Is an energy from waste plant caught by the Construction Act? See what the TCC had to say in Engie Fabricom UK Ltd v MW High Tech Projects UK Ltd

We first reported on Engie Fabricom UK Ltd v MW High Tech Projects UK Ltd in August 2019 (see our article here) when the Technology and Construction Court (TCC) considered the enforcement of the adjudication decision obtained by Engie Fabricom (“Engie”). At this time the TCC thought MW High Tech Projects UK Ltd (“MW”) had a real prospect of succeeding in its defence that the primary activity of the plant in question was for power generation and therefore excluded from the terms implied by the Housing Grants, Construction and Regeneration Act 1996 as amended (the “Construction Act”).

By way of reminder, Engie was engaged by MW under a subcontract which was based upon the IChemE Subcontract (the Yellow Book) 4th edition 2013 to construct a fluidised bed gasification power plant (a type of waste incineration plant) at Cleveland Street, Kingston upon Hull. The project was known as ‘Energy Works Hull’. Engie was subcontracted for a large proportion of the main contract works including the design, engineering, manufacture, delivery to site, construction, execution, and completion of the gasification plant system. The standard form of subcontract had been amended to state that adjudication only applied to the extent the Construction Act applied.

Engie commenced an adjudication in relation to unpaid sums which resulted in a decision being issued by the adjudicator on 11 April 2019 which required the Defendant to pay the Claimant the sum of £27,062.25, together with the adjudicator’s appointment fee and the adjudicator’s fees and expenses. The Defendant failed to pay the sums due and as a result, the Claimant issued and served (Part 7) Court proceedings together with an application for summary judgment to enforce the Adjudicator’s decision. The decision was not enforced and the parties found themselves before the TCC again in December 2019 for the final trial in respect of the original adjudication decision for the sum of £27,062.25 and a further additional adjudication decision for the sum of £314,647.49 (previously pursued separately and now consolidated into these Court proceedings).

The key question was simple – is the primary activity at an energy from waste plant power generation or waste treatment?

Section 105 of the Construction Act sets out what falls within the meaning of ‘Construction Operations’ and specifies certain exemptions. One such exemption relates to the assembly, installation or demolition of plant or machinery (or erection or demolition of steelwork for supporting or providing access to plant or machinery) on a site where the primary activity is power generation. As such, MW argued that the primary activity at Energy Works Hull was power generation and as a result, the works were excluded from the ambit of the Construction Act and accordingly, there was no legal right or entitlement to adjudicate and, therefore, the Adjudicator’s decisions were without jurisdiction and unenforceable.

Engie argued to the contrary that the primary activity on the site was the disposal and thermal treatment (by incineration/gasification) of waste and that power generation was merely a secondary activity. In Conor Engineering Limited v Les Constructions Industrielles Mediterranee SA [2004] BLR 212, such a distinction had been successfully argued given the sheer volume of waste dealt with at the site compared to the energy generation.

In the TCC, the judge, Mrs Justice O’Farrell, agreed with MW and refused to enforce the adjudicator’s  decisions. She found that the primary activity on the site was power generation and therefore the exemption under S105 of the Construction Act applies and the adjudicators did not have jurisdiction. There were 4 key decisive points:

1. The terms of EPC Contract - The general description of the EPC contract works as a gasification facility receiving pre-treated refuse derived fuel (RDF) and the limited treatment of waste in the Mechanical Pre-Treatment (MPT) process, indicates that the RDF is a fuel for the purpose of operating the plant rather than the purpose of the plant being the treatment of refuse. Both the performance of the plant and the required performance obligations on MW to complete the contract works were focused on how efficiently the facility would operate as a power plant.
2. IED Permit – Whilst the permit was issued by the Environment Agency for a waste incineration plant for the facility’s main purpose to be as a waste incineration plant, the IED scheme permits the operator to apply to change the status of the plant to recovery rather than disposal and the EPC Contract specifically required the Plant to qualify as a recovery facility. This new status could only be achieved if the principal purpose of the plant was energy recovery rather than waste disposal.
3. Regulatory Framework - The factual evidence indicated that the plant was not developed or intended to be operated in furtherance of any particular waste or energy policy, although it was consistent with both policy initiatives.
4. Funding Model - The funding model estimated that most of the revenue would be generated by electricity exports to the National grid and subsidies/grants. This was a strong indication that the intention of the owner was to operate the facility for profit as a power plant.

Practical implications of the decision

The TCC has very much reached the opposite conclusion to the outcome in the earlier case of Conor Engineering Limited v Les Constructions Industrielles Mediterranee SA. It is apparent that the determination turns on the facts and how the objective of the plant owner was set out in contractual documents, funding documents and permits.

Had the EPC Contract contained performance criteria based on waste treatment or perhaps the RDF was prepared at the Plant rather than by others, the outcome may well have been different.

This issue evidently turns on very specific facts and parties considering contracts for such works currently should consider carefully whether adjudication will apply and whether, for certainty, an express right to adjudicate should be included in the Contract without being expressly tied to the Construction Act and the payment terms drafted to be compliant with that Act given the uncertainty of its application.

For more information on the above article contact: Mark Manning, Brian Farrell and Lianne Edwards.