Yarm Road Ltd v Costain Ltd
The substitute sub-contractor could under the novation agreement adjudicate disputes against the contractor under the Construction Act 1996 on the basis that the agreement was a construction contract under section 104 (1)(a) and (6)(a)
30 July, 2001
A novation agreement was entered into between the contractor, the original sub-contractor and the substitute sub-contractor. Disputes were referred to adjudication by the substitute sub-contractor. The contractor contended that (1) the novation agreement did not constitute a construction contract within the meaning of the Construction Act 1996 because if it did, the Act would have had retrospective effect (2) the novation agreement did not ?make new provision? for the carrying out of construction operations because the same operations were already provided for in the sub-contract (3) If the novation agreement did fall within the Act, there would follow certain absurd consequences such as the substitute sub-contractor being entitled to (a) refer to adjudication disputes relating to work done as much as three years before the Act's commencement date (b) the benefit of the Act's payment provisions, ie the right to payment without deduction in the absence of a withholding notice under section 111, stage payments, suspended work for non-payment and the prohibition of ?pay when paid? provisions and (c) advance claims against the contractor for interest by way of damages for breach of contract before the Act came into force on the basis that monies were withheld without a proper withholding notice. It was common ground between the parties that (1) the sub-contract work constituted construction operations within the meaning of section 105 of the Housing Grants, Construction and Regeneration Act 1996 and (2) the novation agreement discharged the original sub-contract and created a fresh sub-contract. Judge Havery held that a declaration should be made in the terms sought by the substitute sub-contractor, ie that it was entitled to pursue disputes against the contractor by way of adjudication under the Construction Act 1996. This was on the basis that the novation agreement under which the sub-contractor was in effect substituted for the original sub-contractor was a construction contract within the meaning of section 104 (1)(a) and (6)(a) because the wording of the Act was clear and inescapable notwithstanding the potentially serious anomalies pointed out by the contractor of such a conclusion and without deciding whether the Act's payment provisions were retrospective. Advice Note A novation agreement in respect of a construction contract is a ?construction contract? for the purposes of the Construction Act notwithstanding the potential anomalies which this will entail.