08 July 2020
Get to know the terms and effect of your contracts
Getting to know the terms and affect of your contracts is vital, particularly with dispute resolution clauses, as it will save time and money, if there is a disagreement in the future.
A recent judgment from the Technology and Construction Court provides a salutary reminder of the need – particularly in the construction sector - to understand both the terms and effect of your contracts.
In Engie Fabricom (UK) Limited v MW High Tech Projects UK Limited  the question for the Court was this: was the ‘primary purpose’ of a new waste plant at the Energy Works Hull facility power generation or waste treatment?
This might well be an esoteric question but the answer carries significant implications. The Housing Grants Construction & Regeneration Act 1996 (known as the ‘Construction Act’) introduced a statutory right for parties to a ‘construction contract’ to refer a dispute to adjudication. Parties cannot contract out of this right. They can agree their own procedure but if they do not, or what they do agree to does not comply with the requirements of the Construction Act, then a statutory adjudication process will apply to the contract (known as the ‘Scheme for Construction Contracts’). A ‘construction contract’ is one for the provision of ‘construction operations’ but importantly the Construction Act also specifically excludes a number of operations. Buried away in section 105 is - you guessed it – an exclusion for operations where “the primary activity is…power generation”. In the Engie Fabricom case, if this exemption applied, the sub-contract would not be a ‘construction contract’ and there would be no statutory right to refer disputes to adjudication.
Engie Fabricom was successful in two adjudications and issued enforcement proceedings. MW High Tech defended the proceedings on the basis the adjudicator had no jurisdiction to determine the disputes because the operations fell within the power generation exemption. Whether or not power generation was the primary activity was a matter of fact for the court to decide. The court conducted an extensive factual analysis and held that the primary purpose was power generation, such that MW High Tech could avail itself of the exemption. The court refused to enforce the two adjudication awards. In deciding this the court referred to, amongst other things, the terms of the sub-contract (as well as the main contract), the applicable regulatory framework, the relevant planning and Environment Agency permissions and the plant’s financial model.
There are a number of principles to take away from this case which apply not only to the energy and waste management sector but also the wider construction industry:
- Understand the terms and effect of your contract including dispute resolution provisions. All too often the good will and bon homie between parties following a successful tender gives way to the gathering storm clouds of a dispute. Dispute resolution provisions are key parts of any contract. If it looks like the works might fall within a statutory exemption (such as a contract relating to a power generation site) parties should consider providing for a contractual right to adjudication, rather than rely on terms which may or may not be implied by the Construction Act.
- If you are on the receiving end of a referral to adjudication, ensure you raise your jurisdictional challenge and reserve your position on enforcement. A failure to do so may mean you cannot rely on them in any enforcement proceedings.
- Something which appears not to have been picked up on in this judgment is the court’s less than complimentary comments about Engie Fabricom’s expert witness, who produced a report with information taken from Wikipedia and included comments outside of his knowledge. Again, this is a reminder that time is well spent going back to first principles and getting the basics right. If you need to rely on expert evidence, identify someone who is an expert in the relevant field and follow the requirements of Practice Direction 35 to avoid such comments about the value of an expert witness’ evidence.