HT-2024-000423 - [2025] EWHC 942 (TCC)

Wholesale or Partial Incorporation?

[50]. The Scheme is divided into two parts: Part I (which is otherwise immaterial for the purposes of this appeal) deals with the adjudication provisions to be incorporated if the contract did not contain a proper adjudication clause. Part II sets out the more complex provisions which apply if the parties failed to agree compliant payment conditions. Although there has been a certain amount of confusion in the authorities as to whether, in cases of non-compliance, these Parts are to be incorporated wholesale or only where necessary, I consider that the position is now clear.

[51]. Part I of the Scheme, dealing with adjudication provisions, is a series of “all or nothing” provisions. If the contract does not contain proper adjudication provisions, then Part I of the scheme applies “lock, stock and barrel”: see Edwards-Stuart J in Yuanda (UK) Co Limited v WW Gear Construction Limited [2010] BLR 435 at [61]. That is because of s.108 of the Act and the straightforward provision in s.108(5) that, if the contract did not comply with the Act, “the adjudication provisions of the Scheme for Construction Contracts apply”. There is nothing to say that such incorporation would only be to the extent necessary.

[52]. But Part II of the Scheme is different. The payment provisions there are incorporated where the contractual provisions are non-compliant, but s.110(3) makes plain that that is only “if or to the extent that” the contract does not contain the relevant provisions. As I pointed out in Banner Holdings Limited v Colchester Borough Council [2010] EWHC 139 (TCC); [2010] 131 Con LR 77, the words “to the extent that” are missing from s.108. That indicates that piecemeal incorporation is permitted in respect of the payment provisions in Part II of the Scheme in a way that is not permitted in respect of Part I.

[53]. That was always the approach in Scotland: see Hills Electrical & Mechanical plc v Dawn Construction Limited [2004] SLT 477. In that case Lord Clarke found that some of the payment provisions did not comply with the Act and that therefore Part II of the Scheme had to apply, but only to the extent that the express terms of the contract omitted particular requirements of the Act. That approach has been followed in England in a number of more recent cases. I note in particular that in Grove Developments v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC); 165 Con LR 153, Stuart-Smith J said, at paras 28-29:

“28.

In Yuanda (UK) Co Ltd v WW Gear Construction [2010] BLR 435 at [55]ff Edwards-Stuart J contrasted the words of s. 108 of the Act (which incorporates the Adjudication provisions of the Scheme) with those of ss. 109, 110 and 113 (which incorporate the Payment provisions of the Scheme). He concluded at [62] that, where s. 108 of the Act applies to bring the Scheme's provisions concerning adjudication into play, it implements all of those provisions of the Scheme. At [63]-[64] he contrasted the position pursuant to s. 108 relating to Adjudication provisions with the position pursuant to ss. 109 and 110 relating to the Payment provisions of the scheme and expressed his agreement with the reasoning of the Outer House in the Scottish Case of Hills Electrical & Mechanical v Dawn Construction Ltd [2004] SLT 477. In Hills, Lord Clarke decided on the basis of the wording used in sections 109 and 110 that the approach of the legislature when dealing with the Payment provisions of the Scheme was not Judgment Approved by the court for handing down. automatically to incorporate all of the Payment provisions but was to import the appropriate provision or provisions of the Scheme in order to make up for their omission or inadequacy in the Construction contract.

“29.

I also respectfully agree with the reasoning and decision in the Hills case. It follows that where section 109 or section 110 is engaged, the provisions of the Scheme as to payment will only be imported and apply so as to govern the legal relations of the parties to the extent that they have not already concluded binding contractual arrangements that can remain operative. They will not automatically or necessarily be imported in their entirety. It is of course possible that the existing arrangements under a given contract are not capable of forming part of a payment scheme when read with the relevant provisions of the Scheme. If that were the case it may be necessary to import the Scheme's payment provisions as a whole. But that is not a necessary or correct outcome if the existing contractual arrangements are capable of co-existing with some of the Payment provisions of the Scheme to form a coherent whole.”

The decision was upheld by the Court of Appeal ([2016] EWCA Civ 990; [2017] 1 WLR 1893).

[54]. Accordingly, I regard it as settled law that, where payment provisions do not comply with sections 109 or 110 of the Act, Part II of the Scheme applies, but only to the extent that such implication is necessary to achieve what is required by the Act.

The correct approach to Part II

[55]. There is very little authority as to how the court should go about the task required by Part II. In Alstom v Jarvis, Judge Lloyd made a number of references to the tortuous nature of the drafting, and the “maze-like” exercise required to arrive at the answer. In the Banner case I complained that it should not really be the court’s job to have to piece together one set of compliant provisions from two different sources. Judge Waksman made a similar complaint in the current case.

[56]. The few authorities dealing with the approach to be applied to payment provisions which do not contain an adequate mechanism required by section 110 are concerned with the particular provisions relating to final payments. So, other than those cases previously noted, leading counsel were unable to find any authority dealing with the interplay between an inadequate mechanism for periodic or interim payments, and paragraphs 1-7 of Part II of the Scheme.

[19]. Rochford also cited the very recent Court of Appeal judgment in C Spencer Limited v MW High Tech Projects UK Limited [2020] EWCA Civ 331 where Coulson LJ decided the issue of whether in the case of hybrid contracts providing for both construction operations and non-construction operations excluded from the Act, a valid payment was required to identify separately the sum due in respect of construction operations. In finding that it did not, he emphasised the primacy of the contract:

“38.

Mr Nissen argued that the sub-contract terms were of limited importance because what mattered was the Act. He also said that, since the whole basis of the Act was contrary to the general principle of freedom of contract, it was inappropriate to start any analysis by reference to the terms of the sub-contract. I disagree with those submissions.

39.

What the Act does is to identify certain minimum provisions, as to payment and as to dispute resolution by way of adjudication, which every construction contract must contain. Thus, any analysis must start with the contract terms, in order to see if they comply with the Act. The Act itself envisages that the parties will contract on terms which they agree between themselves. If the agreed terms comply with the Act, then the conventional view is that the Act is no longer of any direct relevance to the rights and obligations of the parties.”