October 8, 2021

The "Pay now, argue later" drum is beating loud and clear in the Irish High Court

When dealing with Adjudicator's decisions under the Construction Contract Act 2013, "pay now, argue later" was the resounding message coming from Mr Justice Simons

"Pay now, argue later" was the resounding message coming from Mr Justice Simons in Aakon Construction Services Limited v Pure Fitout Associated Limited [2021] IEHC 562

The Construction Contracts Act2013, which came into effect in 2016, gives a party on a construction contract the right to refer a payment dispute to adjudication at any time. The Act intends to improve cash flow and reduce the cost of resolving disputes by ensuring disputes are resolved by an Adjudicator within a short time frame. The losing party is duty bound to pay on foot of the Adjudicator's decision.

This case gives us a helpful insight into the purpose of the Construction Contract Act 2013, the binding nature of an Adjudicators decision, and the matter of multiple disputes under the Act. The case also highlights significant differences between the 2013 Act and equivalent legislation in the United Kingdom.

Purpose of the 2013 Act

Referring to a recent decision in Principal Construction Ltd v. Beneavin Contractors Ltd [2021] IEHC578, Mr Justice Simons found that the purpose and aim of the Construction Contract Act 2013 is to:

Provide for a summary procedure to enforce the payment of moneys from one party to another in a building contract, notwithstanding that it may ultimately transpire that such moneys are, in fact, not owed. This ensures that moneys are paid without having to await the outcome of arbitration or litigation, which,more often than not, involves delay.
The Act applies irrespective of the terms of the construction contract agreed between the parties. Thus, there is a statutory right to refer a payment dispute to adjudication.
The decision of the Adjudicator is binding until the payment dispute is finally settled by the parties, or until a decision arises from arbitration or litigation.
There is a summary procedure for enforcing a decision of the Adjudicator.

The binding nature of an Adjudicators Decision

On the binding nature of an Adjudicators decision, Mr Justice Simons had this to say:

The Act does not designate a decision of an adjudicator as final and conclusive. Rather, it is envisaged that an adjudicator's decision may be superseded by a subsequent decision reached in arbitral or court proceeding. [para. 11 of the decision]
Even though the Adjudicator's decision is not final and conclusive, it nevertheless gives rise to an immediate payment obligation. The successful party is entitled to enforce the Adjudicator's decision forthwith, by invoking a summary procedure, notwithstanding that the Adjudicator's decision is amenable to being overreached by a subsequent decision of an arbitrator or a court. [para.12 of the decision]
The words "if binding" used in section 6(11) of the Act, are not intended to suggest that the binding status conferred on an adjudicator's decision is qualified or uncertain. Nor are the words intended as an invitation to parties to question the binding nature of the Adjudicator's decision in enforcement proceedings. [para. 13 of the decision]
The rationale underlying the legislation is that it is in the public interest that payment disputes under construction contracts be resolved expeditiously and that the decision of an adjudicator should be capable of being enforced immediately. This rationale is sometimes described by the shorthand "pay now, argue later". The paying party is entitled to pursue the matter further, whether by way of arbitral or court proceedings. In the event that it is successful, it will then be entitled to recover any over payment from the other side. [para. 15 of the decision]
The precise contours of the High Court's discretion to refuse to enforce what is expressed under legislation to be a binding decision should be developed incrementally. [para. 21 of the decision]
A courts scope, in exercising its discretion to grant leave to enforce an Adjudicator decision is narrow and is circumscribed by the wording of the Construction Contracts Act 2013, which confers binding effect on a "decision"of an adjudicator, albeit on a provisional basis. [para 32 of the decision]
The successful party in an adjudication can seek to enforce the Adjudicator's decision immediately, by way of a summary procedure instituted by originating notice of motion. The unsuccessful party must await the outcome of plenary proceedings (or, more typically, arbitral proceedings) before it can recover any over payment. [para34 of the decision]

The Adjudicators decision gives rise to an immediate payment obligation, notwithstanding that the Adjudicator's decision is amenable to being overreached by a subsequent decision of an arbitrator or a court. A courts scope, in exercising its discretion to grant leave to enforce an Adjudicator decision is narrow

Multiple Disputes

It has been argued that a party may only refer a single dispute to adjudication under the 2013 Act. If multiple disputes were brought forward to adjudication, it could render the adjudication process null and void. This was found not to be the case by Mr Justice Simons where he decided in para. 99 and 100 of his decision that S.6(9) of the Construction Contracts Act 2013 expressly provides that an adjudicator may deal at the same time with several payment disputes arising under the same construction contractor related construction contracts.

Therefore, there is no restriction under the domestic legislation on a party referring more than one dispute to an adjudicator.

Proceed with caution; the 2013 Act differs from equivalent legislation in the UK

Para. 17 of Mr Justice Simons decision alerts the reader that UK case law cannot simply be "read across" to the Construction Contracts Act 2013 because the domestic legislation differs in a number of respects from the equivalent legislation in the United Kingdom.

The differences mentioned by Mr Justice Simons are:

Provision is made under the Construction Contracts Act 2013 for an adjudicator's decision to be enforced as if it were an order of court. An adjudicator's decision thus has an enhanced status under the domestic legislation. By contrast, the normal procedure for enforcing an adjudicator's decision under the UK legislation is to apply for summary judgment. [para 41 of the decision]
The adjudication process under the domestic legislation is statutory in origin. By contrast, the UK legislation gives effect to a right to adjudication by implying terms into construction contracts. One practical consequence of this distinction is that an adjudicator's decision in this jurisdiction might, in principle, be amenable to judicial review. [para 42 of the decision]
The provisions in respect of payment claim notices under the Construction ContractsAct 2013 are materially different to those under the UK legislation. In particular, there is no express statutory provision under the Irish legislation which stipulates what the consequences of a failure to respond to a payment claim notice are to be. [para 43 of the decision]
The status of a notice of intention to refer to adjudication under the Construction Contracts Act 2013 is different to that of an "adjudication notice"under the UK legislation. [para 44 of the decision]
Whereas both the Irish legislation and the UK legislation envisage that an adjudicator's decision is to be binding until superseded by another decision, there is a potential difference in the role of the court. Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 (as amended) provides that an adjudicator's decision is binding until the dispute is finally determined by legal proceedings, by arbitration or by agreement. In contrast, Irish legislation refers to court proceedings initiated "in relation to" the Adjudicator's decision. This might be taken as suggesting that it is necessary to challenge an adjudicator's decision head on—rather than simply initiate independent proceedings seeking declaratory relief de novo as to the rights of the parties—and that some weight may have to be given to the Adjudicator's decision. Conversely, the form of wording used under the UK legislation indicates that the Adjudicator's decision is a neutral factor in any subsequent litigation or arbitration. [para 45 of the decision]

It is of great interest for the Construction Industry to see decisions being handed down under the Construction Contracts Act 2013, that give the industry some clarity on how the Act should be interpreted. More importantly, the Construction Industry should be very pleased to see that the Irish courts are fully behind the Act's intent by ensuring the losing party pays an Adjudicators decision without delay. The "Pay now, argue later" drum is certainly beating loud and clear in the Irish High Court when dealing with Adjudicator's decisions under the Construction Contract Act 2013.

For more insight into this blog, please contact Peter McCarthy by email peter@conlex.consulting or 00353 86 7816358