Engie Fabricom (UK) Ltd v MW High Tech Projects UK Ltd

For the purposes of section 105(2)(c)(i) of the Housing Grants, Construction and Regeneration Act 1996, the relevant question is whether power generation is the primary activity at the site. The exclusion does not apply where power generation is merely secondary or ancillary. Identifying the primary activity is a question of fact. Relevant evidence may include the contractual purpose and performance guarantees, the regulatory framework, planning permission, environmental permitting, the physical operations and the financial model. Where the primary activity is power generation, installation of plant or machinery falls outside the statutory definition of construction operations and an adjudicator has no statutory or contractual jurisdiction under the relevant contractual clause.

Fabricom sought to enforce two adjudication decisions requiring MW to pay sums due under a subcontract for installing a fluidised bed gasification plant at Energy Works Hull. MW challenged enforcement on the ground that the subcontract works were excluded from the Housing Grants, Construction and Regeneration Act 1996 by section 105(2)(c)(i), because the site’s primary activity was power generation.

The site processed refuse-derived fuel, generated electricity for export to the National Grid and received gate fees, subsidies and grants. The central issue was whether the facility’s primary activity was power generation or waste treatment.

1. Construction of the statutory exclusion. The exclusions in section 105(2) must be construed so as to give proper effect to the purpose of the Act. The phrase “assembly, installation or demolition of plant or machinery” is confined to the particular operation described. The relevant site-based question is whether power generation is the primary or dominant activity. The exception does not apply where power generation is only secondary or ancillary.
2. Question of fact and relevant factors. The primary activity is determined as a question of fact. Relevant factors included the regulatory and policy framework; the planning permission; the Environment Agency’s IED permit; the site operations and the requirements of the EPC contract and subcontract; and the plant’s funding model, investment capital and income sources.
3. Application. The EPC contract was strong evidence that the plant’s overriding contractual purpose was power generation. It received RDF prepared to a specified fuel standard, its performance was measured by heat and electricity production, and it was required to achieve R1 recovery status. The IED classification as a waste incineration plant was not determinative because the regulatory scheme permitted a later application for R1 recovery status. The planning documents were ambivalent. The funding model, under which most anticipated revenue came from electricity sales and subsidies or grants, supported the conclusion that the facility was intended to operate as a power plant.
4. Disposition. The primary activity at the site was power generation. The subcontract works were therefore outside the definition of construction operations in the Act. There was no statutory or contractual right to adjudication, the adjudicator lacked jurisdiction, the two awards were unenforceable and Fabricom’s claims were dismissed.