The recent case of Crystal Electronics Limited v Digital Mobile Spectrum Limited provides some useful guidance on what will, and will not, be regarded as "construction operations" under s.105 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act").
Background to dispute
Digital Mobile Spectrum Limited ("DMSL") was set up in 2012 as a joint venture by the four UK mobile network operators 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 contracted Crystal Electronic Limited ("Crystal") to carry out services for properties having issues with television aerials, signal/tuning issues and the like. DMSL later terminated the agreement, albeit the termination was not considered by the court.
Following termination, Crystal issued an invoice for £553,336 for outstanding sums, which DMSL disputed. Crystal proceeded to serve a notice of adjudication on a "smash and grab" basis, where there had been an alleged failure to comply with the payment mechanism. DMSL challenged the adjudicator's jurisdiction on the basis that the contract was not a "construction contract" in terms of the Act. DMSL submitted that the works were not "construction operations", or alternatively, some works were construction operations, and the contract is a "hybrid contract" containing construction and non-construction operations. The Adjudicator could therefore only award the 'notified sum' and it would be for the court to decide any issue of severability or apportionment. The adjudicator arrived at the preliminary view that he did have jurisdiction and the adjudication continued. The adjudicator found that due to the failure to serve the relevant payment or pay less notices, DMSL was liable to pay the 'notified sum'. Crystal later commenced another "smash and grab" adjudication before the same adjudicator, and DMSL was ordered to pay Crystal the further sum of £219,738. DMSL did not pay the adjudicator's awards.
The matter proceeded to the TCC for enforcement, however Crystal's application for summary judgment was refused and instead the court ordered expedited trial to decide whether works were construction operations for the purposes of the Act, and whether any works falling outside of that and being part of a hybrid contract, were more than de minimis, making the Decision unenforceable as the "notified sum" contained amounts for both construction and non-construction operations. See our commentary on the cases of Severfield and Cleveland Bridge, which explain the effect of a hybrid contract on a notified sum, in this blog.
Crystal argued that their operations involved working on roofs, working at height, carrying out surveys and providing engineering-type advice, therefore the work did fall within the definition of a "construction operation" under the Act. However, Judge Keyser KC noted that the key focus should be on "whether the structures or other apparatus on which the works were undertaken form, or were to form, part of the land" which television aerials did not, as they were easily removable.
This meant the adjudicator did not have jurisdiction and the decisions were unenforceable. In arriving at this decision, Judge Keyser KC thought it was enough that "at the very least a substantial proportion of the works to which the adjudication decisions related comprised operations that were not construction operations."
What does this mean for the construction industry?
This case highlights the importance of parties understanding whether all or part of their works fall within the definition of a "construction operation" under the Act and whether their contract is in fact a construction contract. Instead of looking into a crystal ball for the answer, parties should review their contracts thoroughly, and seek advice if necessary, to ensure they are not faced with a situation where they are unable to exercise the rights granted by the Act.