Laker Vent Engineering Limited v Jacobs E&C Limited [2013] EWHC 1890

Laker Vent Engineering Limited v Jacobs E&C Limited and between Jacobs E&C Ltd v Laker Vent Engineering Ltd [2013] EWHC 1890

Judgment date: 8 April 2014

(1) Provided that it makes its position clear, a party to an adjudication can still rely on a general reservation of jurisdiction after publication of an adjudicator’s decision so that it can apply under the slip rule or make a payment without losing its right to challenge the adjudicator’s decision; (2) the word “site” in section 105(2)(c) of the Housing, Grants, Construction and Regeneration Act 1996 (as amended) (“the Construction Act”) was given a broad meaning so that it applied not only to the immediate area where the works were to be carried out but also to a much larger area owned and occupied by the same party who was to derive benefit from the works. The works were therefore not excluded from “construction operations” and the Construction Act applied, (3) a decision by an adjudicator which provided that a sub-contractor was entitled to an extension of time to 11 October 2013 was not inconsistent with a decision issued by the same adjudicator on the same day which provided that the main contractor ought to have issued a taking over certificate stating the date of 30 August 2013 when the works were complete. Both decisions were binding., and (4) where the parties had agreed that a contract for a project located in Scotland would be governed by English law, the Scheme for Construction Contracts (England and Wales) Regulations applied where the contract did not comply with the Construction Act.

Technology and Construction Court, Mr Justice Ramsey

Background

Tullis Russell (“TR”) operates a paper manufacturing business in Fife, Scotland. RWE Npower Renewables (Markinch) Limited (“RWE”) was contracted to replace an existing power plant on the site with a £200 million biomass plant (the “Plant”). An area of land of approximately 4.77 hectares was leased to it (about 10% of the whole site). As part of the arrangement, RWE planned to operate the plant and export spare electricity to the national grid.

The contractor, Jacobs E&C Limited (“Jacobs”), entered into a contract with RWE for the design, manufacture, supply, construction, installation, testing and commissioning of the plant (the “Main Contract”). The supply, fabrication and installation of pipe-work was sub-contracted by Jacobs to Laker Vent Engineering Limited (“Laker”) under a sub-contract dated 30 March 2012 (the "Sub-Contract"). The Sub-Contract did not refer expressly to adjudication, but the special conditions stated that it was governed by English law and that any dispute should be referred to the arbitration and final decision of a person agreed by the parties or failing such agreement should be referred for settlement in the same manner as a dispute arising under the Main Contract. Under the Main Contract there was no arbitration provision.

Laker commenced three adjudications concerning the Sub-Contract, relying upon the Scheme for Construction Contracts (England and Wales) Regulations 1998. The adjudicator issued three decisions on the same day: Award No. 1 related to extension of time and prolongation costs; Award No. 2 related to growth in scope and Award No. 3 related to the taking over certificate. Following receipt of the awards, Jacobs successfully applied to the adjudicator under the slip rule for a correction to Award No. 1. When making its application Jacobs stated that, as before, it fully reserved its position in relation to the adjudicator’s jurisdiction and that its application was made without prejudice to that position.

In Award No. 1 (as corrected) the adjudicator decided that Laker was entitled to an extension of time of 52 weeks as claimed. This meant that the contractual completion date was 11 October 2013. In Award No. 3 he decided that Jacobs ought to have issued a taking over certificate stating the date of 30 August 2013 when the works were complete.

Two sets of proceedings arose subsequently. In the first set of proceedings Laker sought summary judgment in the sum of £808,123.69 plus VAT and £27,375.00 and £1000.00 as adjudicators' fees and administration charges, together with interest arising out of the three adjudication decisions. Jacobs opposed summary judgment on the ground that the adjudicator lacked jurisdiction and that his decisions were inconsistent. In the second set of proceedings, Jacobs sought two declarations as to the relationship between extensions of time and the mechanism for taking-over under the Sub-Contract. Laker sought to stay those proceedings to arbitration.

Issues

The Court was asked to decide whether:

1. Jacobs, by applying for a correction to be made, had elected to affirm the decisions and was barred from challenging them;
2. The Sub-Contract was a “construction contract” for the purposes of the Construction Act or whether it was excluded from the application of the Act because the primary activity on the site was power generation within the meaning of section 105(2)(c) of the Act;
3. Award No. 1 was inconsistent with Award No. 3 and if so whether this meant that the decisions in those awards were not binding;
4. The Scheme for Construction Contracts (Scotland) Regulations or the Scheme for Construction Contracts (England and Wales) Regulations should apply; and
5. The proceedings for declarations should be stayed pursuant to section 9 of the Arbitration Act 1996.

Decision

The Court held that Jacobs had no real prospect of successfully defending the claim and that Laker was entitled to summary judgment on the following basis:

• A general reservation of rights is sufficient to prevent a party’s participation in an adjudication from being taken as an election to affirm the adjudicator’s jurisdiction or a waiver of any rights to object to the adjudicator’s jurisdiction. With some hesitation, the Court held that following publication of a decision a party to an adjudication can still rely on the general reservation of jurisdiction and apply under the slip rule or make payment without losing its right to challenge the adjudicator’s decision. In the present case the reservation made by Jacobs at the time it applied for correction of Award No. 1was sufficient to prevent Jacobs from waiving its rights ;
• The whole site including both the paper mill complex and the land leased by TR to RWE was to be considered the “site” for the purposes of section 105 (2) (c) of the Construction Act because:
  • Although a specific area of land was leased to RWE, it was still owned by TR;
  • The purpose of providing a power plant at that location was to provide steam and power to TR’s paper mill;
  • The Plant occupied an area of some 10% of the total paper mill site, had the same postal code as the paper mill and was generally being described as being at the TR paper mill;
  • The definition of “site” did not depend on the consequence of constructing the Plant (i.e., provision of electricity to the national grid) but its location. The Plant was located where it was because it was to provide a power and steam facility to the TR paper mill; and
  • On termination, RWE was obliged to demolish the Plant which showed that the Plant did not have a continued existence after the limited period for which TR leased the relevant land to RWE.

The primary activity on the “site” was, therefore, not power generation but the manufacturing of paper and consequently the exception under section 105(2)(c) did not apply, the Sub-Contract was a construction contract and the parties were free to refer the dispute to adjudication.

• It was not inconsistent for the adjudicator to determine that an extension of time should be given until 11 October 2013 and decide that taking over took place on 30 August 2013 as that was the effect of the decisions which were temporarily binding on the parties and those decisions were enforceable. There was no uncertainty or conflict between the two decisions because one dealt with extensions of time and the other dealt with the date of the taking over certificate. If the decisions were wrong as a matter of fact or law they would nevertheless be enforceable. The Court also noted that there was no general reservation on the inconsistency point and that Jacobs would, in any event, be precluded from challenging the decisions on this basis having sought to rely on the decision for the purpose of the application to correct them under the slip rule.

• Given that the parties in the Sub-Contract expressly agreed that English Law was to govern the Sub-Contract, the England and Wales Scheme applied even though the project was based in Scotland.

The Court held that it was appropriate for the application by Laker to stay the Part 8 proceedings under section 9 of the Arbitration Act to be adjourned. Section 16 (3) Arbitration Act applied to the arbitration clause in the Sub-Contract. This meant that the parties had to appoint an arbitrator not later than 28 days after a request by either party to do so. This period had not expired at the date of the hearing and the parties were therefore still able to appoint an arbitrator. Accordingly the application to stay would be adjourned. If the parties failed to agree upon an arbitrator within the 28 day period, the Sub-Contract provided that the dispute would be settled in the same manner as a dispute under the Main Contract, i.e. by way of Court proceedings.

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