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Parties Beware that Your Contract Might Not be a “Construction Operation” Under the Act!

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Parties Beware that Your Contract Might Not be a “Construction Operation” Under the Act! Below we discuss this inability to adjudicate...

Construction is a complex industry, and due to the intricacies involved in a construction project conflicts/disputes seem inevitable.  However, when it comes to a speedy and effective resolution of a construction dispute, adjudication’s popularity as the leading dispute resolution method is quite evident from the fact that over the past 20 years more than 31,000 construction disputes in the UK have been referred to adjudication.

Imagine you are a party to a construction contract, and you have a dispute that you want to refer to adjudication, but your contract does not allow it.  Below we discuss this inability to adjudicate, as handed down in Crystal Electronics Ltd v Digital Mobile Spectrum Ltd [2023] EWHC 2243 (TCC).  We also suggest steps to prevent it from happening to you.

Key Takeaways from this case:

  • Sets out that it is important to analyse whether the contract is a construction contract under the Housing Grants Construction and Regeneration Act 1996 (as amended) (“Act”) or not before adopting statutory adjudication because otherwise it would be a wasted cost; and
  • Highlights the importance of getting your contracts professionally reviewed and analysed before entering into them.

 

Background

Digital Mobile Spectrum Limited (“DMS”) entered into a contract with Crystal Electronic Limited (“Crystal”) to carry out services, provide installers and corrective support for installers that had issues with digital tv reception, signals, tuning issues which were affected by high-speed mobile broadband services.

The Dispute and Adjudications

Crystal issued an invoice for £553,336 in lieu of some unpaid charges.  DMS did not issue a valid payless notice.  The invoice was contested by DMS and in response a Notice of Adjudication was issued by Crystal for a smash and grab/payment notice adjudication/ technical adjudication.  The adjudicator awarded Crystal the notified sum of £553,336 in absence of a valid payless notice.

Crystal then commenced another “smash and grab” adjudication before the same adjudicator and was awarded another notified sum of £219,738 (Smash and Grab adjudications seems to be a success here!).

DMS disagreed with both decisions and refused to pay adjudicator’s fee.

Summary Judgement and Expedited Trial

Crystal had to take the matter to Court (TCC) for enforcement.  The Court rejected Crystal’s summary judgement request and initiated the expedited trial to establish whether:

  • The works were construction operation under the contract; and
  • The notified sum was valid as it could have contained amounts for both construction and non-construction operations.

At the hearing Crystal was of the position that its works included working on roofs, working at height (85% of the jobs), carrying out surveys and providing advice based on engineering expertise, and these operations fall under the construction operations definition in the Act.

What does the Act Say?

Section 104 (1) of the Act, defines a “construction contract”, and section 105 (1) of the Act, defines “construction operations” while providing few examples.  The important part is that Section 105 (1) of the Act also expressly classifies few operations as “not construction operations”.

Judgement

The Judge Keyser KC decided not to enforce either of the adjudicator’s decision as “at the very least a substantial proportion of the works to which the adjudication decisions related comprised operations that were not construction operations.” (Paragraph 38).

In his decision the Judge placed extensive emphasis on sections 104 and 105 of the Act and went into extensive detail to establish whether the works carried out by Crystal were construction operations or not.

The decision lays out that the Courts, very likely, will be strict with their interpretation of the definition of construction operations in the Act.  So, parties to a construction contract should:

  • Comprehend the scope of works before entering a contract; and
  • Establish whether the works comply with “construction operations” definition of the Act or not.

Conclusion

It is an important decision as it provides that if a party wants to be sure that it has a right to adjudicate under the contract then adjudication must be included as an express contractual provision despite it being a statutory right.

It also serves as a reminder, especially for small and medium scale contractors, to get its contracts professionally reviewed before accepting them.

If you need advice or assistance in the relation to a contract review or to discuss a potential smash and grab/payment notice adjudication, get in touch with Quigg Golden.

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