I don’t think the barrister representing Norwest Holst Engineering against ABB Power Construction is much impressed with the person who cobbled together our beloved Construction Act. He said the act was “replete with seemingly irrational distinctions”. The “person” who did the cobbling was parliament, of course. The barrister said it deserved the same condemnation given to another act of parliament, the Misrepresentation Act 1967, of which it was said: “The truth is that this section [of the act] is an abdication by parliament of its proper responsibility in the formulation of policy for satisfactory law reform. It is little short of scandalous that no attempt has been made to indicate the circumstances in which exempting clauses should be permissible.”
Ouch. Truth is, this criticism is well deserved. Section 105(2) of the Construction Act is a dog’s dinner. The judge’s response was along the lines of, “You might think that, but I couldn’t possibly say”. What he did say was: “Criticism of that tenor, if it were appropriate to this act, is the privilege of commentators.” Yes, of course.
So, how did the dispute start? Norwest Holst is installing insulation in three new boilerhouses at the Aberdeen Peterhead Power Station. It claims that ABB owes it £737 000. So, Norwest Holst called for an adjudicator. Brian Holloway came on the pitch. “Go away,” shouted ABB to Mr Holloway. “This is an exempt site under the Construction Act.” It prodded a finger at this oddball section. Mr Holloway said it was not his province to decide on his own jurisdiction; he could enquire into it, but only make an observation. He thought the challenge was arguable and would therefore press on. Quick as a flash, ABB went to the High Court. The judgment is number 36 in our series and is properly called ABB Power Construction Ltd vs Norwest Holst Engineering Ltd (1 August 2000).
Section 105(2) has a collection of construction activities that are classified as “non-construction contracts”, even though they look like everyday construction operations. That’s because parliament thought that certain types of sites were not in need of adjudication or the new payment provisions or the abolition of pay-when-paid.
For example, construction operations drilling for oil or natural gas are exempt and no adjudicator can come, but a site drilling for water is not. How come? Installing plant for nuclear processing or power generation or water or effluent treatment is exempt, but not plant for an incinerator. How come? Erecting steelwork to provide access to premises that produce or process chemicals, pharmaceuticals, oil, gas, food or drink is exempt, but building a pharmaceutical, oil, gas, food or drink factory is not. How come?
Parliament thought that certain types of construction sites were not in need of adjudication or the new payment rules
The judge said: “The wide immunity given to work for, for example, the water, oil and gas industries must be seen as a tribute to them (and for all who carry out construction work for them), either for the absence of malaises that had been found to bedevil others, such as the prevalence of disputes and the presence of pay-when-paid clauses, or for the fact that the reforms required by the act were not needed or had been carried out.”
Norwest Holst was insulating the pipework to the plant on a power-generation site. The pipework is exempt, but is the insulation? “Undoubtedly, yes,” said the judge. The test is to ask what construction operations are necessary to achieve the aims or purposes of the exempt item. The plant won’t function without pipes, nor the pipes without insulation. So ordinary construction operations become exempt by being part and parcel of an exempted site. If the pipes have to be painted, that is not a construction operation and you can’t call for a referee. What’s more, a pay-when-paid clause can still be tried on.
Norwest Holst tried one last argument. It said that its work on plant is exempt only where the site is a power-generation site. The act says “is”, not “will be”. The judge said parliament never intended such an absurdity. The site is a power-generation site, even when it is being built.
By the way, great chunks of section 105 with its odd distinctions come out of parliament stealing the words from the Income & Corporation Taxes Act 1988, which in turn lifted the words from the Finance Act 1975. This was, and is, all about the tax-deduction scheme for those construction operatives who do not have the old 715 or new CIS certificate and whose tax is deducted at source. Was parliament trying a short-cut by trying to transplant one act into another? You might think that, but I couldn’t possibly say.
I am obliged to Nick Goddard of Pinsent Curtis, who supplied the judgment and represented ABB Power.
Tony Bingham is a barrister and arbitrator specialising in construction. You can write to him at 3 Paper Buildings, Temple, London EC4 7EY, or e-mail him on firstname.lastname@example.org.