Equitix ESI CHP (Wrexham) Limited v Bester Generacion UK Limited: Judicial guidance on the applicability of the HGCRA to a dispute under a power generation contract

Equitix ESI CHP (Wrexham) Limited (Equitix), a special purpose vehicle, entered into a design and build contract with Bester Generacion UK Limited (Bester) for the construction of the Wrexham Biomass Fired Energy Generating Plant (the Project).

The Project progressed slowly and, as a result, Equitix brought two adjudications against Bester. The first related to Bester's entitlement to an extension of time (the Adjudicator found Bester was not entitled to one) and the second concerned the validity of Equitix's termination of the contract and the accuracy of its interim account - Equitix sought to recover £11.5m from Bester; the Adjudicator ultimately decided Equitix was entitled to £9.8m.

Equitix then sought to enforce the Adjudicator's second decision with Bester resisting enforcement on the basis that the contract included works which were expressly excluded from the Housing Grants (Construction and Regeneration) Act 1996 (the Act), in that they were not construction operations and therefore the Adjudicator had no jurisdiction. If Bester was correct, there was a connected point for the Court to consider as to whether Bester properly reserved its right to argue the jurisdiction point.  

The Act

It is worth revisiting the Act to fully understand Bester's claims of lack of jurisdiction. In order to benefit from the statutory provisions relating to adjudication and payment, a contract needs to be a "construction contract". A construction contract is defined in section 104 of the Act as an agreement relating to "construction operations". Section 104(5) adds that where an agreement relates to construction operations and other matters, the Act applies only so far as it relates to construction operations.

Section 105(1) of the Act then provides a wide range of works which are deemed to be construction operations whilst section 105(2) identifies operations which are specifically excluded from the Act. Works which fall within section 105(2) include the assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is power generation. It was Bester's submission that the Project fell into this category and accordingly the Adjudicator had no jurisdiction to decide on the dispute.

The Decision

Applying the judgments from North Midland v A E & E Lentjes and Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture, Coulson J concluded that the Adjudicator had jurisdiction. Section 104(5) of the Act makes it clear that only that part of the agreement which relates to construction operations will benefit from the rights and obligations relating adjudication and therefore what matters for the purposes of jurisdiction is whether or not some part of the dispute referred to the Adjudicator related to or arose out of excluded operations (which is to be narrowly defined).

The works undertaken so far in the Project were not excluded operations. At the point of termination, no excavation on site had yet been taken place, and no plant, machinery or steelwork had been assembled, installed or erected on site. The works undertaken (which included the preparation of bonds and business plans) were preliminary and ancillary works and it would be wrong in principle to say that such preparatory arrangements are excluded operations. Such works are often preparatory steps prior to a major construction contract and "it would make a nonsense of the Act" if those works became excluded operations.

Whilst somewhat academic, on the second issue, Coulson J found that Bester had not validly challenged the Adjudicator's jurisdiction. Bester tried to argue that a letter submitted during the first adjudication was a general reservation of its position on jurisdiction but Coulson J disagreed, noting that it addressed a very specific point. Bester had not submitted any reservations (either general or specific) in the second adjudication and could not now raise such reservations during enforcement proceedings.

However, Coulson J did order a partial stay of execution. As an SPV, there was a real risk that Equitix would be wound up before Bester has an opportunity to properly challenge the interim account, especially considering that Equitix no longer had a purpose and had been "much too economical with the information relating to its financial position". Coulson J therefore ordered that only £4.5m would be paid to Equitix with a further £1m to be paid to Court until further order.

Commentary

When deciding whether an adjudicator has jurisdiction, it is not the overall scope of the contract that needs to be looked at, but the underlying works to the dispute actually referred to adjudication. A contract for the assembly and installation of plant and machinery at a site where the primary purpose is power generation, for example, will not be excluded in its entirety from the Act. The list of excluded operations in section 105(2) of the Act will be construed narrowly, so that whilst the overall scope may relate to an excluded operation, only specific works will fall under the exclusion, rather than the associated preliminary works needed for the operation. This judgment confirms the narrow approach taken in previous cases addressing the same issue.