Construction Contracts Act 2013: Some problems anticipated in practice
Opportunities to frustrate payment
Employer can raise any defence
Adjudication in the United Kingdom involves rough justice
Implications of the Constitution of Ireland
Jurisdiction of the adjudicator
Adjudicator withholding their decision pending payment of their fees
The Irish legal system
“Adjudication is a process similar to expert determination and involves a neutral and independent third party, an adjudicator, who uses his or her own knowledge and investigations, whilst also weighing the evidence presented by the parties, in order to reach a legally-binding decision.”1
12.1 The Irish legal system is a common law system similar to that existing in England and Wales. The courts apply both the common law and the principles of equity. The Irish parliament is the Oireachtas, which has a lower house (Dáil Éireann), whose members are directly elected by the general public, and an upper house (Seanad Éireann), whose members are a mix of people elected by academic and trade organisations, with others directly nominated by the Government.
12.2 Apart from judge-made law, the main sources of Irish law are:
- .1 Statutes enacted by the Oireachtas and secondary legislation deriving from such statutes;
- .2 The Constitution of Ireland (Bunreacht na h’Éireann); and
- .3 European Union law, as applicable to Ireland.
The Constitution of Ireland
12.3 This is a written code, which can only be amended by direct referendum of the general public. The Constitution is all-pervasive in the Irish legal system. The three arms of the state, namely the legislature, the executive and the judiciary, must comply with the Constitution at all times. There is a great emphasis under the Constitution placed upon fair procedures in all judicial and quasi-judicial decision-making tribunals.
Dispute resolution in Ireland
12.4 Disputes in the construction industry in Ireland have traditionally been resolved in the following ways (in ascending order of time and expense):
- .1 Direct negotiation between the parties;
- .2 Conciliation and, less frequently, by facilitative mediation; and
- .3 Arbitration under the Arbitration Act 2010, which adopts the UNCITRAL Model Law on International Commercial Arbitration (with certain amendments).
12.5 Construction disputes are sometimes dealt with by the courts in Ireland. The High Court is perceived as being slow and expensive and cases can take years to get to a hearing. However, the Commercial Division of the High Court deals with cases in which the sum in dispute amounts to at least €1 million. Proceedings in the Commercial Court are generally viewed as being expensive, but cases get to a hearing within some weeks, rather than years in the ordinary High Court. Appeals from the High Court are dealt with by the new Court of Appeals and, in exceptional cases, by the Supreme Court.
Conciliation in Ireland
12.6 Under this system, a neutral conciliator meets the parties separately and/or jointly. They endeavour to try to broker a contractual resolution of the dispute. Depending upon the preference of the parties, the process may be very informal, without any lawyers involved. Alternatively, it can be quite formal, including comprehensive factual, quantum and legal submissions in writing and oral hearings attended by the parties’ respective lawyers.
12.7 If the dispute cannot be resolved by agreement, the conciliator issues a recommendation in writing. If neither party rejects the recommendation within a fixed period, that recommendation becomes binding upon both parties. Depending upon the conditions of contract being used on the project, the fixed period may vary between 10 days and 42 days.
12.8 The form of contract published by the Royal Institute of the Architects of Ireland (the RIAI), the Agreement and Schedule of Conditions of Building Contract, 2012 edition, is often used for private building projects in Ireland. Under the RIAI Contract, if either party rejects the conciliator’s recommendation within the relevant fixed period (namely 10 working days), the dispute remains unresolved and the next step is to refer the dispute to arbitration. Under this form, there is no requirement placed upon the conciliator to adhere to the contractual merits of the dispute, or to provide reasons with the recommendation.
12.9 Public projects in Ireland are governed by the Public Works Contract, which is published by the Office of Government Procurement. There are several variants of this form to cover minor, or major, works, designs by the employer, or the contractor, building, or civil, engineering works and so on. This form was introduced in 2007 and it is revised frequently. At the time of writing, the most recent version is that published on 27 June 2014. Unlike the RIAI Contract, clause 13.1.8 of the Public Works Contract provides that:
“The conciliator shall base the recommendation on the parties’ rights and obligations under the Contract.”
12.10 Furthermore, if the recommendation is rejected within the relevant fixed period (namely 42 days) and the conciliator has recommended that the employer, for instance, is required to pay a sum of money, the employer must pay that sum to the contractor, pending the outcome of any subsequent arbitration. This payment is subject to the contractor furnishing a bond to cover the repayment of the money, in the event that the arbitrator finds in favour of the employer. It can thereof be appreciated that conciliation under the Public Works Contract has some of the features of adjudication.2
12.11 In Ireland, the success rate of conciliation in resolving disputes is well over 80%. In a survey of 332 conciliations, the success rate was 88%.3
Adjudication in Ireland
12.12 Save for a few ad hoc adjudications under certain contracts, there is no direct experience yet of adjudication in Ireland. However, due to a perceived need to improve cash flow in the construction industry, adjudication on a statutory basis is being introduced by virtue of the Construction Contracts Act 20134 (the Act) [Appendix 15.1].
12.13 The Act governs construction contracts for virtually all projects, save for dwellings with a floor area not greater than 200 square metres: see section 2 thereof. There are provisions concerning payment periods, under section 3 and the Schedule, thereto and payment claim notices: see section 4 thereof. Work may be suspended in the absence of payment, under section 5 of the Act, or where there is a failure to comply with a decision of an adjudicator: see section 7 thereof.
12.14 Section 6 of the Act confers a right to refer to adjudication “any dispute relating to payment arising under the construction contract” “at any time”: see section 6(1) and (2) thereof. The parties may agree to appoint an adjudicator of their choice. Failing agreement, an adjudicator will be appointed by the chair of the panel from a range of adjudicators appointed by the Minister for Public Expenditure and Reform: see sections 6(4) and 8 of the Act. The adjudicator must reach a decision within 28 days of the date when the referral is made, or such longer period as is agreed by the parties: see section 6(6) thereof.
12.15 Section 6 of the Act also provides that:
“(8) The adjudicator shall act impartially in the conduct of the adjudication and shall comply with the code of practice published by the Minister under section 9 …
(9) The adjudicator may take the initiative in ascertaining the facts and the law in relation to the payment dispute and may deal at the same time with several payment disputes arising under the same construction contract or related construction contracts.
(10) The decision of the adjudicator shall be binding until the payment dispute is finally settled by the parties or a different decision is reached on the reference of the payment dispute to arbitration or in proceedings initiated in a court in relation to the adjudicator’s decision
(11) The decision of the adjudicator, if binding, shall be enforceable either by action or, by leave of the High Court, in the same manner as a judgment or order of that Court ….”
12.16 Each party shall bear their own legal costs (under section 6(15) of the Act), but must pay the fees, costs and expenses of the adjudicator in accordance with the decision of the adjudicator: see section 6(16) thereof. The adjudicator may resign at any time: see section 6(17) thereof.
12.17 A commencement date for the Act has recently been published (namely 25 July 2016) and the Minister’s panel of adjudicators has been appointed under section 8. The Minister has also published a code of practice for the conduct of adjudications:5 see section 9.
Construction Contracts Act 2013: Some problems anticipated in practice
12.18 The Construction Contracts Act 2013 is intended to improve cash flow in the construction industry. However, even under the Act, there are many problems for a contractor seeking payment from an employer and precisely the same comments also apply to sub-contracts.
Opportunities to frustrate payment
12.19 Under the Act, an employer can frustrate, or delay, payment in many ways, some of these being as follows:
- .1 Under section 4 of the Act, the contractor can deliver a payment claim notice, but all that the employer has to do is to deliver a response stating that only €10 is due and then pay the €10;
- .2 In addition, unlike the position in the United Kingdom, section 4 of the Act imposes no penalty on the employer for non-payment, or for not sending a response to the payment claim notice.
12.20 In the United Kingdom, the original section 111 of the Housing Grants, Construction and Regeneration Act 1996 (the HGCRA) [Appendix 1.1] expressly provided that:
“(1) A party to a construction contract may not withhold payment … unless he has given an effective notice of intention to withhold payment….
(2) To be effective such a notice … must be given not later than the prescribed period before the final date for payment ….”
12.21 Section 111 of the HGCRA has subsequently been amended by section 144 of the Local Democracy, Economic Development and Construction Act 2009. In the absence of a valid “pay less” notice, the employer must pay the sum notified by the contractor (save in the case of the contractor’s insolvency). The amended section 111 is convoluted, but has been summarised, as follows:6
“(2) The ‘notified sum ‘means …
(c) in a case where a valid payer’s notice has not been given and a valid payee’s notice is given, the amount specified in that notice.”
Employer can raise any defence
12.22 In SL Timber Systems Limited v Carillion Construction Limited,7 Lord Macfadyen stated as follows:
“In my opinion, the absence of a timeous notice of intention to withhold payment does not relieve the party making the claim of the ordinary burden of showing that he is entitled under the contract to receive the payment he claims. It remains incumbent on the claimant to demonstrate … that the sum claimed is contractually due…. the adjudicator erred in holding that the pursuers were relieved, by the defenders’ failure to give a timeous notice of intention to withhold payment, of the need to show that the sums claimed were due under the contract.”
12.23 This means that, even if no response is sent to the payment claim notice, the employer can fight the contractor over every issue, whether in adjudication, arbitration or court.
12.24 In Cantillion Limited v Urvasco Limited,8 Akenhead J stated as follows:
“Thus, it is open to any defendant to raise any defence to the claim when it is referred to adjudication or arbitration.”
In YMCS v Grabiner,9 Akenhead J added that:
“(b) It is open to the defending party in adjudication to put forward a defence which has not been raised before. There is nothing in the [UK] Act which prevents a defendant from raising any defence….”
12.25 Bailey10 states that:
“Generally speaking, it is open to a respondent in an adjudication to put forward whatever points it wishes to make in defending itself – whether or not those points have been raised previously – and an adjudicator will have jurisdiction (and be required) to consider those points of defence.”
12.26 In Gary Kitt and EC Harris LLP v The Laundry Building Limited and Etcetera Construction Services Limited,11 by careful wording in its notice of adjudication, the contractor tried to limit any defence which the employer might raise. Akenhead J stated that:
“ There is a settled body of authority for the proposition that an adjudicator has to consider and indeed adjudicate on defences put forward by a defending party in adjudication, even if a specific defence has not been raised before….  If this scenario was attempted in court proceedings, it would rightly be treated as completely wrong and unjustified. The Court would never feel constrained by artificial attempts to limit its jurisdiction, although of course it would only address (usually) the arguments in defences actually mounted by a defendant.
 I am wholly satisfied that it is not possible in adjudication to limit an adjudicator’s jurisdiction in this way. One cannot refer to adjudication a disputed claim to payment and dress up the definition of the dispute in such a way as jurisdictionally to prevent a defending party from raising any defence, whether good or bad, in the adjudication….To seek, however, to refer a payment claim and say, at the same time, that the referring party is not referring parts of the claim which might be challenged by the defending party is illogical, unmeritorious and wrong. It is a device which cannot and should not work.”