Practical Law

When it is a plant thermally treating waste.

Or is it still a power plant?

This was the question that Mr Jonathan Acton Davis QC had to grapple with in Engie Fabricom UK Ltd v MW High Tech Projects UK Ltd. As is often the case when it comes to the exclusions under section 105(2) of the Construction Act 1996, the answer was as clear as mud!

Section 105(2) exclusions

Before turning to look at the facts of Engie v MW High Tech, it is worth reminding ourselves of section 105(2) of the Construction Act 1996, which lists the types of work that are excluded from construction operations (as defined in section 105(1)). These include the:

“(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is:

(i) nuclear processing, power generation, or water or effluent treatment, or

(ii) the production transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink.”

One of the key phrases in this section is “primary activity” and it was a key element in the parties’ submissions in Engie v MW High Tech.

Engie Fabricom UK Ltd v MW High Tech Projects UK Ltd

High Tech was the main contractor on the Energy Works Hull project, appointed in November 2015 under an engineer, procure, construct (EPC) contract to construct a fluidised bed gasification power plant. In March 2017, those works (to construct a fluidised bed gasification power plant) were sub-contracted to Engie under an amended ICE sub-contract (Yellow Book, 4th edition, 2013).

One of the amendments was to the standard form’s adjudication clause, which read as follows:

“This Clause 47 applies only to the extent (if any) required by the Construction Act 1996, as amended.”

The judge said that this meant the parties had a right to adjudicate a dispute to the extent “permitted by and consistent with the provisions of the Construction Act“. Thus, disputes falling within the scope of section 105(2) could not be adjudicated, but those falling within the scope of section 105(1) could be.

The adjudication and enforcement

A dispute was referred to adjudication and, in April 2019, the adjudicator ordered High Tech to pay Engie £27,062.25 plus interest and VAT, along with her fees and expenses. A total of £41,766.30 was due.

As no money was forthcoming, Engie applied to the TCC to enforce the adjudicator’s decision.

High Tech had already raised a jurisdictional point in the adjudication (on which the adjudicator had given a non-binding decision) and it maintained that jurisdictional challenge in the enforcement proceedings. Essentially, it said the parties’ contract was not a construction contract because of sections 105(2)(c)(i) and (ii). Cue arguments over what the “primary activity” of the site was.

Primary activity submissions

High Tech argued that the primary activity of the site in Hull was power generation, which meant it was excluded from the Construction Act 1996 and there was no right to adjudicate a dispute.

In contrast, Engie argued that it was engaged for the “Sub-contract works”, which was the:

“… design, engineering, manufacture, delivery to the site, construction, execution and completion of the ‘Sub-contract Plant’, which was the gasification plant system.”

It said the primary activity of the site was the disposal and thermal treatment of waste (by incineration or gasification) and that power generation was a secondary activity. The production of gas was merely an ancillary activity to this.

To support both parties’ arguments, the judge was taken to a range of documents and a few extracts appear in the judgment. A number of cases are also referred to, including:

• Conor Engineering Ltd v Les Constructions Industrielles De La Mediterranee (CNIM) SA [2004] EWHC 899 (TCC), where the court considered the primary activity on a site that housed a new plant constructed for both waste incineration and electricity generation. On the facts, the Recorder concluded that the prime purpose of the plant was to incinerate waste and that incineration of waste was also the primary activity on the site.
• North Midland Construction plc v AE&E Lentjes UK Ltd, where Ramsey J said the exclusions should be interpreted narrowly. Here, both parties agreed power generation was the site’s primary activity. The dispute was over the extent of the structural steelwork that was caught by the relevant exclusion.
• Laker Vent Engineering Ltd v Jacobs E&C Ltd, where Ramsey J held that paper production was the site’s primary activity and the biomass combined heat and power (CHP) plant, which occupied about 10% of the site, was being built to provide power to the paper mill. He said the meaning of “the site” was one of “overall impression rather than detailed examination of particular documents or obligations”.

Waste or power, that is the question

From the extracts in the judgment, it certainly seems arguable (as Engie argued) that the underlying driver for the project was to deal with the “high rate of waste generated in England” and the need to reduce the amount going to landfill under the EU landfill directive.

However, I can also see some force in High Tech’s submission that:

“… it would be wrong in principle to examine a European directive concerned with the protection of the environment and public health by generation of waste, in order to look for the answer to whether a particular site is within or without an exception in an Act of Parliament concerned with cash flow in the UK construction industry.”

It argued that it was necessary to look at the nature and purpose of the whole site, which was primarily power generation. This argument was supported by a number of factors, such as the plant being a “purpose-built independent power station”, built close to the National Grid sub-station, with the power being exported to the grid (rather than for use on the site itself), and being able to “power up to 43,000 homes”.

Reading the judgment, I confess to being unsure, just like the judge was, at what the actual answer is (and he had more material to read than I’ve had the benefit of). Like many of you, environmental legislation is not something I generally have to look at.

The exclusions are a tricky one to deal with, and this case demonstrates that very clearly. It seems we will have to wait until there has been a full trial of the issue, with more documents and expert evidence. Given the emphasis on the environment and everyone being “greener”, the outcome will be eagerly awaited. It may not answer the question of what to do when some parts of a contract are in and some parts are out, or if there are non-compliant adjudication provisions, but we can’t have everything and, I think, we are stuck with the exceptions for the foreseeable future.

And finally…

Last time, Jonathan discussed two new initiatives aimed at reducing costs in low value adjudication disputes. He noted that there is little that can be done to control the costs of party representatives (in contrast to asking adjudicators to commit to fixed fees).

Although it is unclear whether the amount awarded in this adjudication reflected the amount claimed, if it was then this dispute would certainly fall within the scope of both schemes.

I also note with interest that both parties attended the TCC with a QC (and High Tech took along a junior too, for good measure). As there is to be a trial of this issue, some may wonder at what point the sum in issue was exceeded by both parties. However, my experience of power and process plants is that the ultimate sums in issue may actually dwarf the legal fees and goes some way towards explaining why these types of technical points are fought so fiercely.