Severfield (UK) Ltd v Duro Felguera Ltd [2015] EWHC 3352

Duro engaged Severfield under a contract to carry out the design, supply and erection of steel structures on a site in Manchester.  Some of the work comprised "construction operations" under the Construction Act 1996 (the "Act"), but some were not (because they related to power generation and were excluded from the provisions of the Act).  Being unaware of the distinction at the time of entering into the contract the parties agreed a payment regime that was not Act compliant.  Severfield made an interim payment application for approximately £3m and such application did not divide up the work between the operations that were and those that were not covered under section 105 of the Act.  

Duro failed to give a valid payment notice or pay-less notice and so Severfield adjudicated for the amount due.  The adjudicator awarded the sum claimed to Severfield and they subsequently applied to the Court for Summary Judgment to enforce that decision.  However, the Court refused to grant Summary Judgment on the grounds that the adjudicator did not have jurisdiction to decide upon those amounts claimed in the payment application relating to services that were not "construction operations".  Further, the figure claimed in Severfield's interim application was not broken down into those sums due for "construction operations" and those sums that were not.  If this had been the case, Severfield may have been able to argue that the adjudicator did have jurisdiction to decide upon those sums due in relation to "construction operations".  However, the adjudicator decided on the whole lump sum and so the Court found that the adjudicator would have been obliged to apply separate payment regimes for those operations which were inside the Act and those that fell outside of it.

Practical tip: 

If you have a "hybrid" contract, ensure that you agree a payment regime which complies with the Act insofar as it has to. Parties may decide to adopt Act-complaint payment regimes for all operations under a contract but if this is not intended they should make extremely clear in payment applications which operations attract the Act–compliant payment regime and those which do not to avoid falling into the "Severfield trap".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.