A recent TCC decision has considered the extent to which work on domestic telecommunications systems fall within the scope of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”). The work considered in this case fell outside the Act, but the case also provides a reminder that where work is only partially covered by the Act a general adjudication in relation to payment for all work under the contract will not be permitted.
The Construction Act
Under section 108 of the Construction Act, parties to a construction contract have a statutory right to refer a dispute to adjudication. Section 104 provides that a construction contract includes an agreement for the “carrying out of construction operations”. Section 104 also includes agreements “to do … surveying work” or “to provide advice on … engineering” in relation to construction operations.
Section 105 of the Construction Act provides a definition of “construction operations”. Sub-section (b) includes the “alteration, repair, maintenance … of any works forming, or to form, part of the land including … electronic communications apparatus”.
Crystal Electronics Ltd v Digital Mobile Spectrum Ltd
Crystal entered into a contract with Digital Mobile Spectrum Limited (“DMS”) to supply installers to help householders resolve interference issues with digital TV reception caused by high-speed mobile broadband services (such as 4G), as those services were rolled-out in their area.
The installers were provided with a scope of works document that set out, step-by-step, the actions to take and the suggested ways to resolve the issues based on the findings. The process started with identifying TV sets within the home, taking signal readings behind the TV using a portable spectrum analyser, and then working backwards along the system to identify where in the system the issue was, and to resolve this.
In some cases where an issue was identified, the remedial work merely involved re-tuning the TV or plugging-in a small filter box behind the TV. If these options did not resolve the issue, the installer would look further up the system. Resolving the issue could involve changing a faceplate, running new cable and/or work on or replacing TV aerials.
Crystal brought two “smash and grab” adjudications against DMS alleging non-payment of certain amounts. DMS disputed jurisdiction throughout both adjudications on the basis that the contract was not a construction contract. DMS did not pay the sums awarded by the adjudicator and Crystal launched enforcement proceedings.
DMS argued that none of the work carried out by Crystal amounted to construction operations. Alternatively, the only part of the work that could conceivably be considered to be construction operations was the fitting of television aerials, but even so, this work did not satisfy the requirement in s.105 for the aerials to form “part of the land”. In any event, DMS argued that if any of the work done by Crystal under the contract did amount to construction operations, the contract was a “hybrid contract” and Cystal Electronics had made no effort to split its payment claim between construction operations and non-construction operations.
No construction operations
The Technology and Construction Court rejected Crystal’s primary submission that, when read with the relevant provisions of the Communications Act 2003, the reference to “electronic communications apparatus” in the Construction Act ought to encompass the whole of the telecommunications system at a viewer’s home and as therefore being permanently integrated into the structure of the house. In the Court’s judgment, this overlooked the critical question under s.105 as to whether the structures or other apparatus on which the works were undertaken form, or were to form, part of the land. The Court considered that “Television sets, recording devices and amplifiers obviously do not form part of the land, though sockets and face plates may do so”.
Much of the equipment used by Crystal was held not to form part of the land, such as a filter fitted behind the TV. The Court also considered whether aerials attached to a house formed part of the land. The usual method for attaching aerials at roof level was by using lashings to strap the aerial mast to the chimney. In the Court’s judgment, these did not form part of the land as they were:
- pieces of replaceable equipment;
- easily installed and removed;
- usually attached with a secure form of strapping, but were in no sense integrated into the buildings; and
- even when affixed to the building by bolted brackets, were capable of removal simply by undoing or cutting the bolts, without any damage to the aerial itself.
As a fallback position, Crystal sought to argue that on each and every job its installers performed surveying work and gave engineering advice. In particular, Crystal’s installers were said to carry out a “visual survey” of the exterior of a house in order to see what aerials were present and where they were located and what other relevant things might be the vicinity, such as tall trees or buildings that might affect signal reception. Engineering advice was said to be given to DMS by reporting the results of signal tests performed with a spectrum analyser. The Court rejected these arguments, noting that surveying work needed to be of the sort carried out by building surveyors in the construction industry, rather than a brief visual assessment of an area, and in any event both the surveying and engineering advice had to relate to construction operations before a construction contract would arise.
Conclusions and implications
This decision provides a helpful reminder of the difficulties which can arise where there is uncertainty as to applicability of the Construction Act. Even if Cystal had managed to succeed on some of its arguments as to the existence of construction operations, for example in relation to the work on aerials, it still would have failed to enforce due to the existence of other work which clearly did not relate to construction operations and was not de minimus. Such “hybrid contracts” pose grave difficulties for claimants in determining which parts of their claims may be subject to adjudication or the payment provisions of the Construction Act. Whenever a hybrid contract is a possibility, parties are usually best advised to include express adjudication and Construction Act compliant payment provisions so as to avoid unnecessary costs and delay in arguing over the application of the Construction Act at a later date.
* CMS acted for the successful Defendant in this case
References: Crystal Electronics Ltd v Digital Mobile Spectrum Ltd  EWHC 2656 (TCC)