Severfield (UK) Ltd v Duro Felguera UK Ltd [24.11.15]

Mr Justice Coulson refuses application for summary judgment; changes recommended to excluded operations under the Construction Act.

Implications

This rather messy payment dispute led Coulson J to suggest a rethink of excluding certain operations from the provisions of the Housing Grants (Construction and Regeneration) Act 1996 (the Construction Act).

Coulson J believes that the exempt industries (which include nuclear processing, power generation and tunnelling) would benefit from the “effective and efficient” process of adjudication and the “clarity and certainty” of the Construction Act as a whole. We will have to wait and see whether further commentary on the issue follows.

The failure of the parties to identify at the outset that the contracted works contained both construction operations and excluded operations resulted in an ineffective payment regime and an unnecessary dispute. This is a welcome reminder that the payment provisions of the Construction Act will not apply to excluded operations. When entering into a hybrid contract, the parties will need to devise a regime that effectively deals with both.

Summary judgment was refused as the Claimant revised its claim to remove sums arising from excluded operations. This meant the newly claimed amount could not be properly identified, nor had its calculation been properly explained, in the initial payment application. The Defendant was not liable for payment by virtue of its failure to respond as it had never been notified of the new amount. Had the Claimant properly divided its application into construction and excluded operations, the outcome may have been different. This emphasises the importance of providing suitably detailed payment notices.

Background

  • The Defendant contracted with the Claimant to carry out the design, supply and erection of steel structures as part of the construction of two power generation plants. The parties agreed a typical construction payment regime. However, they had not appreciated that certain aspects of the work were excluded from being classed as “construction operations” under s.105(2) of the Construction Act. No separate payment regime was agreed for these excluded operations.
  • In December 2014, the Claimant made an interim payment application in excess of £3 million, with no distinction between construction and excluded operations. The Defendant failed to file a payment notice or a pay less notice and the Claimant was awarded the full amount at adjudication. The Defendant refused to pay. The court refused to enforce the amount as it contained sums which were likely to be related to excluded operations.
  • The Claimant discontinued and issued a new set of proceedings for the sum of just over £1.4 million, which was said to have been stripped of all excluded sums. It relied on the Defendant’s previous failure to issue notices, as all aspects of the £1.4 million had been included in the initial interim payment application.
  • The Defendant argued that this second application was an abuse of process and that the Claimant was not entitled to substitute its old claim with a new one. It instead should have submitted a new application for payment under the contract.

Decision

Coulson J rejected the suggestion that these new proceedings were an abuse of process.

However, he refused to grant summary judgment. The Claimant could not rely on the Defendant’s earlier failure to file a notice. The Claimant’s December 2014 payment application did not refer to an amount of £1.4 million. The introduction of new arguments and documents meant it could not be said that this was the same claim previously presented to the Defendant. The Claimant could not ‘piggyback’ off its previous application.

Coulson J highlighted that all issues could be traced back to the difficulties of hybrid contracts. The right to refer disputes to adjudication, the entitlement to stage payments and provisions relating to dates for payment and the withholding of payment would not apply to any operations excluded by the Construction Act. This meant that the contract was effectively subject to two separate payment regimes, which he described as “uncommercial, unsatisfactory and a recipe for confusion”.

He also commented on the “misconceived” grounds on which these exclusions had been justified. He noted that Parliament had wished to protect certain industries from the process of adjudication as it was seen as some form of punishment for the construction industry. In practice, Coulson J regarded adjudication as a blessing. He suggested it was time for those excluded industries to benefit both from the process and from the provisions of the Construction Act.