B e f o r e :
THE HON. MR.JUSTICE RAMSEY
|| Cleveland Bridge (UK) Limited
||- and -
||Whessoe-Volker Stevin Joint Venture
(a partnership comprising Whessoe Oil & gas Limited and Volker Stevin Construction Europe BV)
Adrian Williamson QC and Lucy Garrett (instructed by Walker Morris, Leeds) for the Claimant
Nicholas Baatz QC (instructed by CE Law, Birkenhead) for the Defendant
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Hon. Mr. Justice Ramsey :
- This is an application by Cleveland Bridge UK Limited ("Cleveland Bridge") for the enforcement of an adjudicator's decision dated 17 February 2010 ("the Decision") against Whessoe-Volker Stevin Joint Venture ("the Joint Venture"). The application is resisted on the basis that the agreement between Cleveland Bridge and the Joint Venture was not a construction contract because certain operations fell within the exception in s.105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 ("the Act").
- The Joint Venture say, in the alternative, that to the extent that the works under the subcontract fell partly within construction operations under section 105(1) and partly under the exceptions in section 105(2) the adjudicator did not have jurisdiction in relation to the elements of the work that did not come within the definition of construction operations and her Decision cannot be enforced.
- This application therefore raises questions of the true interpretation of section 105 of the Act and also, on the alternative case, of the approach of the court on an application for summary judgment where an adjudicator has jurisdiction as to part but not the whole of the matters referred to him for his decision.
- By an agreement dated 6 February 2006 ("the Subcontract") the Joint Venture as the Company engaged Cleveland Bridge as the Contractor to carry out works at the Dragon Liquefied Natural Gas ("LNG") terminal at Milford Haven. At this terminal LNG is off-loaded from bulk LNG carriers which arrive by sea and is pumped to storage tanks, as well as being stored in the pipes themselves. It then passes to equipment that re-heats the LNG to ambient temperature and so converts it to gas. The gas is then pumped into the national gas transmission pipeline.
- The Subcontract consists of a Form of Agreement, Contract Data Part 1 which contains 32 clauses and Contract Data Part 2 which incorporates exhibits A to H.
- Under Clause 3.1 of the Contract Data Part 1 it was provided:
(a) "The CONTRACTOR shall provide all labour, materials, contractors equipment, temporary works and everything whether of a permanent or temporary nature required for carrying out the SERVICES, except as otherwise stated within Exhibit A."
- By Clause 1.4 "SERVICES" were defined to mean the works described in Exhibit A.
- Clause 4.3 provided: "For the performance of the SERVICES, the COMPANY shall pay the CONTRACTOR in accordance with Exhibit C hereto."
- Clause 5.1 dealt with the obligation of Cleveland Bridge to invoice the joint venture and for the Joint Venture to make payment within 30 days of receipt of invoice and supporting documentation.
- Exhibit C provided that "The Rates and Prices for the SERVICES are set out the attached Bills of Quantities." It then stated:
(a) "The CONTRACT Price has been calculated using the Scope of Works set out in Exhibit A (Subject to the specification for Steelwork and Painting). Any variation to the Scope of Works shall be valued by calculating the increase/decrease to tonnages of Steelwork and square metres of Painting contained in the Scope of Works and adjusting the Contract Price following measurement of the variation and evaluation at the Bill of Quantities rates."
- The Bills of Quantities consisted of Bills No 1 to 8. Bill No 1 contained general preliminaries, Bills No 2 to 6 dealt with piperacks and pipebridges; Bill No 7 dealt with the LER Building/Substation 16 and Bill No 8 dealt with the Compressor House. Each of Bills 2 to 8 were priced substantially on the basis of tonnes of structural steel work and square metres of painting, with some extra items.
- The Services were defined in Exhibit A which contained a Scope of Work Document together with drawings and specifications. At paragraph 1.2 of the Scope of Work Document the work was described as being separated into these areas:
(1) East West Pipebridge
(2) North South Pipebridge
(3) Flare Pipebridge
(4) LER (Local Equipment Room) Substation 16 Building Steelwork and Cladding
(5) Process Area Pipebridge
(6) Process Area Compressor House
- At paragraph 3.0 of the Scope of Works Document the Structural Works were defined as:
(1) Preliminaries (such as Structural overheads, machinery, supervision, planning, materials)
(2) The preparation of fabrication drawings, including connection design.
(3) The purchase of structural steelwork, including connection plates and all consumables
(4) The transfer to the painting shop, including painting with a 3 coat paint system as detailed in specification...
(5) The delivery of the fabricated steelwork to site and offloaded in an agreed location at the site premises.
(6) Erection of Fabricated steelwork in an agreed manner onto prepared foundations including lining and levelling prior to grouting (by others).
- The Scope of the Works is also described in the Witness Statement of Jaap Blokland dated 13 April 2010 and can be seen from the photographs in his Exhibit JB1.
- There were considerable variations to the work to be carried out under the Subcontract and in March 2009 the Joint Venture agreed Cleveland Bridge's Final Account for the work in the sum of £4,687,500 of which £317,500 plus VAT remained due to Cleveland Bridge. Cleveland Bridge invoiced the Joint Venture for the total VAT inclusive sum of £365,125 by an invoice dated 13 March 2009. That sum was not paid and the Joint Venture contended that, in particular, because of a settlement agreement which had been entered into by the parties to the Joint Venture, no further sum was due.
- By an Adjudication Notice dated 11 January 2010 Cleveland Bridge commenced an adjudication against the Joint Venture. An adjudicator ("the Adjudicator") was appointed by the Chairman of TeSCA. The Joint Venture challenged the jurisdiction of the Adjudicator on the basis that the Subcontract was not a construction contract and thereafter participated expressly without prejudice to its primary contention that the Adjudicator did not have jurisdiction.
- In her Adjudication Decision dated 17 February 2010, the Adjudicator held that the Joint Venture's defences to Cleveland Bridge's claim failed and that the Joint Venture should pay Cleveland Bridge £365,125, being £317,500 plus VAT. In addition she made an order for the Joint Venture to pay interest and the Adjudicator's fees.
- By a letter incorrectly dated 3 February 2010 but sent on 19 February 2010 Walker Morris acting on behalf of Cleveland Bridge requested payment in the total sum of £403,514.49. That sum was not paid and on 29 March 2010 Cleveland Bridge commenced these proceedings in which they claimed the sum of £403,344.43 or such sum as the Court thinks fit and interest in the sum of £3,146.11 and continuing at a daily rate.
- In the Application Notice they sought an order for Summary Judgment under Part 24: "to be given on the whole of the claim in favour of the Claimant". The Application was supported by a Witness Statement of Julian Harbage dated 26 March 2010 which exhibited a number of documents including witness statements submitted in the Adjudication. In particular it exhibited the Witness Statement of Paul Walmsley dated 18 January 2010 to which he exhibited at PW2 the build up of the work valued in the Final Account. He stated that this showed that £1,797,124 of the final account figure of £4,687,500 was in respect of the following works, which he described as "Painting and Building Works":
"All works in respect of the BOG Compressor House
All works in respect of the LER and Substation Building
All painting works; and
All making good of any damaged paintworks."
- Mr Walmsley then analysed the sums remaining to be paid in the final invoice and concluded at paragraph 2.6 that £100,747.20 of the £317,500 awarded by the Adjudicator in her Decision and which was still outstanding under the final invoice, related to Painting and Building Works as described above. That sum therefore excluded the value of the element of supply and erection of the steelwork for the piperacks and pipebridges.
- In response the Joint Venture filed a First Witness Statement of David Jackson dated 13 April 2010 and a Witness Statement of Jaap Blokland also dated 13 April 2010. In reply Cleveland Bridge served a further Witness Statement of Paul Walmsley dated 16 April 2010.
- The further Witness Statement of Paul Walmsley contained a 130 page exhibit which further analysed the balance of £317,500 due under the Adjudicator's Decision in respect of the final invoice. In that exhibit he sought to extract the figure for the work relating only to the element of work erecting the steelwork to the pipebridges and piperacks and concluded that within that figure the cost of erection was £115,398.18. This meant that the remaining amount of £202,101.82 did not relate to the erecting of the pipebridges and the piperacks.
- At the hearing of the application the Joint Venture sought to put in further evidence in the form of a Second Witness Statement from David Jackson dated 21 April 2010. He dealt with some exchanges of correspondence between the parties, explained that certain elements of the Compressor House and LER Building comprised of steelwork to support, respectively, the Compressor House crane and the electrical transformers in Substation 16 and cabinets in the LER Building. He also stated that it had not been possible since receiving Mr Walmsley's further witness statement to respond as fully as the Joint Venture would have wished but that the further breakdown of the final invoice by Mr Walmsley was not accepted. However, Mr Jackson said that the final account was agreed and the breakdown described in paragraph 17 of his original statement, which referred to figures in Mr Walmsley's original exhibit PW2, was also accepted. Mr Jackson stated that it was not accepted that it was agreed on the basis of the explanation put forward by Mr Walmsley in his further Witness Statement.
- Mr Nicholas Baatz QC, who appears on behalf of the Joint Venture, submits that, on the basis of the claim as pleaded in the Claim Form and Particulars of Claim and the application under Part 24 as set out in the Application Notice, Cleveland Bridge can only pursue a claim for the whole of the sum awarded by the Adjudicator in her decision and not for part of that sum based on the evidence of Mr Walmsley in his original Witness Statement and exhibit PW2 or as set out in his further Witness Statement dated 16 April 2010.
- Mr Adrian Williamson QC, who appears with Ms Lucy Garrett on behalf of Cleveland Bridge, submits that there is nothing in the Claim Form, Particulars of Claim or the Application Notice which precludes the Court, if it thinks just, from awarding part of the sum decided in the Adjudicator's Decision.
- The Particulars of Claim attached to the Claim Form seek in the prayer "The sum of £403,344.43 or such sum as the court thinks fit". The Application Notice seeks summary judgment on the whole of the claim. However I do not consider that the reference to the whole of the claim precludes the court from giving summary judgment either for the whole sum set out in the Particulars of Claim or such lesser sum as it thinks fit. Therefore, so far as the pleading is concerned I do not consider that the way in which Cleveland Bridge pleaded their claim or sought relief in the Application Notice precludes the court from being able to give summary judgment for a sum less than the sum of £403,344.43 set out in the Particulars of Claim.
- As another preliminary matter, Mr Baatz seeks permission to put in the Second Witness Statement of Mr Jackson. It is evident that Mr Walmsley's further Witness Statement was not merely responsive to the Joint Venture's witness statements but sought to pursue a different figure from that set out in the Particulars of Claim or in the original Witness Statement of Mr Walmsley. In those circumstances it seems to me right that I should take into account what is said in Mr Jackson's Second Witness Statement challenging the evidence put forward by Mr Walmsley in his further Witness Statement. I also accept that the evidence of Mr Jackson in relation to recent correspondence passing between the parties should be admitted. There is then the further aspect dealt with in the Second Witness Statement which relates to various new contentions that, even within the compressor house and the LER building/substation 16, there are elements of steelwork which are supporting plant. This contention came so late in the day that Cleveland Bridge have been unable to respond to it. I propose to consider the question of how I should treat this evidence when I come to consider its relevance in the issues below.
The Substantive Issues
- Logically there are three steps in this case in determining whether the Adjudicator had jurisdiction to determine the claim referred to her. First it has to be determined whether under section 105(1) the relevant work carried out by Cleveland Bridge comes within the definition of construction operations. The second related question is whether any part of the work and, if so, what part comes within the provisions of section 105(2) which are not construction operations within the meaning of the Act.
- Thirdly, to the extent that there are construction operations and works which are not construction operations, the question arises as to the effect of this on the jurisdiction of the Adjudicator and on the enforceability of her Decision. In this respect section 104(5) is relevant. It provides as follows: "Where an agreement relates to construction operations, and other matters, this Part applies to it only so far as it relates to construction operations."
Construction Operations within Section 105(1)
- Mr Williamson submits that the Services under the Subcontract consisted of four elements: Project preliminaries (Bill No. 1); supply, fabrication, delivery and erection of steel work in the form of piperacks and pipebridges (Bills No. 2 to 6); the construction of the LER building and the compressor house, including cladding (Bills No. 7 and 8) and the painting of all steel work (Bill Nos. 2 to 8). Mr Williamson submits that all the work comes within the definition of construction operations in section 105(1) and that it is only the erection works for the steel work in the form of piperacks and pipebridges which might potentially come within section 105(2). He submits that, based on Mr Walmsley's latest evidence, the erection work for the steel work to the piperacks and pipebridges amounts for only 18.2% of the final account value. In such circumstances he submits that, in any event, the element of work which might come within section 105(2) is so small that as a matter of fact and degree that work would not be excluded by section 105(2) and the whole of the work to be carried out under the Subcontract would be treated as construction operations within section 105(1) of the Act.
- Mr Baatz submits that significant and substantial work in relation to the piperacks and pipebridges forms part of the Services under the Subcontract and that this work comes within the exception in section 105(2)(c)(ii). He also refers to the evidence in Mr Jackson's Second Witness Statement, which I have considered above, concerning the crane rail in the compressor house and the suspended steel flooring in the LER building/substation 16. He referred me to the description of the work in the scope of work document, the evidence of Jaap Blokland and the photograph showing the relationship of the piperacks and pipebridge to the buildings and the LNG storage tanks.
- As I said in North Midlands v AE &E Lentjes  BLR 574 at  and  there will obviously be certain aspects of every contract where at the boundaries work may either be argued to be construction operations or be argued to be within the exclusion provisions. His Honour Judge Bowsher QC referred to this aspect in ABB Zantingh Limited v Zedal Building Services Limited  BLR 66 at : "one cannot make sense of the Act by a minute analysis of the work to see what was plant and what was not. One must look at the nature of the work broadly." What is therefore required is for the relevant works to be looked at broadly to see whether or not they come within the exception in section 105(2). In addition the question must be a matter of fact and degree where inevitably there will be grey areas. As I said in North Midlands v Lentjes at : "I do not consider that it was the intention of the Act for there to be a minute analysis to find an item which arguably was a construction operation or was within the exclusion, so as to defeat the purpose of giving or excluding the rights of the Act to what on a straightforward and commonsense analysis is a contract for construction operations within section 105(1) or excluded operations under section 105(2)."
- Applying those principles to the current case I accept the submissions by Mr Baatz that the steelwork to the piperacks and the pipebridges is significant and substantial work which pursuant to section 105(2)(c)(ii) would come within the description of: "steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is … (ii) the production, transmission, processing or bulk storage…. of… gas… ." Whether, as Mr Williamson contends, the excluded operations are limited to the erection of the steelwork or whether, as Mr Baatz contends, the work incorporates all the work necessary for that steelwork, this is not a case where those operations, when looked at broadly, can be said as a matter of fact and degree not to fall within excluded operations under section 105(2). Rather, in relation to the piperacks and pipebridges, when looked at on a straightforward and commonsense analysis, the relevant operations relating to that steelwork come within the excluded operations under section 105(2).
- In relation to the crane rail in the compressor house and the suspended flooring in the LER building/substation 16, this was only dealt with as a late afterthought in Mr Jackson's Second Witness Statement. It has not been developed by reference to the drawings or specifications or any other material. It is late evidence which Cleveland Bridge have not had the opportunity to deal with. On that basis I am reluctant to make any decision on whether such items are excluded items.
- However, I can say that taking the evidence set out in Mr Jackson's Second Witness Statement at face value, it is clear that he identifies what are essentially grey areas. On the basis of that evidence and on the basis that those are the only items of work in those buildings which can be argued to be excluded operations under section 105(2), I do not consider that, as a matter of fact and degree on a straightforward and commonsense analysis of the work to those buildings, those items of work would be within the description of operations excluded under section 105(2) but would be included in the construction operations which otherwise consist of the construction of those buildings.
- Accordingly I reject Cleveland Bridge's submission that the works in this case can all be classified as construction operations under section 105(1). There are clearly significant and substantial works within section 105(2), even on the basis that Mr Williamson is correct and the only relevant work is that of erection of the steelwork which Mr Walmsley has assessed as amounting to some 18% of the value of the work. It is therefore necessary to turn to the second question and consider the precise scope of the work to the piperacks and pipebridges which is excluded under the provisions of section 105(2)(c)(ii).
Excluded operations under section 105(2)
- It is common ground that the work carried out under the Subcontract was carried out on a site where the primary activity was the production, transmission, processing or bulk storage of gas. The issue between the parties is whether the element of the work within the excluded operations is all the work to the "steelwork for the purposes of supporting or providing access to plant or machinery" or whether it is limited to the "erection" element of that steelwork.
- Mr Williamson submits that, consistent with my decision in North Midland v Lentjes, the wording of section 105(2)(c) should be given a narrow meaning. He refers to the wording of the subsection which provides:"The following operations are not construction operations within the meaning of this Part…(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...".
- He contends that the word "erection" should be given a narrow meaning for the following reasons. First he points out that in section 105(1) words such as "construction" and "installation" combined with section 105(1)(e) are used where it is intended to incorporate a broader category of work. Secondly he refers to section 105(2)(d) which expressly refers to and excludes "manufacture or delivery to the site of … (ii) materials, plant or machinery… except under a contract which also provides for their installation". He submits that if section 105(2)(c) had been intended to include in the description of "erection" such matters as the manufacture or delivery to site of the steelwork then it is clear that that could have been done and the distinction between "manufacture or delivery" and "installation" shows that installation does not include manufacture or delivery.
- Mr Baatz submits that a commonsense construction of "erection of steelwork" includes the supply of that steelwork because steelwork cannot be erected unless it is supplied. He refers to section 105(2)(d) and says that, on Cleveland Bridge's case, steelwork which was supplied for the purpose of supporting plant or machinery at a power station would be excluded if it were only supplied, because of the provisions of section 105(2)(d) but that the supply of steelwork would be included as construction operations if the contract for supply also provided for installation because of the proviso to section 105(2)(d). He submits that if the same argument were applied to the whole of section 105(2)(c) then the phrase "assembly, installation or demolition of plant" would be construed so that the supply of components for the plant would be construction operations under section 105(1) but the assembly of the components would be excluded. He points to the fact that in many cases the components supplied are the high value items and the assembly costs are often of a low value. He submits that a construction of section 105(2)(c) which limited the operation in this way would be absurd.
- Mr Baatz also refers to the provision of section 105(2)(a) and 105(2)(b). In the first subsection construction operations are excluded if they are "drilling for, or extraction of, oil or natural gas". He submits that if Cleveland Bridge's construction were to be correct only the actual site drilling would be excluded so that the supply and installation of the drilling rig would be included within construction operations. A similar position would, on this basis arise in respect of the "extraction of materials" in section 105(2)(b). He submits that this cannot have been intended.
- Mr Baatz also refers to the passages from the Parliamentary debates cited at paragraphs 58 to 61 of North Midland v Lentjes and also to the following additional passages:
(1) On 7 May 1996, in response to a question as to whether the intention was to exclude process engineering, during the committee stage in the House of Commons, the Minister for Construction, Planning and Energy Efficiency, Mr Robert Jones said: "…the process engineering industry made it very clear to me - the record speaks for itself - that it has not had the same dispute and payment problems as the construction industry as a whole. That is why we decided that that industry should be excluded. In reaching that conclusion, we do not seek to exclude ordinary construction processes - there is sometimes a little of both on site. We are trying to address that consideration without embracing an industry that does not have any real problems."
(2) Also on 7 May 1996 Mr Jones said that the Government were clarifying the exclusion of process engineering and continued "Examples of that are oil refining and chemicals. There has been much unnecessary confusion. We want to make it absolutely clear that only the plant and machinery and its associated steel work are excluded from the Bill and not wider construction operations on process engineering sites."
- Mr Baatz submits that on the basis of those extracts from the Parliamentary material the criterion for exclusion from the Act is the character of what is being installed, that is steelwork, and not whether it is the supply or installation element of that work. He refers to North Midland v Lentjes at  where the effect of the Parliamentary material is summarised as follows: "The passages show that the intention was to exclude steelwork which formed an integral part of the machinery and which was directly and necessarily connected to the plant and that other steelwork would come within construction operations to which the bill applied." He also refers to ABB v Zedal at  and to Construction Adjudication by Sir Peter Coulson at paragraph 2.23 to 2.36. He submits that these passages provide no support for the submission by Cleveland Bridge.
- In approaching the proper construction of the statute, I accept that, as Mr Baatz submits, I should approach the construction of this legislation on the basis of the objective meaning being the "meaning which the instrument would convey to a reasonable person having all the background knowledge that would reasonably be available to the audience to whom the instrument is addressed": see Lord Hoffmann in Attorney General of Belize v Belize Telecom Limited  UKPC 10 at , referring to Investors' Compensation Scheme v West Bromwich Building Society  1 WLR 896 at 912 to 913.
- As I observed in North Midland v Lentjes, the operations described in section 105(2) can generally be brought within the description of operations in section 105(1) so that the intention was to exclude a specific operation from the more general description of operations. The provisions of sections 105(2)(a) to (c) are aimed at excluding certain particular operations either generally or in specific industries. For those industries, instead of saying that all operations which would otherwise be construction operations are excluded, the reference is to particular operations on sites where the primary activity is one of the industries. The exclusion is therefore limited to those particular operations. The definition in section 105(2) has not been broadened by the use of such words as "operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations....", as has been done in section 105(1)(e). In addition for the reasons set out in North Midland v Lentjes, the phrase "assembly, installation… of plant or machinery" in section 105(2)(c) should be construed narrowly by applying it only in cases where the work was assembly or installation of plant or machinery. All of those observations would suggest that the word "erection" in section 105(2)(c) should be given a narrow meaning.
- The relevant Services under the Subcontract in this case, as described in the Scope of Work document set out above included fabrication drawings including connection design; the purchase of structural steelwork including connection plates and all consumables; painting; delivery of fabricated steelwork to site and off loading and the erection of fabricated steelwork.
- It is evident that this work would all form construction operations within section 105(1) as being construction of buildings or structures (section 105 (1)(a)), construction of any works including industrial plant (section 105(1)(b)), "operations which form an integral part of or are preparatory to or are for rendering complete such operations as are previously described" (section 105(1)(e)) and "painting the internal or external surfaces of any building or structure" (section 105(1)(f)).
- By comparison the reference in section 105(2)(c) to "assembly, installation… of plant or machinery" and to "erection … of steelwork for the purposes of supporting or providing access to plant or machinery" are much more limited. It is difficult on a natural meaning "erection" to include fabrication drawings and connection design, fabrication of steelwork off-site or the delivery of fabricated steelwork to site. Erection of steelwork essentially covers the operations of lifting the steelwork into position and connecting it together.
- I consider that the wording of section 105(2)(c) supports the limited definition of operations "erection of steelwork" in section 105(2)(c). Is there anything in the other provisions of section 105 which shows that despite that being the ordinary meaning a particular meaning can be derived when the words are read in context? The word "erection" is not used elsewhere except in section 105(1)(e) where there is a reference to "erection… of scaffolding". I do not consider that this indicates "erection" itself includes all preparatory works because this is part of a non-exclusive list of operations which are preparatory to other construction operations.
- As I set out in North Midland v Lentjes a narrow construction of the exclusions in section 105(2) is appropriate. There is no general enlargement of the definitions as there is in section 105(1)(e), the intention was not to exclude all construction operations on the particular types of sites and the exclusion relates to specific operations on the particular sites.
- I do not find much assistance from the provisions of sections 105(2)(a) or (b). The definition of "drilling for, or extraction of, oil or natural gas" covers drilling and extraction operations. The assembly and installation of drilling machinery on a site where the primary activity is the production of oil or gas would be covered by section 105(2)(c). A contract which was just for the manufacture and delivery to site of drilling equipment would be excluded by section 105(2)(d)(i) unless the contract also provided for the installation of the equipment. If it did then the "installation... of plant and machinery" would be an excluded operation under section 105(2)(c) but the manufacture or delivery to site of the equipment would not. I see no reason why the word "drilling" needs inherently to include the manufacture or delivery to site of drilling equipment or its assembly and installation on site. Those matters have been dealt with in a particular way under section 105(2)(c) and (d).
- Equally in relation to section 105(2)(b) "extraction (whether by underground or surface working) of minerals; tunnelling or boring, or construction of underground works, for this purpose" would cover the tunnelling, boring, construction of underground works and extraction operations. Otherwise, depending on the primary activity at the site, assembly any installation of the machinery might also be excluded under section 105(2)(c) and, depending on whether installation was included, manufacture or delivery to site of equipment to extract minerals might also be excluded under section 105(2)(d). I see no reason why operations for the extraction of minerals should be taken to include manufacture and delivery to site of equipment or machinery and assembly or installation of that plant or machinery on site when those other subsections deal with those matters.
- I accept the submission by Mr Baatz that often the value of pieces of plant will form the major part of supply and installation contracts whilst the value of the installation part will be much smaller. However the general position under section 105(2)(d) is that the operations of the manufacture and delivery to site of equipment, plant or machinery will be excluded but that when installation is included it will not be excluded from the provisions of the Act. In such circumstances it is clear that there is a distinction between "manufacture or delivery to site" and "installation" I find it difficult therefore to accept that the words "assembly, installation… of plant or machinery" in section 105(2)(c) would include "manufacture or delivery to site" when those words are not used in that way in section 105(2)(d).
- It follows that if "assembly, installation…..plant or machinery" in section 105(2)(c) does not include "manufacture or delivery to site of ….plant or machinery", there is no reason why "erection… of steelwork" should include "manufacture or delivery to site of….. steelwork".
- So far as the statutory material is concerned both parties relied on passages from Hansard at the relevant Parliamentary stages of the Bill. The ability of the Court to take account of such material was summarised by Lord Browne-Wilkinson in Pepper v Hart  AC 593 at 634 D to E. There he said:
"In my judgment, subject to the questions of the privileges of the House of Commons, reference to Parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to an absurdity. Even in such cases references in court to Parliamentary material should only be permitted where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words. In the case of statements made in Parliament, as at present advised I cannot for see that any statement other than the statement of the Minister or other promoter of the Bill is likely to meet these criteria."
- In the present case I am concerned with the question of whether the word "erection" only covers operations in lifting and connecting the steelwork after it has been delivered to site or whether it also includes the preliminary stages starting with the fabrication drawings, leading to the steelwork fabrication and then the delivery of the steelwork to site. On my reading of the statute the wording is unambiguous. I am not persuaded that there is any absurdity in limiting the excluded operations in section 105(2)(c) essentially to operations which are carried out on-site at the process engineering site.
- Therefore, despite the fact that both parties referred to it, I do not consider that the Pepper v Hart criteria apply so as to make the Parliamentary material admissible. In that respect this particular issue, although arising also from section 105(2)(c) is different from the issue with which I was faced in North Midland v Lentjes. In that case the question was whether, in particular, section 105(2) was apt to cover enabling work and civil works which also formed part of the work to be carried out at the power station site. In this case it is evident that the piperacks and pipebridges come within the definition of "steelwork for the purpose of supporting or providing access to plant or machinery" and the issue between the parties is whether or not erection of steelwork covers work before and well as work on site.
- In any event, if contrary to my view on Pepper v Hart the Parliamentary material were to be admissible, then the following passages are potentially relevant:
(1) On 28 March 1996 Earl Ferrers said that process engineering was totally different from construction and that process engineering "clearly involves a great deal of heavy plant and machinery, with complicated steelwork to hold it all in place. It is only the construction of such plant, machinery and steelwork which the Bill excludes."
(2) On 29 April 1996 Lord Lucas said "we believe it is possible to distinguish between steelwork which is directly and necessarily connected to plant and machinery - steelwork which forms, if you like, an integral part of the machinery - and other steelwork on the site. We intend to bring forward an amendment which places integral steelwork squarely within the process engineering exclusion…". He then added "we wish to exclude work only on plant, machinery and such steelwork as is necessarily connected to plant and machinery."
(3) On 13 June 1996 Mr Robert Jones said "We want to exclude only work on the machinery and plant that is highly specific to the process industry, together with work on steelwork that is so intimately associated with that plant and machinery that it could not possibly be reasonably considered apart. To that end, we have made it clear that the steelwork mentioned in the exclusion is only that which relates to support and access. We have also removed the word "construction" in association with plant and machinery because we found that it caused much confusion. Instead, we have decided to use the word "assembly"."
- In my judgment those passages show that, as set out in North Midland v Lentjes at , the intention was to exclude steelwork which formed an integral part of the machinery and which was directly and necessarily connected to plant whereas other steelwork would come within construction operations to which the Bill applied. That casts no light upon the meaning "erection" in section 105(2)(c). The passages also indicate that the intention was to exclude "construction of such plant, machinery and steelwork" on the basis that the process engineering industry involved "a great deal of heavy plant and machinery, with complicated steelwork to hold it all in place": see the passage from the speech of Earl Ferrers on 28 March 1996.
- The speech of Mr Robert Jones on 13 June 1996 shows that the word "construction" which appeared before "plant and machinery" was amended to use the word "assembly". As Mr Jones also said on 7 May 1996 "we want to make it absolutely clear that only the plant and machinery and its associated steelwork are excluded from the Bill and not wider construction operations on process engineering sites". That reference to "on process engineering sites" is reflected in paragraph 105(2)(c) where the operations excluded are only those "on a site where the primary activity is …". In my judgment there is nothing within the Parliamentary material to suggest that the use of the word "erection" includes operations prior to rather than during the erection of the steelwork on site. The word "construction" being changed to "assembly" indicates that the meaning was limited to that work. In the context of steelwork, "construction" would similarly be "erection" not the preliminary steps as referred to in section 105(1)(e).
- I have therefore come to the conclusion that in relation to the Services under the Subcontract in this case, the only operation which is excluded from being a construction operation by section 105(2)(c)(ii) is the erection of the steel work for the piperacks and pipebridges and not the prior activities of fabrication drawings, off-site fabrication or delivery to site of the fabricated steelwork. It follows that I consider that Cleveland Bridge is correct in its approach to the division between construction operations and excluded operations in relation to the Services under the Subcontract. I now turn to consider how this division affects the decision of the Adjudicator.
Cases where an agreement relates both to construction operations and excluded operations
- Section 104(5) of the Act states as follows:
"Where an agreement relates to construction operations, and other matters, this Part applies to it only so far as it relates to construction operations."
- It follows that the statute contemplated a position where one agreement related to both construction operations under section 105(1) and operations which were excluded by section 105(2).
- It also follows that the right to refer disputes to adjudication under section 108, the entitlement to stage payments under section 109, the provisions as to dates of payment under section 110, the provisions as to notice of intention to withhold payment under section 111, the right to suspend performance for non payment under Section 112 and the prohibition of conditional payment provisions under section 113 will only apply to the Subcontract in this case, insofar as the Subcontract relates to construction operations.
- In North Midland v Lentjes I said this at  and :
"50. It is also necessary to consider what the practical effect is of construing section 105(2) narrowly or more broadly. Take the present case. On any view the main contract with AEE includes a significant amount of work which can plainly be described as "assembly installation... of plant or machinery". A narrow construction of that phrase will mean that the other parts of the work consisting of civil works would not fall within the exclusion. That this might happen is envisaged by section 104(5) of the Act.
51. In such circumstances unless any dispute is limited to civil works, rather than being a more general dispute as to payment, delay or disruption of the works overall, it will be impossible to apply for instance, the adjudication provisions of the Act to only part of the dispute."
- Mr Williamson contends either that that last passage in  is not correct or that it should be read as being consistent with Section 104(5) and not preventing the adjudication provisions from applying to the agreement in so far as it relates to construction operations.
- Mr Baatz submits that the final sentence quoted above correctly sets out the position so that it is impossible to adjudicate matters which arise both from a construction contract and from a contract for excluded operations and, it follows, that the adjudicator's decision in this case cannot be enforced.
- I was referred to a number of other decisions which dealt with the position envisaged by section 104(5).
- In Palmers Limited v ABB Power Construction Limited  BLR 426 His Honour Judge Anthony Thornton QC referred to a "blue pencil exercise" in the following terms at :
"This leaves the question of whether the whole of ABB's activities are construction operations or whether at least some of them are not, thereby requiring the statutory blue pencil exercise to be performed with regard to Palmers' work that is provided for by section 104(5) of the Act."
- In the event he found that the whole of ABB's activities fell within the description of construction operations and did not need to carry out the blue pencil exercise.
- In Homer Burgess Limited v Chirex (Annan) Limited  BLR 124 at 133 Lord MacFadyen said this:
"Since a contract might in part relate to construction operations and in part works which were not construction operations, it was necessary for the legislation to regulate the application of adjudication procedure to such mixed contracts. The solution adopted was to provide (in section 104(5)) that the adjudication provisions would apply to such a contract only in so far as it related to construction operations. It therefore becomes necessary to consider on an item-by-item basis whether a contract relates to construction operations and is therefore to that extent a construction contract in respect of which the right to refer to adjudication arises."
- Lord MacFadyen found that the installation of pipework was an operation which fell within the exception in section 105(2)(c)(ii) and was accordingly not a construction operation. There were therefore some disputes upon which the adjudicator did not have power to make a decision.
- In a further report of that case, in Homer Burgess Limited v Chirex (Annan) Limited (No 2), referred to in RSL (South West) Limited v Stansell Limited at , Lord MacFadyen said this, in terms of Scottish procedure:
" The alternative to my granting reduction was for me to hear submissions identifying that part of the adjudicator's decision that was within his jurisdiction, and enforce it to that extent only, by granting decree for payment in the pursuer's favour restricted to the sum reflecting the intra vires part of the decision.
In my view either of the two suggested courses would be competent. It would, in my view, be open to me to regard the adjudicator's error as to the scope of his jurisdiction as undermining the validity of his decision as a whole, despite there being parts of it that might have been made to the same effect if he had not erred as to his jurisdiction. It would therefore be open to me to reduce the whole of the adjudicator's decision. Alternatively, it would in my view be open to me to approach the matter from the pursuers' rather than the defenders' point of view, ask myself to what extent the decision was intra vires, and grant decree for payment enforcing that part of the decision that was valid and could properly be given the statutory temporary effect."
- In Gibson Lea Interiors Limited v Macro Self Service Limited  BLR 407 at 414 to 415 His Honour Judge Seymour QC held that the relevant works were not construction operations and therefore the adjudication provisions did not apply. However at  he accepted an alternative submission in these terms at :
"Mr Nissen submitted that, even if some of the works undertaken by Gibson Lea could be regarded as "construction operations" it was plain that other items were not within that description so that, at best, the Act only applied to some of the items supplied under the contracts with which I am concerned."
- In the commentary in the Building Law reports the editors say this: "A question which was raised in the proceedings which the judge did not have to answer in the circumstances, related to what would have been the case if part of the Contract work could be classified as "construction operations" and part not." They then cite section 104(5) and say this:
"This would seem to suggest that one can adjudicate in respect to that element of a construction-related contract which addresses "construction operations". Accordingly, an adjudicator would have to apportion appropriately those operations and activities which were "construction operations" and those which were not. This is likely to be a difficult task, because if the adjudicator adopts a demonstrably wrong apportionment, it could be properly argued that he/she had no jurisdiction to adjudicate upon that element which demonstrably, was not a "construction operation"."
- In Fence Gate Limited v James R Knowles Limited (2002) 84 Con LR 206, His Honour Judge Gilliland QC held that the relevant services were not construction operations. In doing so he referred to section 104(5) and said this: "It seem to me that section 104(5) is intended to make clear that where a contract relates both to construction operations and to other activities, the contract is to be treated as severable between those parts which relate to construction operations and those parts which relate to other activities and the Part II and the provisions for Adjudication are to apply to the contract only in so far as the contract relates to construction operations."
- In Construction Adjudication at paragraph 2.20 Sir Peter Coulson refers to Fence Gate and Judge Gilliland's interpretation of section 104(5) and comments: "this seems a sensible and practicable interpretation of the Act and would appear to be the only way in which real effect can be given to section 104(5)."
- This concept of severance was considered in relation to an adjudicator's decision being severable where there was a breach of the rules of natural justice in respect of part of the decision in Cantillon Limited v Urvasco Limited  BLR 250. In that case, Akenhead J found that, in the event, the alleged breaches of natural justice did not prevent the adjudicator's decision being enforced. However he also dealt with the question of what he would have done had he found that there had been a breach of natural justice affecting part of the decision. He referred to a number of decisions and to an article by Peter Sheridan and Dominic Helps in Construction Law Journal  20 Const LJ 71 on "Severability of Adjudicator's Decisions". Of particular interest to the aspect of the case I have to decide are the following decisions.
- In Griffin v Midas Homes Ltd (2001) 78 Con LR 152 His Honour Judge Humphrey LLoyd QC held that where a claim for damages for loss of profit and sums due under four invoices was referred to adjudication together with questions arising out of the determination of the contract, the former claims for damages and sums due under two invoices were not claims within the jurisdiction of the adjudicator because there was "no dispute". He held at 159 that: "the defendant has realistic prospects of success in contending that the adjudicator had no authority to decide anything other than the question of determination and liability for the two earlier invoices". He therefore continued: "Accordingly I have come to the conclusion that the decision is enforceable only as to the invoices of 22 February 2000 for £11,300, and £617, if it possible to sever those amounts, which I believe it is, from the Adjudicator's decision. Put another way the defendant does not have realistic prospects of success in resisting payment for the sum of those invoices."
- In relation to the adjudicator's fees he said this at 160: "In this case I have no means of determining how much of the adjudicator's fees is referable to the part of the decision for which the claimant has obtained judgment. On the other hand it is clear that the adjudicator must have incurred the majority of his fees in investigating and deciding the issues on which I have decided that he had jurisdiction. In my judgment it follows from my earlier decision that the defendant does not have realistic prospects of success in relation to that part. However, equally, the claimants cannot therefore recover the whole of the amount claimed and their application for judgment in this respect fails."
- In KNS Industrial Services (Birmingham) Limited v Sindall Limited (2001) 75 Con LR 71 the claimant sought summary judgment to enforce an adjudicator's decision but in doing so contended that the adjudicator did not have jurisdiction to reduce the figure which he had awarded and that, on the basis of what he did decide, they were entitled to payment of a larger sum. In particular the claimant contended that the adjudicator had no jurisdiction to deduct a sum of some £107,000 for non-compliant work as no notice to withhold such a sum had ever been given by the defendant. At  His Honour Judge Humphrey LLoyd QC said this: "if the sums in question did require an effective notice and if the adjudicator could not have decided that Sindall could withhold or deduct the amounts in question then he may have made an error. That is immaterial since the adjudicator's decision has to be enforced as it stands regardless of such an error so on that basis KNS's application has to be dismissed…." He then dealt with a submission that there could be no severance of what the adjudicator had decided so as to separate the good from the bad.
- He observed at : "There may be instances where an adjudicator's jurisdiction is in question and the decision can be severed so that the authorised can be saved and the unauthorised set aside. This is not such a case. There was only one dispute even though it embraced a number of claims or issues. KNS's present case is based on severing parts of the adjudicator's apparent conclusions from others. It is not entitled to do so. Adjudicator's decision are intended to be provisional and in the nature of best shots on limited material. They are not to be used as a launching pad for satellite litigation designed to obtain what is to be attained by other proceedings, namely the litigation or arbitration that must ensue if the parties cannot resolve their differences with the benefit of the adjudicator's opinion. KNS must therefore accept the whole of this decision and if it does not like it seek a remedy elsewhere (in the absence of successful negotiation or some other form of ADR). Furthermore I do not consider that it is right to try to dismantle and reconstruct this decision in the way suggested by KNS for that intrudes on the adjudicator's area of decision-making. Mr Mason understandably and properly said that he had not set out all his reasons. Had he done so he might well have explained why a certain course was not in accordance with his thinking. In addition the parties have to accept the decision "warts and all"; they cannot come to the Court to have a decision revised to excise what was unwanted and to replace it with what is or was thought to be right, unless the court is the ultimate tribunal."
- In Farebrother Building Services Limited v Frogmore Investments Limited  CILL 1589 His Honour Judge Gilliland QC adopted the approach of His Honour Judge LLoyd in KNS Industrial Services. He said this at the conclusion of his judgment: "I take the view that it is not right for the Court to try and dismantle or reconstruct a decision. It seems to me that a party cannot pick and choose amongst the decisions given by an adjudicator, assert or characterise part as unjustified and then allege that the part objected to has been made without jurisdiction. … Either the Adjudicator has jurisdiction or he does not. If he has jurisdiction it seems to me that his decision is binding even if he was wrong to reach the conclusion he did."
- In Shimizu Europe Limited v Automajor Limited  BLR 113 His Honour Judge Seymour QC had to deal with a case where it was alleged that certain errors had been made by the adjudicator and for that reason he lacked jurisdiction. That argument was rejected but Judge Seymour QC dealt with an argument that the decision may have separate and severable elements within it. He said this at : "In my judgment it cannot be right that it is open to a party to an adjudication simultaneously to approbate and to reprobate a decision of the adjudicator. Assuming that good grounds exist on which a decision may be subject to objection, either the whole of the relevant decision must be adopted or the whole of it must be contested. It may, of course, be important correctly to characterise what constitutes a decision of the adjudicator. It is likely that, to be relevant for the purposes now under consideration, a decision will be the answer to a question referred to the adjudicator rather than a conclusion reached on the way to providing such an answer. For example, if the adjudicator has had referred to him/her for decision the question how much money is due to the contractor and also the question to what extension of time for completion of construction works the contractor is entitled, it is likely that it will be open to a party to the adjudication to accept a determination in relation to the sum due while disputing, if otherwise there are good grounds for so doing, the assessment of the extension of time, or vice versa. In such a case two separate questions would have been referred to the adjudicator. However that situation is to be distinguished from the case in which in order to answer the question to what sum a party is entitled it is necessary to consider a number of elements of claim, or the case in which in order to reach a conclusion as to what extension of time is appropriate a number of grounds of possible entitlement to extension of time need to be considered. In each of these later cases the result of the evaluation of the various elements will be a single cash sum or a single period of extension of time. It seems to me that the option available to a party who otherwise has good grounds for objecting to a decision that a particular sum is payable is to accept it in its entirety or not at all. It does not have the option of declining to accept the decision in its entirety, but to accept the reasoning which led to particular items being included in the overall total. Similarly with an evaluation of a period of extension of time. The overall period of extension of time must be accepted or none."
- In RSL (South West) Limited v Stansell Limited  EWHC 1390 (TCC) His Honour Judge Seymour QC dealt with an application to enforce an adjudicator's decision in which it was contended that there had been breaches of natural justice in relation to the way in which the adjudicator had dealt with evidence on programming issues on which he had, with the agreement of the parties, sought assistance from a colleague. Judge Seymour found that there had been a breach of the rules of natural justice and that the decision should not be enforced. The claimant made an alternative claim for an interim payment of a lesser sum and contended that other elements which the adjudicator had determined in favour of RSL could be awarded on the basis of the decision.
- In dealing with that submission Judge Seymour QC said this at :
"In my judgment the alternative application for an interim payment made in this action, which in substance is a type of application frequently made as an alternative on behalf of beneficiaries of the decision of an adjudicator who are concerned as to the vulnerability of the decision, betrays a misconception as to the juridical nature of the decision of an adjudicator. The obligation on the part of those involved in an adjudication process to comply with or give effect to the decision is purely contractual. The decision of an adjudicator is not like an award of an arbitrator or the judgment of a court and directly enforceable. It is enforceable at all simply because by their contract the parties have agreed to comply with it or to give effect to it.
It is obviously conceptually possible for the parties to an adjudication procedure to agree to be bound by, and to give effect to, not only the decision on the dispute referred, but also any decision on a constituent element in the eventual overall total, or any process of reasoning adopted in the course of reaching a conclusion on the overall dispute. Whether that happened in any particular case will depend on the proper construction of the relevant contract, but it has not happened in the present case. Thus once the decision as to the total amount to be paid has been successfully attacked, it cannot be said that any other amount has been determined by [the adjudicator] to be due in a way which is binding upon Stansell. In those circumstances the necessary foundation for giving judgment for some sum less than £93,204.50 or for making of an Order for an interim payment simply does not exist."
- In their article in Construction Law Journal Peter Sheridan and Dominic Helps refer to the "single dispute" doctrine, which is where there is a single dispute, a party may not seek to excise part of the decision on that single dispute leaving a valid balance. They say that this is so even if there is, for example, a perfectly good jurisdictional objection in respect of part only of the decision. They say that a contrary approach is also arguable and say at 80 "Where a party has a good objection to part of an adjudicator's decision, it would be just and would accord with common sense if that part of the decision could be excised." They suggest that the juridical basis could be dealt with by treating the obligation to comply with an adjudicator's decision as an obligation to comply with such part of the decision as is valid, by the implication of terms or as a matter of construction of the express terms. It is also something that could be addressed in express terms by parties expecting to seek valid and effective adjudicator's decisions. They accept though that, from the decisions that I have cited above, the approach of the courts has been that in respect of a single dispute, a party may accept it in whole or object to it in whole but may not object to a part of it only.
- In Cantillon v Urvasco Akenhead J cited that article and the conclusions which the authors had drawn from the decided cases. In particular the authors said this:
"(1) Where two or more disputes are referred to an adjudicator, a valid objection to one decision, on jurisdictional or natural justice grounds, will not necessarily affect the validity and enforceability of the adjudicator's decision on the other dispute or disputes.
(2)Where a single dispute is referred to one adjudicator, it may not be severed so as to excise a part of the decision to which valid objection is taken, on jurisdictional or natural justice grounds, leaving the balance valid and enforceable. A decision on the single dispute is either valid and enforceable or invalid and not enforceable."
- At  of Cantillon v Urvasco Akenhead J concluded, albeit obiter, as follows in relation to severability:
"(a) The first step must be to ascertain what dispute or disputes has or have been referred to adjudication. One needs to see whether in fact or in effect there is in substance only one dispute or two and what any such dispute comprises.
(c) If the decision properly addresses more than one dispute or difference, a successful jurisdictional challenge on that part of the decision which deals with one such dispute or difference will not undermine the validity and enforceability of that part of the decision which deal with the other(s).
(e) There is a proviso to (c) ... above which is that, if the decision as drafted is simply not severable in practice, for instance on the wording, or if the breach of the rules of natural justice is so severe or all pervading that the remainder of the decision is tainted, the decision will not be enforced.
(f) In all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the court."
- After that lengthy introduction how does the principle of severability apply in the context of section 104(5)?
Severability and Section 104(5)
- It is clear that the legislation could have dealt with agreements which related both to construction operations and to "other maters" being operations which were not construction operations, in a number of ways. It would have been possible to treat them either as being agreements for construction operations or as not being agreements for construction operations. It would also have been possible for that question to depend on the relative values of the construction operations and of the "other matters". It is clear that Parliament decided that, just because an agreement related, in part, to operations which were not construction operations, this did not prevent the implied terms under section 114(4) of the Act from applying to the construction operations. It follows that a party can refer a dispute arising under the agreement, insofar as it relates to construction operations, to adjudication under a procedure complying with section 108 of the Act. In this case the contract contained no provision for adjudication and it is common ground that any adjudication would have to be carried out in accordance with the Scheme for Construction Contracts. ("the Scheme").
- In applying the adjudication provisions to part only of the agreement, there are various issues which arise. First, there is the question of the definition of "dispute".
One or two disputes?
- In the current case in the Notice of Adjudication the failure to pay £317,500 plus VAT was noted and the decision sought was that the Joint Venture should pay Cleveland Bridge "the sum of £317,500 plus VAT or such other sum as the Adjudicator considers is the outstanding amount due under the Sub-Contract and the agreed final account." In the Notice of Referral dated 18 January 2010 Cleveland Bridge asserted at paragraphs 3.6 to 3.8 that the whole of the Subcontract was one for construction operations alternatively that the only part which was not construction operations was the supply and erection of structural steel work in respect of piperacks and pipebridges.
- Cleveland Bridge stated that the Joint Venture had agreed Cleveland Bridge's final account under the Subcontract by a letter dated 12 March 2009 which meant that £317,500 plus VAT was due and payable to Cleveland Bridge. They said that the dispute then arose between Cleveland Bridge and the Joint Venture as to the liability for this outstanding amount. The basis of the dispute was that the Joint Venture partners had entered into a settlement agreement between themselves which affected the liability of the Joint Venture partners to parties connected to the individual Joint Venture partners, so that no further payment would be made to Cleveland Bridge. At paragraph 8.1.1 of the Notice of Referral Cleveland Bridge stated that the dispute which had been referred was essentially "a dispute as to who is liable to pay the Outstanding Amount under the Final Account".
- Cleveland Bridge contended that, even if part of the work was not construction operations, because of the nature of the dispute, this meant that in practice the adjudicator could find that the whole of the outstanding amount was due and payable to Cleveland Bridge from the Joint Venture. In the alternative, insofar as the Adjudicator only had jurisdiction to award an amount to Cleveland Bridge in relation to the proportion of the Final Account which related to construction operations under the Act, Cleveland Bridge requested the Adjudicator to set out her decision on the basis of two alternatives: first, on the basis that she had jurisdiction to award the whole amount and secondly, on the basis that she was only entitled to consider the proportion of the outstanding amount which related to construction operations under the Act. On the second alternative Cleveland Bridge relied on the evidence of Mr Walmsley in his original witness statement, to which I have referred above. They concluded by saying: "This will allow the Adjudicator's decision to be severable, should this prove to be necessary upon enforcement, in the event that the Adjudicator finds in favour of the referring party."
- In the event, at paragraph 22 of her decision the Adjudicator said that she was proceeding on the basis that she did have jurisdiction. She then considered the various arguments arising in relation to the contention that Cleveland Bridge were entitled to no further payment as a result of the settlement agreement. Her conclusion, at paragraph 60 of the Decision, was that the Joint Venture's defences to Cleveland Bridge's claim failed and that Cleveland Bridge was entitled to the sums claimed and awarded £317,500 plus VAT. She evidently decided on the basis of her conclusion as to jurisdiction not to provide the alternative decision which Cleveland Bridge had sought so that, if necessary on enforcement, her decision would be severable.
- From both the Notice of Adjudication and the Notice of Referral it is clear that the dispute which was referred to the Adjudicator was the dispute arising from the failure of the Joint Venture to pay Cleveland Bridge the sum of £317,500 plus VAT or such other sum as the Adjudicator considered to be the outstanding amount due under the Subcontract and the agreed Final Account.
- Mr Williamson submits, as his primary case, that only one dispute was referred to the Adjudicator. In the alternative he submits that separate disputes were referred and relies on the paragraphs of Cleveland Bridge's Notice of Referral set out above. He submits that the effect of that alternative position is that the Notice of Referral referred different disputes to the Adjudicator. He says that whilst the Joint Venture disputed jurisdiction they did not object to the terms of the Notice of Referral.
- Mr Baatz submits that insofar as it is contended that one dispute was referred to the Adjudicator, because that one dispute arose under an agreement which was partly for construction operations and partly not, that single dispute cannot be referred to adjudication. In relation to Cleveland Bridge's alternative position, he submits that two disputes cannot be referred to adjudication and relies upon the provisions of paragraph 8(1) of Part I of the Scheme which provides "the Adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on more than one dispute under the same contract." Mr Baatz therefore submits that, without consent, the Adjudicator could not, at the same time, deal with two disputes.
- Ignoring the provisions of section 104(5), the dispute between the parties to the Subcontract was, in my judgment, one dispute. That dispute was whether the sum of £317,500 plus VAT agreed in the final account was due and payable to Cleveland Bridge from the Joint Venture. That depended on the resolution of the issues on the effect of the settlement agreement on the payment due to Cleveland Bridge. The effect of section 104(5) is that the whole of that dispute cannot be referred to adjudication. I do not consider that this converts the single dispute into two disputes, rather only part of the dispute is referable to adjudication; the other part is not.
- This means that under paragraph 8 (1) of Part I of the Scheme the adjudicator was not asked to "adjudicate at the same time on more than one dispute under the same contract". She was asked to adjudicate on one dispute, part of which arises under a construction contract. She could not be asked to adjudicate on the other part of the dispute which arose under that same agreement but did not arise under the "same contract", that evidently being a reference to the same construction contract, as that is the only "contract" to which the Scheme applies: see the reference to "construction contract", and "contract" in paragraph 1(1) of Part I of the Scheme.
- Nor is this a case where it can be said that Cleveland Bridge were asking the Adjudicator to adjudicate at the same time on related disputes "under different contracts", which cannot happen without the consent of the parties: see paragraph 8(2) of Part I of the Scheme. There was one dispute under one agreement.
- I therefore conclude that what Cleveland Bridge did by the Notice of Adjudication was to refer one dispute to the Adjudicator who only had jurisdiction to deal with that dispute insofar as it arose under the part of the Subcontract which related to construction operations. In the Notice of Referral Cleveland Bridge then sought the decision of the Adjudicator both on the whole of the dispute and also, on the basis that they were wrong as to the scope of construction operations, on the part of the dispute which arose under the Subcontract and which related to construction operations. At that stage the alternative case was on the basis that both the supply and the erection of the steelwork for the piperacks and pipebridges fell within section 105(2) and were therefore not construction operations. Now Cleveland Bridge seek to limit the section 105(2) operations, correctly in my view, to the erection of that steelwork.
- As a result I consider that the effect of section 104(5) was that the Adjudicator did not have jurisdiction to deal with the whole of the dispute referred to her but did have jurisdiction in relation to that part of the dispute which related to construction operations under the Subcontract.
- Where a party refers a dispute to an adjudicator who only has jurisdiction in respect of part of that dispute, I do not consider that there is anything, in principle, which prevents the adjudicator from making a decision as to that part of the dispute which is within his or her jurisdiction. In other words, the fact that part of the dispute relates to matters over which an adjudicator has no jurisdiction does not prevent the adjudicator from exercising the jurisdiction that he or she has.
- In summary therefore I do not see that there is any objection in the way in which the Notice of Adjudication or the Notice of Referral were drafted which means that, to the extent that the dispute was within the Adjudicator's jurisdiction, she could give a valid decision.
The ability to sever the Decision
- A second issue arises from the question of severability. The Subcontract obliges Cleveland Bridge to carry out their obligations in relation to the Services under the Subcontract. There is one Subcontract and it is not easy to see how some of the obligations would be severable. Thus the whole of the Services have to be provided in accordance with the conditions of contract. The effect of section 104(5) is to make the parts of the services which relate to construction operations the subject of further implied terms by the operation of sections 108, 114(4) and the Scheme. I do not consider that this amounts to statutory severance of the Subcontract but rather in respect of certain construction operations it imposes additional obligations by way of implied terms. Although the question of severance of the Subcontract was raised in argument, I do not consider that that is an accurate reflection of the process under section 104(5) of the Act.
- The question of severance and severability does however arise is in relation to the Adjudicator's Decision. As I have set out above Cleveland Bridge sought a decision on the whole of the dispute or, in the alternative, on that part of the dispute for which the Adjudicator had jurisdiction. The Adjudicator held that she had jurisdiction over the whole dispute and her Decision is a single decision in relation to that whole dispute. She did not provide a decision which dealt with Cleveland Bridge's alternative position that she had jurisdiction as to part of but not the whole of the dispute.
- Having found that the Adjudicator had jurisdiction only in respect of part of the dispute it follows that her Decision on the whole of the dispute, to the effect that £317,500 plus VAT was due and payable to Cleveland Bridge was not a decision for which she had jurisdiction. In general where a single decision is made relating to one dispute and the adjudicator does not have jurisdiction for some element of that dispute, the decision will not be valid and enforceable.
- If the Adjudicator had made a decision on the whole dispute but had also made a decision which dealt only with the part of the dispute which was within her jurisdiction then, in my judgment, the decision on the whole dispute would not be enforceable or valid but there would be a valid decision on the part of the dispute which was within her jurisdiction.
- Absent such a position is a decision made in respect of a dispute, part of which is within jurisdiction and part outside jurisdiction, severable so that the part within the jurisdiction can be enforced?
- It is necessary to consider the obligation of the parties in relation to a decision of an adjudicator. As set out in paragraph 23(2) of Part I of the Scheme, the implied term which applies in respect of the decision of an adjudicator is as follows:
"The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties."
- As a matter of interpretation of that statutory implied term I do not consider that, as suggested by the authors in the article "Severability of adjudicators' decisions", that provision imposes an obligation on the parties to comply with the part of any decision, which was within the adjudicator's jurisdiction where part is made without jurisdiction. Neither do I consider that there can be a further implied term that the parties will comply with that part of a decision.
- In Cantillon v Urvasco at [65(f)] Akenhead J summarised the position in this way: "In all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction ... the decision will not be enforced by the Court."
- In North Midland v Lentjes I said at  that, by reference to the facts of that case, "unless any dispute is limited to civil works rather than being a more general dispute as to payment delay or disruption of the works overall it will be impossible to apply, for instance, the adjudication provisions of the Act to only part of the dispute."
- It is clear that if the dispute referred to adjudication in this case had been limited to the part for which the Adjudicator had jurisdiction there would have been a valid adjudication and a valid decision. Where there is an overall dispute as to payment, delay or disruption arising in part from construction operations and in part from other excluded operations then the adjudication provisions cannot be applied to only part of that overall dispute. If that overall dispute can be divided so that part of the overall dispute relates only to construction operations then that part can be referred to adjudication.
- In RSL (Southwest) Limited v Stansell Limited His Honour Judge Seymour QC referred to the decision of Lord MacFadyen in Homer Burgess Limited v Chirex (Annan) Limited (No 2), cited above. Lord MacFadyen said that there were alternatives available: first, of not awarding any sum where the decision was partly outside the adjudicator's jurisdiction. The second alternative was to enforce the decision restricted to the sum reflecting the part of the decision for which the adjudicator had jurisdiction. He considered that either alternative would be open to the court.
- In my judgment only the first of those courses is available where a decision is made, part of which is outside the adjudicator's jurisdiction. 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.
- I agree with the observations of Judge LLoyd QC in KNS Industrial that the parties have to accept the decision "warts and all" and cannot come to the court to have a decision revised and replaced with what is or was thought to be right, unless the court is the ultimate tribunal. Similarly I agree with Judge Gilliland QC that it is not right for the court to try and dismantle or reconstruct a decision. Again, Judge Seymour QC in RSL v Stansell said and I agree, that once the decision as to the total amount to be paid has been successfully attacked, it cannot be said that any other amount has been determined by the adjudicator to be due in a way which is binding.
- To do otherwise would be to connect the decision of the Adjudicator on the issue of the effect of the settlement agreement with a decision by the court on how the sum of £317,500 should be divided between the parts within the Adjudicator's jurisdiction and the parts outside her jurisdiction. That would produce a decision partly made by the Adjudicator and partly made by the court. This is not the role of the court. It is for the court to enforce the decision in accordance with the term implied into the Subcontract in relation to construction operations. The alternative is for the court, in the absence of any arbitration provision, to determine the effect of the settlement agreement on the full amount of the Final Account. I do not consider that it is the role of the court to act by opening up, reviewing and revising an adjudicator's decision in enforcement proceedings, where part of that decision is made without jurisdiction and making a revised enforceable decision.
- The second question is whether, if it were permissible for the court to open up the decision to make an enforceable one, it would be possible to sever the decision in this case. In the late evidence Mr Walmsley seeks to identify the part of the £317,500 which relates to the erection of the steelwork to the piperacks and pipebridges. That evidence is not accepted by the Joint Venture and in any event, the Joint Venture have not had adequate time to consider it. I therefore could not base any decision upon Mr Walmsley's evidence on this application. Further, unless there is an agreed or unchallenged division, I do not consider that it would be appropriate on this type of application to determine a contested issue of the division between sums within the adjudicator's jurisdiction and sums outside that jurisdiction.
- In this case there is also evidence relating to the value of the supply and erection of the relevant steelworks within the overall value of £317,500. Mr Walmsley at paragraph 2.6 of his original Witness Statement said that £100,747.20 of the £317,500 related to work which excluded the supply and erection of the steelwork to the piperacks and pipebridges. He set out the calculation at PW2. In response Mr Jackson states in his First Witness Statement at paragraph 17 that he agrees the breakdown at PW2 as to the overall cost of the steelwork, the buildings and the painting in the Final Account. In his Second Witness Statement he confirms that. It is not evident that from that he accepts the figure of £100,747.20 derived as the balance of the Final Account relating to "painting and Building Works".
- There is therefore no agreed figure which represents an element of the £317,500 which can be said to be agreed for the construction operations whether by deduction of only the erection of the steelwork or of the supply and erection of the steelwork. The evidence in Mr Walmsley's original Witness Statement was not, in my judgment, effectively challenged by the Joint Venture's evidence and in those circumstances, if I had come to the view that I could dissect the issues in the decision and associate part of the £317,500 balance of the Final Account with the Adjudicator's finding that the settlement agreement did not prevent payment of the Final Account, I would have been likely to have found that the sum of £100,747.20 represented a minimum due.
- In the circumstances, I conclude that the Court is unable to sever the Decision to award a sum for the relevant part referable to construction operations which was within the Adjudicator's jurisdiction.
- For the reasons set out above:
(1) The Sub-Contract between Cleveland Bridge and the Joint Venture consisted in part of construction operations within section 105(1) of the Act and in part in operations which were not construction operations by reason of section 105(2)(c)(ii).
(2) The operations which are not construction operations pursuant to section 105(2)(c)(ii) are the operations which consist of the erection of the steelwork to the piperacks and pipebridges and not all the operations which formed part of the Services in relation to that steelwork.
(3) The Decision by the Adjudicator related to a dispute part of which was within her jurisdiction and part of which was outside her jurisdiction. In those circumstances her Decision was not a valid decision and cannot be enforced.
(4) Because her Decision was on a single dispute, the agreement of the parties (under the implied term in paragraph 23(2) of Part I of the Scheme) to comply with a decision until the dispute is finally determined does not apply to the Adjudicator's Decision.
(5) The parties only agreed to valid decisions being binding and did not agree that an adjudicator's findings on issues leading up to that binding decision are themselves individually binding and enforceable.
- In the circumstances I have come to the conclusion that the Decision of the Adjudicator in this case is not enforceable and Cleveland Bridge's Application under Part 24 should be dismissed.