It's one of the first and most fundamental questions you need to ask when entering into a contract for construction works: does the Housing Grants, Construction and Regeneration Act 1996 (Act) apply? If it does, we all know the drill, the contract payment and dispute provisions need to be Act compliant or the non compliant provisions will be disapplied and the relevant provisions of the Scheme for Construction Contracts will be implied in their place. 

Normally the answer is obvious; a look at s104 and s105 of the Act (which together define what the Act regards as a construction contract, namely an agreement for the carrying out, arranging or providing labour for carrying out of construction operations) while having regard to the Exclusion Orders and s106 (residential occupier exclusion) and the answer is clear. However, construction contracts come in all shapes and sizes so, sometimes, the answer is not so obvious and then we need to look at caselaw. Hence, the recent case of Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC) is particularly welcome as it provides further guidance on what constitutes a "construction contract" for the purposes of the Act.

What happened?  

The case involved a contract between Spicers, a wholesaler of office products, and Savoye, a supplier of logistic systems, for the design, supply, installation and commission of an automated conveyor system at one of Spicers' factories.

Following a payment dispute, Savoye gave notice of adjudication. Spicers argued that the contract was not a "construction contract" for the purposes of the Act as it did not relate to "construction operations" and therefore there was no statutory right to adjudicate.  It fell to the High Court to establish whether the installation of the conveyor system was in fact a "construction operation" under the Act.

The Court ruled that the conveyor system formed "part of the land" and so was a "construction contract" under the Act. The system was integrated with Spicer's warehouse and was sufficiently attached to the floors and underside of the mezzanine floor to form part of the land.

Whilst the Savoye case clearly turns on its own facts the judgment provides a useful review of case law on this issue, as well as the principles that the Court may take into account.  Specifically, the Court considered the following issues.

  • Whilst it did not seek an exhaustive definition of 'structure' (as referred to in s105), equipment can be a "structure", even where it can move or has moving parts.  
  • Whether an object forms part of the land will be informed by principles found in the law of real property, specifically by whether it would be construed as a "fixture", being an object annexed or affixed to the land. This could include an object that rested on the land under its own weight. However, the principles of real property were not a hard and fast test; the question of whether an object is a fixture under the law of real property would not be determinative and was not a pre-condition as to whether an object formed part of the land for the purposes of the Act.  
  • The purpose of the object was to be assessed objectively by reference to how it was intended to be installed and used and not by reference to what the parties thought. One of the factors to be considered was whether the object or system enhances the value and utility of the premises once installed; if so that points strongly to it forming part of the land. Another factor is the degree of permanence that the object will have.  
  • The Court would consider the machinery or system as a whole and not whether there were parts that were more removable than others. Conversely the screwing or bolting of something into the land does not necessarily mean it forms part of the land (although it would strongly point to it doing so).  
  • The Act applies even where the "construction" aspect of the works was not completed.

Lessons

  • When entering into contract for construction works always consider whether the Act applies.
  • Remember: you cannot exclude the Act from a contract.
  • If there is any uncertainty as to whether the Act applies, parties would be well advised to draft the contract in compliance with the Act.