of the land was home to Tullis Russell’s paper mill.
RWE’s power plant was to generate power and steam. Some of the output would be used by the paper mill but the majority of the steam would be used for power generation and the majority of the power would be supplied to the grid.
There were three simultaneous adjudications which resulted in awards in favour of Laker. Jacobs objected to the adjudicator’s jurisdiction and, when Laker sought enforcement of the decisions, those objections were raised. Because the sub-contract did not contain any provision for adjudication and the only way adjudication would apply would be if the sub-contract was a construction contract and the Construction Act applied.
One of the exceptions in section 105(2) of the act is assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is power generation.
This begged the question ‘what is the site?’ If it was the land leased to RWE, both parties agreed that the primary activity on that site was power generation. If it was the wider site including the paper mill, the parties were agreed that the primary activity was production of paper.
Jacobs contended that the site was limited to the land leased to RWE to construct and operate the plant and the primary activity was power generation. Laker claimed that it was the whole area including land leased to RWE and the whole paper mill complex and the primary activity was paper production.
For the following reasons the judge decided that the site was the whole of the wider area:
- although the power plant was constructed on a part leased to RWE, the freehold of the whole area was owned by Tullis Russell and at the end of the lease the land would revert to Tullis Russell;
- the purpose of the plant was to replace an old one and to provide electricity and steam to serve the whole site (albeit that it would generate excess power for supply to the grid);
- the leased area occupied 10% of the whole site and it was described as a part of Tullis Russell paper mill;
- the definition of “site” depends on the location of the plant and although selling electricity to the national grid was an important consequence of constructing the plant, it was not the main reason for locating it where it was; the plant was located where it was because it was to provide power and steam for the Tullis Russell mill;
- on examination the lease showed that the plant had a limited life and it was not an independent power station.
The exceptions in section 105(2) of the Act continue to present difficulty when they rear their head. The cases show that the courts will not be too ready to find that the exceptions apply and, as in this case, will carry out a broad review of all relevant circumstances. These issues pose particular problems for contract draftsmen when considering whether their contracts must be made Act compliant. Although not addressed in detail in this case, it is suggested that contractual definition of the site is unlikely to carry much weight for these purposes.
Kasia Dickson, Legal Assistant, Thomas Eggar LLP
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