What works are ‘any works’? The case of Shepherd Construction v Drax Power29 June 2021

In a case¹ which will be of significant interest to developers and operators of large energy and infrastructure projects both in the UK and internationally, the operator of a large UK-based power station has successfully argued before the English Technology and Construction Court (“TCC”) that it was entitled to withhold from retention for latter phases of work sums in respect of remedial works to earlier phases of that work.

The TCC’s decision reaffirms the principles to be applied in construction of English law contracts and serves as a practical illustration of how those principles apply to the interpretation of the FIDIC Yellow Book First Edition (1999).

Given the UK government’s drive to eliminate unabated coal-fired power generation, the case will be particularly pertinent to operators of UK power stations who may be in the process of converting those power stations to biomass or other alternative fuel sources.

Background

In March 2012, the defendant, which operates Drax Power Station in North Yorkshire, entered into an agreement with the claimant for the conversion of four of the six generating units at that power station to operate on biomass fuel. The contract largely followed the standard form of the FIDIC Plant and Design-Build Contract First Edition 1999.

The first phase of the project concerned the design, engineering, installation and commissioning of a facility, known as the Ecostore, which would be used to unload and store the biomass fuel ready for transportation to the boiler distribution system (the “Ecostore Works”). Taking over certificates for those works were issued in September 2014 and the last part of the retention money relating to those works was released in December of that year.

Meanwhile, in October 2012, the parties varied the contract to provide for the engagement of the claimant to carry out the second phase of the project, being the design, engineering, installation and commissioning of the boiler distribution system (the “BDS Works”).

In February 2019, the claimant made an interim payment application seeking payment of the balance of the retention money in respect of the BDS Works. However, the defendant sought to make twelve deductions from that sum, four of which related to the cost of remedying defects in the Ecostore Works. The claimant disputed the defendant’s right to make those four deductions.

The issue

In making the disputed deductions from the retention money, the defendant relied upon the words “any work” in clause 14.9.6 of the contract, which was derived (in amended form) from the FIDIC standard form:

“14.9.6 However, if any work remains to be executed under Clause 11 (Defects Liability) or Clause 12 (Tests after Completion) the Employer shall be entitled to withhold the estimated cost of this work until it has been executed and to deduct the same from amounts otherwise due to the Contractor until such time as the work is completed.” (emphasis added)

The claimant argued that sub-clause 14.9.6 did not entitle the defendant to withhold sums relating to the remedying of defects in the Ecostore Works from the BDS retention money. The claimant pointed (among other matters) to a preamble part-way through clause 14.9 which read “[i]n relation to the Works comprised and relating to Sections 3, 4 and 5” (being the BDS Works), arguing that those words qualified the phrase “any work” in clause 14.9.6 such that it was limited to the BDS Works only.

On the defendant’s case, there was no such restriction under the contract and the phrase “any works” should be construed broadly as any unexecuted works arising under the contract’s defects liability provisions, whether they related to the BDS Works or the Ecostore Works.