Not as might first appear: what constitutes a "Construction Contract" under the Construction Act?

The Housing Grants, Construction and Regeneration Act 1996 as amended (the "Construction Act") imposes specific payment provisions and dispute resolution processes into construction contracts, including the option to adjudicate. In many cases it is clear whether a contract is a "construction contract" for the purposes of the Construction Act. However, in others, it is not so clear cut. In a recent case, two parties spent in the region of £400,000 in legal fees finding out.

The background

The case of Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC) concerned a contract between office products wholesaler Spicers and logistic systems supplier Savoye for the design, supply and installation of a large automated conveyor system at Spicers’ factory in Smethwick. A dispute subsequently arose over payment. Savoye served an adjudication notice on Spicers. Spicers argued that there was no statutory right to adjudicate as the contract was not a construction contract. It fell to the High Court to decide the matter.

Guidance given

The Construction Act provides that a construction contract means an agreement for the carrying out of "construction operations". Construction operations is further defined as including the construction of structures forming part of the land, whether permanent or not. In Savoye, the court provided the following guidance in interpreting these provisions:  

  • Whilst not seeking to provide an exhaustive definition, the court stated that equipment can be a "structure", even where it can move or has moving parts.
  • Whether an installation formed part of the land was ultimately a question of fact and degree. However, whether an object forms part of the land will be informed by property law principles, and specifically by whether it would be construed as a "fixture". If an object is a fixture under the law of real property it would, almost invariably, form part of the land for the purposes of the Construction Act.
  • To be a fixture, an object had to be annexed or affixed to the land, actually or in effect. An object which rested on the land under its own weight could be a fixture. The bolting of an object to or within a building pointed strongly to the object becoming a fixture.
  • In assessing whether an object forms part of the land, the court would have regard to its purpose. Primarily, this involves looking objectively at how it would be intended to be installed and used, and not by what the parties thought. If the object in question had been installed to enhance the value and utility of the premises to which it was annexed, that pointed strongly to it forming part of the land. Another factor is the degree of permanence that the object will have.
  • The Construction Act applies even where the "construction" aspects of the works were not completed.

The outcome

On the facts, the court found that the automated conveyor system was to form "part of the land". The plant was an integrated system within itself, integrated within Spicer's warehouse, and was sufficiently attached to the floors and underside of the warehouse mezzanine floor to form part of the land.

The design, supply and installation of the conveyor system at Spicers' factory had therefore constituted "construction operations". As the contract constituted a "construction contract" for the purposes of the Construction Act, the adjudicator had had jurisdiction to decide the dispute.

The Savoye case is a useful reminder that the Construction Act may apply to contracts which, at first glance, do not seem to be "construction contracts".

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