6. Jurisdiction-excluded operation- reservation of rights
Equitix ESI CHP (Wrexham) v Bester Generacion UK Ltd11
There were two adjudications between the parties. The first concerned the
validity of the Claimant employer’s termination of its contract with the Defendant
contractor (and any entitlement to an extension of time) and the second adjudication, the
basis/accuracy of the Claimant’s interim account.
The bespoke contract was for the design and construction of the Wrexham Biomas Fired Energy Plant
(“the Project”). Following termination the Claimant was at liberty to elect whether or
not to proceed with the Project. The final accounting was to be by way of a Net
Loss Statement, pending which the Claimant was entitled to payment by way of an Interim Account.
Any dispute about the Interim Account was subject to adjudication which would be final and binding.
The contract’s bespoke adjudication provisions did not comply with the Act and it was
common ground that the Scheme applied. Both adjudications were conducted under the Scheme.
In the first adjudication the Claimant sought a declaration that the Defendant was not entitled to
an extension of time. The Defendant reserved its position regarding jurisdiction. The
reservation arose out of concern about the potentially short timetable in circumstances in which
new materials were being relied on by the Claimant. Eventually all timetabling matters were agreed.
The adjudicator, Mr Blackburne, decided the Defendant was not entitled to an extension of time.
In the second adjudication, Mr Blackburne was again appointed, a timetable and
directions were agreed which mirrored those in the first adjudication. There was no express
reservation as to jurisdiction. The Claimant sought payment of its Interim Account for £11.59m
which was based on repayment from four previous Milestones payments of £8m together with some
£3m for other claims. There was an issue about whether the Claimant had lawfully terminated
the contract.
Mr Blackburne found the Claimant’s termination was not unlawful. He found the sum of
£9.8m was due from the Defendant to the Claimant on the Interim Account, plus interest
of £4,948 per day. The Claimant sought to enforce the second decision.
Issue 1: Construction operations
Section 104(5) of the Act envisaged there could be hybrid contracts which covered the carrying
out of construction operation and operations which were defined in the Act as not being
construction operations. In such a case the adjudication provisions of the Act only applied
to that part of the contract which related to construction operations.
The Court considered a number of previous decisions on the topic from which the following points
could be derived:
Minute analysis was not to be used to defeat the purpose of giving or excluding the rights of
the Act to what on a straightforward and common sense analysis was a contract for
construction operations (North Midland12).
Only specific operations were excluded (Cleveland Bridge13)
and section 105(2)(c) was narrowly construed (Severfield14).
In the result, in the case of a hybrid contract, only some operations were excluded.
Excluded operations did not also exclude prior activities such as preparation of drawings and off
site fabrication of steelwork (Cleveland Bridge).
The Defendant’s focus was on the contract, which when viewed as whole, involved
some excluded operations. On that basis, it was said, the adjudicator had no jurisdiction. The
Claimant said that even on the Defendant’s evidence no part of the four Milestone payments, the
subject of the Interim Account, was anything to do with excluded operations.
Coulson J found that the Defendant’s focus involved a misreading of section 104(5) of the
Act. Although that section referred to the agreement that was just to emphasis that it was only
that part of the agreement which related to construction operations which would engage the rights
and obligations of adjudication. Thereafter, as North Midland, Cleveland Bridge and Severfield all
made plain, what mattered for the purpose
of jurisdiction was whether or not some part of the dispute referred to the adjudicator related to
or arose out of excluded operations (narrowly defined). The real issue for the Court was:
what was done by the Defendant (because that was what the disputed Interim Account went to) and
whether what was done amounted to excluded operations.
The Court found that preliminary or ancillary works, including the preparing of bonds and business
plans were of the same nature as the preparation of drawings in Cleveland Bridge and were not
excluded operations. It was nothing to the point that these things were not site works. Section
105(1)(e) was not an exhaustive list of “preparatory works”.
More broadly the dispute about the Interim Account could not have related to excluded operations.
No site works were commenced and no plant was brought to site let alone installed.
The fact that the Interim Account was based on milestone payments and a percentage of the
contract price was immaterial as that was simply the agreed mechanism for payment.
There could be no jurisdictional issue.
Issue 2: Reservation of position
This issue became irrelevant but was dealt with in any event. As the Court pointed out it was an
issue that all depended on the facts. However the Court made the following broader statements of
principle.
The Court will usually look with disfavour on an unspecified general reservation if it thinks it
was worded to try and ensure that all options (including ones not yet even thought of) could be
kept open.
The express reservation in the first adjudication not repeated in the second adjudication did not
apply to it by implication.
This was a clear case of two ad hoc adjudication agreements. The first reservation was not a
general reservation as to jurisdiction. It was very specific: ambush and timeframe. It
was in any event inadequate to take effect as a general reservation. A general reservation had to
be done in a clear and open way.
A party who wants to reserve its position as to jurisdiction has to do so in each successive
adjudication, because each adjudication is different and the limits of jurisdiction in each will be
different.
It might also have been the case here that the express agreement to the adjudicator’s
terms of appointment when no issue was taken as to jurisdiction, was capable of amounting to a
clear and unqualified acceptance of the jurisdiction in the second adjudication.
Footnote
The Court granted summary judgment but then heard an application for a stay of execution,
which was granted in part, since there was insufficient satisfactory evidence as to the claimant’s financial position.
This article was originally written and published on the internet by Slater Heelis in June 2018.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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