Boundary disputes

It is the judgment of Lord Macfadyen in Homer Burgess Limited vs Chirex (Annan) Limited.

Let me tell you what happened. The primary activity at the Chirex site is the production and processing of pharmaceuticals. Homer Burgess was contracted to install pipework and carry out other work for Chirex. Disputes arose between them, and Chirex refused to pay. So, the pipe contractor called for an adjudicator to decide whether Chirex should pay up. He decided that Homer Burgess should receive £284 000.

Chirex would not comply with the adjudicator’s order, so the pipe people went to court. Chirex argued that as a pharmaceutical site, it is outside the Construction Act. The act says the assembly or installation of plant or machinery on a site where the primary activity is the production, transmission, processing or bulk storage (other than warehousing) of chemicals or pharmaceuticals is a specific exemption from the act. The adjudicator would not wear this argument.

He very competently explained that pipework was difficult to categorise as (the exempted) plant or machinery. Pipework features in any common or garden building or civil engineering project. In any case, he had had many years’ experience in process engineering and, for him, plant and machinery was a piece of apparatus in which the process was affected, but this was not true of pipes or conduits or electrical works between items of plant. So, he said he had jurisdiction and the parties pressed on.

Chirex repeated its argument before the learned judge during the enforcement proceedings. This was a pharmaceutical site exemption. But Homer Burgess explained that it was quite possible to have a project that was partly a construction contract and partly not. It was the nature of the individual items of work that gave jurisdiction.

The judge explained that the right to call for an adjudicator and therefore the right of the adjudicator to make binding decisions requires a “construction contract”, as defined in the act, together with attention to whether the actual works in dispute were “construction operations”.

It is unacceptable to spend hard cash on the 28-day process only to find that the referee had no right to be there at all

A contract might be a “mixed contract” having construction operations and non-construction operations. It was therefore necessary to consider the question on an item-by-item basis. In this particular case, the focus would be on the meaning of the word “plant” as used in the act.

Moreover, it was important for the court to ask whether the decision of an adjudicator on his jurisdiction is binding in itself. It was not. Rather, such matters were preliminary issues, not a dispute arising under the contract. It was open to the court not to give an adjudicator’s decision binding effect in matters regarding jurisdiction.

So, is this a contract that allows for adjudication under the Construction Act? Not for pipework, said the judge. The pipework was the link between various pieces of machinery or equipment by which ingredients in the manufacture of pharmaceuticals are conveyed from one stage of the manufacturing process to another. “I am of the opinion that the pipework was clearly part of the plant being assembled or installed on [Chirex’s] site. Without such pipework, the individual pieces of machinery or equipment would be unable to operate.” It was, therefore, within one of the exemptions to the act and was not a construction operation.

The case focuses on the right or not to adjudicate. These are known as jurisdiction points. Jurisdiction quarrels are now very frequent. The appointed adjudicator often has to decide the point, but his decision is not binding. In one case, the judge saw that jurisdiction was so complex he ordered a trial. Meanwhile, he did not enforce the adjudicator’s decision. And if there is an arbitration clause, the issue of jurisdiction, if unclear, would have to come to an arbitrator.

It is time to set up a special group of arbitrators to decide issues of jurisdiction and to do so in the early days of the adjudication. The special arbitrator will be the umpire. An early decision will give the red or green light to the adjudicator, and if it is a red light, it will stop the expense of wasted adjudication. It is unacceptable to spend hard cash on the 28-day process only to find the referee had no right to be there at all.

By the way, Lord Macfadyen observed that since jurisdiction is an item-by-item approach, this “may make jurisdictional disputes quite common”. Only the word “may” is wrong; such disputes are already quite common.