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Deeming provisions can lose their potency over time

28 Oct 12 Can a contractor ‘deem’ a subcontractor’s property rights away? Laura Phoenix reports.

Laura Phoenix
Laura Phoenix

This month a technology and construction court judge, the Hon Mr Justice Akenhead considered what happens to a subcontractor’s equipment when brought to site under a contract providing that the equipment is ‘deemed’ to be the contractor’s property when on site for the purposes of the subcontract work.

The case is called Alstom Power Ltd v Somi Impianti SRL and it shows that deeming provisions are dangerous and likely to cause disputes about their duration.

Alstom was engaged by RWE Npower as the main contractor to engineer, procure and construct a power plant in Pembrokeshire. Alstom employed an Italian company, Somi, as its subcontractor to carry out mechanical and plant piping erection. Somi failed to perform its duties under the subcontract, Alstom terminated the contract and Somi went into liquidation in Italy.

Although Alstom handed over the main works to RWE Npower in September 2012, Alstom wished to keep equipment supplied by Somi for the execution and completion of the works at the site for the foreseeable future. 

Alstom had already obtained a judgement against Somi for £5.3m. In these separate proceedings, Alstom sought a declaration that all of Somi’s equipment on site belonged to Alstom and that Alstom was entitled to sell it.

The key question was: Had title to Somi’s equipment passed to Alstom under the deeming provision ‘for ever’ and, if not, did that title revert to Somi when Alstom no longer needed the equipment for the construction of the power plant?

Alstom relied on the terms of the subcontract. The general conditions of subcontract were based, at least in part, on well-known standard forms and said that the materials, when brought on to the site, were ‘deemed to be exclusively intended for the execution of the Works’ and ‘deemed to be the property of the Contractor’.

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Other relevant subcontract provisions said that in the event of termination, Alstom could take possession of Somi’s equipment on site as reasonably required to complete the work and that Alstom could sell Somi’s equipment to satisfy any debt owed by Somi to Alstom.

Justice Akenhead held that proprietary ownership did not permanently pass to Alstom, as there is a marked difference between the meaning of ‘deemed to be’ and the meaning of ‘becoming’.  The court took this to mean the property was deemed to be Alstom’s while on the site for the purpose of building the project but only for that purpose (i.e. temporarily) but not after because the words ‘deemed to be [the Contractor’s property]’ had been used rather than ‘becomes’.  

Akenhead gave Clause 1.1 of the definitions section of the Contract as the reason for his decision.  Clause 1.1 defined Subcontractor’s Equipment as ‘all appliances and things of whatsoever nature…. required for the execution and completion of the Works, excluding ….. things intended to form part of the Permanent Works.’

Akenhead held that Alstom was therefore entitled to possession of Somi’s equipment until completion of the warranty period (not just until practical completion of the work).

In a final twist, the judge held that, subject to Italian insolvency law, Alstom nevertheless had the right to sell Somi’s equipment once the post-termination final account procedure had been followed pursuant to the terms of the contract. I imagine this is because (a) the £5.3m judgment debt was expected to be greater than any sum ultimately due to Somi and (b) the contract contained an express provision to this effect, although Akenhead did not give specific reasons at this point in his judgment.

Like a magic spell, deeming provisions can clearly lose their potency over time. If, as a subcontractor, you are forced to accept a deeming provision, then make sure that it is time- or purpose-limited. If, as the employer, you intend to obtain title to a subcontractor’s equipment permanently, avoid deeming provisions and use clear words instead. Who wants a pumpkin instead of a golden carriage?

About the author: Laura Phoenix is an associate in the construction team at Thomas Eggar LLP

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