When is a telecommunications contract a construction contract?
In the recent case of Crystal Electronics Ltd v Digital Mobile Spectrum Ltd (2023) EWHC 2656 the court had to assess whether a telecommunications contract was considered to be a construction contract under the Housing Grants, Construction and Regeneration Act 1996 (the act). The case serves as a useful reminder to those in the telecommunication sector who wish to rely on statutory rights which are implied into contracts under the act, such as payment provisions, or the right to refer a dispute to adjudication of the applicable principles.
The act applies to all “construction contracts” which are contracts for the carrying out or arranging for the carrying out of “construction operations” which are defined in section 105(1) of the act. The list of construction operations includes the construction, alteration, repair, and maintenance of any works forming, or forming part of the land to include electronic communications apparatus. This wide definition includes common activities such as installing cables and associated infrastructure, however, the works covered by the particular telecommunications contract in issue were found to be outside of the act.
Background
- The defendant, Digital Mobile Spectrum Ltd (DMSL), was set up in 2012 as a joint venture by the four UK mobile network operators for the purpose of carrying out remedial works in addressing the “detrimental effects of 4G mobile broadband service on digital terrestrial television”.[1]
- DMSL engaged the claimant, Crystal Electronics Ltd (Crystal), as a contractor to visit households impacted by 4G interference and conduct a number of tasks depending on the signal readings. In some instances, nothing more would be required than to simply retune or fit a filter to the television set (or other equipment).[2] If these initial fixes were not enough, then additional work would be required, such as: taking signal readings from the loft or roof, installing an internal amplifier, fitting a filter to an aerial, fitting a mast-head-amplifier adjacent to the aerial, or realigning, moving or installing an aerial.
- In February 2023, DMSL terminated the agreement, which led to Crystal referring two separate payment disputes to adjudications under the same adjudicator. The award required DMSL to pay outstanding sums due to Crystal.
- However, DMSL did not make payment and Crystal commenced enforcement proceedings and issued its application for summary judgement. DMSL resisted the application, which proceeded to a hearing.
- At the remote hearing on 15 August 2023, HHJ Keyser KC refused Crystal’s application for summary judgement and gave directions for an expedited trial to consider the issues surrounding the enforceability of the adjudicator’s decision. The issues focused on:
- Whether the works were construction operations for the purposes of section 105 of the 1996 act?
- Did works which were not construction operations for the purposes of section 105 of the 1996 act form more than a de minimis part of the works in respect of which the decision was made such that the decision is unenforceable?
The decision
Crystal argued that the works were either a construction operation (section 105(1) (b), (c) and (e)), or a form of surveying and/or engineering advice in relation to construction operations (section 104(2)(a) and (b)). Crystal submitted that the words of section 105(1)(b), “electronic communications apparatus”, which were substituted for the previous “telecommunications apparatus” by the Communications Act 2003, made clear that work on the apparatus for use in connection with a digital television network was deliberately brought within the potential scope of “construction operations”.
In deciding the case, the judge determined that the critical question under section 105(1) was whether the structures or other apparatus on which the works were undertaken form, or were to form, part of the land. To determine this, the Judge reviewed the factual evidence put before him alongside relevant authorities, focusing on the leading case on this topic: Savoye and Savoye Ltd v Spicers Ltd [2014][3] which provides the following guidance:
- Whether something forms part of the land is a question of fact and degree
- Something which is to become a “fixture” will almost invariably form part of the land
- To be a fixture, or to be part of the land, an object must be annexed or affixed to the land
- In relations to objects or installations, one has to have regard to the purpose of the object or installation
- Where machinery or installation is placed or installed, one should have regard to the installation as a whole and the fact that some pieces are more removable than others is not determinative
- Fixing with screws and bolts is a strong pointer to the object or installation being treated as forming part of the land
- The fact that the fixing cannot be removed, save by destroying it or the attachment is a pointer to it being part of the land, and so is a significant degree of permanence
The judge found that a substantial proportion of the work was not on structures or works forming part of the land and therefore did not constitute construction operations. At paragraph 38 of the judgement, the judge commented that the clearest examples of this are the fitting of set-back filters to the television sets and the retuning of the television sets and other devices. HHJ Keyser KC also rejected the contention that this was preparatory work to construction operations. Following these conclusions, the judge disposed of Crystal’s claim to enforce the two adjudication decisions.
As for the works which could have qualified for enforcement if they had stood alone, such as work on rooftop aerials constituting construction operations within section 105(1), or surveying work and/or engineering advice (of the aerials) in relation to construction operations within section 104(2). HHJ Keyser KC decided the following:
Work on rooftop aerials:
- Both the installation of mast-head-amplifier filters and/or aerials were deemed not to be fittings forming part of the land. Specifically addressing the work to the aerials, HHJ Keyser KC concluded the aerials were not generally part of the land, and so were not works in regard to “construction operations”.[4] This was because they were pieces of replaceable equipment, easily installed and removed, which were usually attached to the buildings by a secure form of strapping (not integrated). As for the filters (even if, contrary to the judge’s view, the aerials were to form part of the land), the method of fitting the filters involved no installation that could plausibly make the filter part of the aerial structure.
Surveying work and/or engineering advice (of the aerials):
- Crystal submitted that it had conducted survey work and engineering advice, however, the judge focused on the meaning of the words “architectural [or] design ... work” and the conclusive words, “in relation to construction operations” in section 104(2) and concluded this was intended to cover surveying of land and buildings, as done by surveyors. Simply observing the exterior of the property, environs, aerials and equipment inside the property, was not considered to be “surveying work”, or at least a substantial part would not be in relation to “construction operations”. The judge held the same was true of Crystal's position on advice, and that it did not relate to construction operations either.
Key takeaways
The majority of works carried out in the telecommunication sector is usually considered to fall under the act. As set out above, the judge agreed that the words of section 105(1)(b), “electronic communications apparatus” made clear that work on the apparatus for use in connection with a digital television network was deliberately brought within the potential scope of “construction operations”. However, it will depend on the particular nature of the works undertaken and in particular the extent to which the works satisfy the requirements that they form or are to form part of the land.
Jake Wright