ABB Power Construction Ltd v Norwest Holst Engineering Ltd (TCC) 77ConLR20 CIP
ABB Power Construction Ltd (ABB) were constructing three heat recovery steam generators as part of a project to extend an existing power station at Peterhead in Aberdeen, Scotland . The location where the work was being carried out was separated from the existing power station by ‘the Construction Site Fence’ and was known for the purposes of the Contract as ‘the Construction Site’, as opposed to ‘the Power Station Site’.
Norwest Holst Engineering Ltd (Northwest Holst) were a subcontractor to ABB for the installation of insulation to clad pipework, drums and various other parts of the equipment. The insulation material was supplied by ABB to Northwest Holst. Subsequently it was agreed that Norwest would also pre-fabricate and deliver the insulation.
A number of disputes arose between the parties and these were referred to an Adjudicator by Norwest Holst. ABB contested the Adjudicator’s jurisdiction, but presented its case to the Adjudicator. The Adjudicator informed the parties that whilst he could not decide on his own jurisdiction, he could enquire into it. He decided that the adjudication should continue “unless and until the court finds that my views expressed above are incorrect“. Judge Lloyd considered this to have been a sensible and pragmatic decision although it might not be right in another case. ABB applied to the Court for a declaration as to the jurisdiction of the Adjudicator, without waiting for the result of the adjudication. Judge Lloyd considered this to be a sensible choice to avoid not only trouble and expense of an unnecessary adjudication but also any additional cost of contesting enforcement and any consequent delay.
The question was whether the installation of insulation was a construction operation. This reduced to the question whether it was the “assembly or installation … of plant or machinery … on a site where the primary activity is … power generation...” and so, by reason of section 105(2(c)(i), were not “construction operations” for the purposes of section 104 and 105(l) of the Act. Norwest Holst’s case included the proposition that the word “is” meant what it said and was not to be read as “will be”. This was referred to in argument as “the temporal point”.
It was held that Section 105(2) should be read as a whole as well as in the context of sections 104 and 105(l). It was held that Section 105(2) when compared with section 105(l) showed that it was the intention of Parliament that exemption should be given by applying an additional and different test: was the object of the “construction operation” to further the activities described in section 105(2)(c) (and in paragraphs (a) and (b)) since in those industries or commercial activities it was not thought necessary that at any level there need be a right to adjudicate or to payment as provided by the Act. Sub-section 105(i) provided conventional descriptions of various kinds of work or services and paragraph (d) of sub- section 105(2) did the same. In contrast the remainder of the sub-section, whilst outlining an operation, qualifies it by reference to the ultimate purpose for which the operation is required:
the exploitation of oil or gas (paragraph (a));
the extraction of minerals, eg coal mining or quarrying (paragraph (b));
a wide variety of disparate industries (paragraph (c));
the creation of art (paragraph (e)).
In addition paragraph (c) makes explicit the need to identify the site or location of the activity and to ensure that it is the primary or dominant activity since the activities listed may be ancillary to the principal activity.
Judge Lloyd stated there were two objectives of HGCRA – resolving disputes swiftly but provisionally and regulating interim payments. It was clear from the wide language of sections 104 and 105(l) that Parliament wished to ensure that these regimes would apply on every site and for every project. It was equally clear from the language used in Section 105(2) that it was intended that, if the regimes were not to apply, it would be invidious if they applied to some but not all construction contracts on a site or for a project. The object of this sub-section was that all the construction operations necessary to achieve the aims or purposes of the owner or of the principal contractors (as described in it) would be exempt. If this approach was correct then an interpretation should be given to section 105(2) which would further and not thwart the objective.
Did the words “assembly, installation … of plant” cover the provision of insulation and cladding to pipework? Reference was made to the decision in Homer Burgess Ltd v Chirex (Annan) Ltd (2000). The evidence was that the provision of insulation was an integral part of the construction of pipework, boilers and the like which were required so that power may be generated. It was held that the installation of insulation performed a plant-like function since without insulation the pipework, boilers etc would not function as they are designed to perform, nor could the plant be operated safely and efficiently. Any work that would be a construction operation within section 105(l) which was necessary for the full and proper assembly or installation of plant so that it would fulfil the purpose or purposes for which it is intended was exempt by reason of section 105(2)(c) (assuming that the condition relating to the site is also satisfied). It would not make any sense if, for example, a sub-contractor providing paint systems or cathodic protection systems necessary to protect plant against erosion or corrosion, to take two instances, were not exempt whereas only the basic installation (whatever that might mean) of the plant itself were exempt. This Act has to be applied by people within the construction industry. It should be read and construed on the assumption that the answer is clear to a layman. The Act called for distinctions which were based on operational or engineering considerations. Plant and machinery could readily be distinguished from factory roads, administrative offices etc; steelwork was exempt only if required for the purposes of supporting or providing access to plant or machinery. Accordingly the installation fell within the Section 105(2)(c) exception.
The next issue was the “temporal point”. It was held that the Act was concerned with work which would be carried out. Section 105(l)(a) and (b) explicitly refer to the construction of buildings or structures “forming, or to form, part of the land … “. Even allowing for some of the exclusions and inclusions in section 105, when the overt purposes of the Act is taken into account, there could be no logic in permitting a major sub-contractor to require sub-sub-contractors to accept a “pay when paid” provision simply because the work is to do with an extension to an existing production plant or factory whereas no such exemption applies if the work is for an entirely new scheme. It was held that in any event even if it was wrong that section 105(2)(c) applied as much to the future as to the present, the installation work was taking place on a site where the primary activity was power generation. The facts that a fence has been erected and that for operational reasons one side was designated as a Construction Site was irrelevant. Even if the fence was not required for reasons of health and safety or under the CDM regulations, it denotes no more than the customary separation of the “live” side. For the purposes of section 105(2)(c) there was only one site.
Accordingly ABB was entitled to the declarations sought and a mandatory order restraining Norwest Holst from proceeding with the adjudication and from taking any steps to enforce any decision.