Crystal clear: when a contract is not a construction contract

The TCC has held an Adjudicator's decisions to be unenforceable as the contractor wrongly assumed its contract to be a "construction contract" under the Housing Grants, Construction and Regeneration Act 1996 (as amended), leaving the Adjudicator with no jurisdiction to decide as he did.

In the recent case of Crystal Electronics Ltd v Digital Mobile Spectrum Ltd [2023] EWHC 2656 (TCC), the Defendant ("DMSL") successfully resisted enforcement of two smash and grab ("S&G") adjudications on the basis that the parties' contract was not a construction contract for the purpose of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the "Act").

Where a contract does not relate to "construction operations" (as defined at Section 105(1) of the Act), it is not a "construction contract" (as defined at Section 104(1)) and the statutory right to adjudicate will not be implied.

Whereas the Judge at paragraph 43 said that "In principle, the realignment or installation of such aerials could constitute alteration, repair or maintenance of electronic communications apparatus, within the scope of section 105(1)(b), or the installation of fittings, within the scope of section 105(1)(c) of the 1996 Act", he said that in each case "the question is whether the aerials form part of the land", which he proceeded to answer (at paragraph 46) in the negative.

Brief facts

DMSL was set up as a joint venture "for the purpose of carrying out proactive and remedial intervention services to address the detrimental effect of 4G mobile broadband services on digital terrestrial television".

DMSL engaged the Claimant ("Crystal") as a contractor to provide those services to customers.

The services set out in the scope of works requirements included 6 "Stages".

• Stages 1-4 (for "Before any remedial work to aerial system");
• Stage 5 (which would sometimes involve "work on the aerials", which "might include realigning an aerial, moving an aerial, removing and replacing an aerial, or installing a filter or a mast head amplifier (MHA) adjacent to the aerial"); and
• Stage 6 (relating to post-completion).

After several years, DMSL terminated the contract soon after Crystal raised an invoice in the sum of £553,336 plus VAT for payment for unpaid charges for works undertaken pursuant to the agreement (the "Notified Sum").

DMSL disputed the moneys owed and Crystal commenced a S&G adjudication ("Adjudication 1").

DMSL Jurisdictional Challenge in SGA 1

In Adjudication 1, DMSL raised a jurisdictional challenge on the basis that (1) none of the works were "construction operations" and, alternatively (2) the contract was a "hybrid contract".

Section 104(5) of the Act deals with "hybrid contracts", such that, as per paragraph 11 of the Judgement:

"A claimant who seeks to enforce an adjudication award must satisfy the court that all matters included in the award (save for what can properly be considered de minimis matters) were “construction operations” within section 105(1) or were matters within section 104(2) in relation to construction operations" and that "A decision that includes other matters will be completely unenforceable, unless the part of the decision relating to such matters can be severed".

In this case, the question of "severance did not arise".

As such, if any of the works to which the Notified Sum related were not "construction operations", then the adjudicator's decision would not be enforceable (unless those works were de-minimis).

Crystal submitted that "if any part of the works were construction operations, the adjudicator’s jurisdiction was limited to awarding payment of the Notified Sum" and that "any issue of severance or apportionment would be a matter for the court on an application for enforcement"

Adjudicator's dismissal of the Jurisdictional Challenge in Adjudication 1

The Adjudicator agreed with Crystal's submission, decided that the Notified Sum was payable and did not consider the jurisdictional "construction operations" issue raised by DMSL further.

A second S&G adjudication ("Adjudication 2") was commenced by Crystal before the same Adjudicator in respect of a second invoice in the sum of £219,738 plus VAT.

In Adjudication 2, the Adjudicator ordered DMSL to pay Crystal the further sum and to reimburse Crystal for his fees.

Application for Summary Judgment: refused

When DMSL did not make payment of the Notified Sum in Adjudication 1, Crystal commenced enforcement proceedings and issued its application for summary judgment.

DMSL successfully resisted summary judgment and the matter proceeded to a full expedited trial to determine (1) whether the works in respect of which the Decision in Adjudication 1 was made were construction operations for the purposes of Section 105 of the 1996 Act and (2) whether the works which were not construction operations for the purposes of section 105 of the Act were more than a de minimis part of the works.

The trial

At trial, the Judge found that "a substantial proportion of the work was not on structures or works forming part of the land and therefore did not constitute construction operations".

Accordingly, Crystal's claim to enforce the decisions in both adjudications was dismissed.

Conclusion

This judgment confirms that parties would be wrong to assume that their contract is a "construction contract" and that if parties wish for adjudication to apply, they should expressly include for it in their contract.

In a wider context, this judgment also re-emphasises the need to be specific about the dispute resolution procedure intended to be adopted by the parties to avoid it being "unenforceable for uncertainty" (as the Court of Appeal found in Kajima Construction Europe (UK) Ltd & Anr v Children’s Ark Partnership Ltd [2023] EWCA Civ 292).

With thanks to Solicitor Apprentice Ellen Spector, co-author of this article.