Friday, 26 June, 2020

[2020] EWHC 1626 (TCC)

O’Farrell J

Key terms:

Adjudication- Construction Contracts- Energy from waste

Engie (Claimant) was engaged by MW High Tech (Defendant) under an amended IChemE subcontract Yellow Book (4th edition. 2013) to construct a fluidised bed gasification power plant. The standard form subcontract was amended to state that adjudication only applied to the extent that the Housing Grants, Construction and Regeneration Act 1996 (the Act) applied. Engie sought to enforce two adjudication decisions against MW for unpaid sums. The question for the TCC was whether the subcontracted works constituted construction operations within the meaning of the Act so that the adjudicator had jurisdiction to determine those claims.

The key issue for the court to consider was whether power generation was the primary activity of the plant so as to bring the subcontracted works within the exception set out in s105(2)(c)(i) of the Act. During the adjudication, MW argued that the adjudicator did not have jurisdiction to make a decision on the payment of sums as the primary activity on the site was power generation. On the other hand, Engie argued that power generation was an ancillary activity and that as the disposal and treatment of waste was the primary activity of the site, the adjudicator had jurisdiction. The adjudicator agreed with Engie’s position and awarded Engie £27,062.25 plus VAT and interest. MW refused to pay and so proceedings were commenced.

The Judge had to consider the issue of whether the primary activity of the energy to waste plant power generation or waste treatment and ultimately viewed this as one of fact.

In providing her conclusions, O’Farrell J explained that the EPC Contract (between MW and its employer EWH) was “very strong evidence” that the primary purpose of the plant was energy generation. The description of the works in the EPC contract as a gasification facility receiving pre-treated refuse-derived fuel (RDF) and the limited treatment of waste in the Mechanical Pre-Treatment process indicates RDF is a fuel for operating the plant and not as Engie argued the purpose of the plant being the treatment of refuse/waste. This point was underscored by the fact that both the performance of the plant and the performance obligations on MW to complete the works were based on the efficiency of the power plant operations.

Secondly, O’Farrell J drew attention to the IED permit which had been issued by the Environment Agency on the basis that the main purpose to be waste incineration plant. Moreover, the EPC contract required the status of the plant to be changed from disposal to recovery facility. This change could only be achieved if the principal purpose was energy recovery rather than waste disposal.

O’Farrell J also considered the regulatory framework and policy background finding that the plant was not developed to comply with any particular waste or energy policy (suggesting that if it had been, that might have been an important factor). The Court also took into account the funding model which estimated that a majority of revenue from the plant would be generated by exporting electricity to the national grids and subsidies/grant. This showed that the intention was to operate the facility as a power plant for a profit.

This case is a useful example of how the exclusions under the Act are not clear and not easy to establish. This is not the first case to demonstrate the difficulty in identifying whether an exclusion is applicable or not.

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