A muddle – Statutory Payment Provisions in Hybrid Contracts

Severfield (UK) Ltd v Duro Felgura UK Ltd [2015] EWHC 3352 (TCC)

Hybrid contract is a term used to describe contracts for construction works that comprise some elements of ‘construction operations’, pursuant to s.105(1) of the 1996 Act[1], and some elements that are not construction operations, and are therefore excluded from the provisions of the 1996 Act.  In this instance the excluded activities related to the erection of steel structures on a site used for power generation.  Mr Justice Coulson details and summarises the lines of authority concerned with payment notice provisions in sections 110, 110A, 110B and 111 of the act and the consequences for failing to meet the requirements of these parts and the particular issues in relation to how these provisions create a ‘muddle’[2] when applied to hybrid contracts.

Justice Coulson provides a concise precis of Justice Ramsey’s judgments in Cleveland Bridge[3] and North Midland[4] that addressed the extent to which excluded activities, provided for in s. 105(2)(c), affect an adjudicators jurisdiction in hybrid contracts.  Neither case dealt directly with how the statutory payment regime is to be applied in similar situations, however Justice Ramsey did say that the provisions of the Act will only apply to a contract insofar as it relates to ‘construction operations’[5].  Ramsey J’s comments indicate that under a hybrid contract there are two very different payment regimes which Justice Coulson found to be ‘…uncommercial, unsatisfactory and a recipe for confusion…[6] but come about as a consequence of Parliament’s desire to exclude what would otherwise be construction operations.  Coulson J considered that beyond Ramsey J’s comments there is no other authority dealing with the question of what payment provisions apply to a hybrid contract.  He touched on arguments that perhaps the provision of the Act ought to be incorporated wholesale, even in a hybrid contract, to apply to all works, but noted that that would be contrary to the provisions of s.104(5) which expressly states that the provisions of the Act only apply to those parts of an agreement concerned with construction operations.  Without having to decide this matter Justice Coulson found that in any event nothing amounting to a compliant default payment notice had been issued and so the question as to what extent the provisions of the Act applied was not concluded.  Coulson J did however further comment that the difficulties in this case arose from the legislature’s desire to exclude certain industries from construction adjudication and that ongoing uncertainty remained in relation to hybrid contracts that expressly provide for set-off and counterclaims as part of the payment regime, which he opined would arguably be fully applicable[7].

Following a brief review of the authorities concerned with payment notices, Justice Coulson’s primary finding supported a Payer’s right to receive a clear and unambiguous application for payment which the Claimant had failed to submit and as a consequence their case failed.  This case is perhaps more noteworthy because of the discussion it contains regarding hybrid contract and the extent to which statutory payment provisions are to be applied to these types of contracts.

[1] The Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009

[2] Severfield (UK) Ltd v Duro Felgura UK Ltd, [2015] EWHC 3352 (TCC), at para.16

[3] Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture, [2010] EWHC 1076 (TCC); [2010] BLR 415

[4] North Midland Construction PLC v AE and E Lentjes UK Ltd [2009] EWHC 1371 (TCC), [2009] BLR 574

[5] Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture, [2010] EWHC 1076 (TCC); [2010] BLR 415, at para.64

[6] Severfield (UK) Ltd v Duro Felgura UK Ltd, [2015] EWHC 3352 (TCC), at para.22

[7] Severfield (UK) Ltd v Duro Felgura UK Ltd, [2015] EWHC 3352 (TCC), at para.51

 

A copy of the case judgment can be viewed and downloaded at:

http://www.bailii.org/ew/cases/EWHC/TCC/2015/3352.html