There are a small number of different types of construction project where parties cannot make use of adjudication, as a consequence of section 105(2) of the Housing Grants Act. These include projects relating to the assembly, installation and demolition of power-related plants. However, sometimes this exclusion can cause difficulties for adjudicators, particularly where the work carried out by a (sub) contractor might arguably only fall in part within that exclusion. What approach should the adjudicator take? And equally, if it transpires that the adjudicator may not have got it right, can that part of his decision which related to non-excluded activities be severed and thereby saved?
These were the questions which came before Mr Justice Ramsey in the case of Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture (a partnership comprising Whessoe Oil & Gas Ltd and Volker Stevin Construction Europe BV) - [2010] EWHC 1076,
The Facts
Whessoe-Volker, as a joint venture, engaged Cleveland Bridge to carry out works at a Liquefied Natural Gas terminal at Milford Haven. The work was carried out at a site where the primary activity was the production, transmission, processing or bulk storage of gas. The works involved erecting steelwork which was to form an integral part of the plant. There was a dispute over the final account owing to Cleveland Bridge, which Whessoe-Volker had agreed at £4,687,500 with £317,500 plus VAT outstanding. That sum was not paid by Whessoe-Volker. Cleveland Bridge referred the dispute to adjudication and was awarded the full amount.
The Issues
At enforcement, the judge had to determine the following two issues:
- Did the work carried out, consist of construction operations under s105(1) of the Act and was any of the work excluded under s105(2)?
- If the works consisted of construction operations and excluded operations, was the adjudicator's decision severable and/or enforceable? and
The Decision
- Whilst the work carried out was done so on an excluded site, the work carried out consisted of both construction operations and excluded operations. The judge held in favour of Cleveland Bridge, deciding that he could not include the manufacture and supply of the steelwork in the meaning of erection, so it was only the act of erecting the steelwork which fell within the exclusion. Even though this work only counted for approximately 18% of the final account, the judge considered it should still count as excluded under s105(2);
- The adjudicator's decision was not enforceable or
severable. s104(5) 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."
The judge decided that in principle, an adjudicator could decide
part of a single dispute which related to construction operations,
where excluded operations were also involved, as long as this was
made clear in the decision. However, the Judge held that where only
one dispute was referred to an adjudicator, which included both
construction operations and excluded operations, and the
adjudicator decided the whole of the dispute, then the decision
would not be valid.
The judge also considered in what circumstances, if any, an adjudicator's decision on a single dispute would be severable."The whole of the decision is not enforceable and the contractual agreement to be bound by that decision does not apply. I do not think that in the context of the agreement to be bound by a temporary decision, the decision can be dissected to impose a separate and severable obligation to be bound by the adjudicator's decision on each of the component issues on which the adjudicator based that decision. Otherwise, the process of adjudication enforcement could be diverted into satellite litigation which is not appropriate when the court is concerned with the enforcement of a decision which has temporarily binding effect. In this case the decision related to the whole sum of £317,500 plus VAT. I do not consider that the court can or should intervene and say what the Adjudicator may have found to be the value of the work relating to the element of the Subcontract within her jurisdiction."
Accordingly the decision was not enforced.
Comment
The case concerned the question of whether certain operations, which were the subject of the adjudication, were excluded operations under the Act. This has not come before the courts regularly, and it gives useful guidance on whether parties should refer disputes to adjudication where there is a small portion of the overall works which may be excluded. The decision also offers guidance for adjudicators. If an adjudicator wishes to have an enforceable decision, and there is any doubt whether certain elements of the works may be excluded, then the adjudicator should separate the decision to address the elements of work separately. The judge indicated that if this was the case then there was nothing in principle to prevent that part of the decision that was within the adjudicator's decision being valid.
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