by Jackie Buckley , Gill Cotter, Matthew Austin May-11-2021 in Litigation & Dispute Resolution, Property, Arbitration, Construction
Cases dealing with construction related adjudication in Ireland have been virtually unheard of until recently. However, there have been two judgments delivered in the High Court on the topic in the last few months.
These decisions highlight the important considerations that parties in construction disputes should bear in mind when entering adjudication.
The Legislation
The Construction Contracts Act 2013 (“the Act”) applies to all construction contracts entered into after 25 July 2016.
The Act creates legal rights and obligations for the parties to a construction contract. The principal function of the Act is to regulate payments under construction contracts. Section 6 of the Act provides a statutory right for any party to a construction contract to refer a payment dispute for adjudication. A payment dispute, for the purposes of the Act, is a dispute relating to payment arising under the construction contract. An attractive element of the Act is that a party to a construction contract cannot contract out of the Act (Section 2(b)).
Adjudication
Adjudication is an alternative dispute resolution mechanism whereby an independent adjudicator determines a contractual dispute. The benefit of adjudication is that it is usually concluded within a short timeframe. The Adjudicator is ordinarily required to reach a decision on the dispute within 28 days from the date of referral. This can be extended to 42 days in certain circumstances.
In accordance with Section 6 (10) of the Act, an Adjudicator’s decision is binding. If the amount of the Adjudicator’s decision is not discharged, it is capable of summary enforcement in the same way as any judgment or court order.
Gravity Construction Limited v Total Highway Maintenance Limited [2021] IEHC 19
This is the first judgment in Ireland concerning the enforcement of an Adjudicator’s decision pursuant to the Act.
The initial dispute arose between the parties to a construction contract regarding an interim payment application. Total Highway Maintenance Limited (“THM”) was appointed as the main contractor for construction works. THM appointed Gravity Construction Limited (“Gravity”) as a sub-contractor. In December 2019, Gravity submitted an interim payment application to THM. The payment application was disputed by THM which believed the payment due was less than was valued by Gravity. Gravity referred the dispute to adjudication pursuant to section 6 of the Construction Contracts Act 2013 (“CCA 2013”) in March 2020. In April 2020, the Adjudicator found in favour of Gravity and awarded €135,458.92 to be payable by THM within 14 days of the date of the decision.
THM refused to discharge the sum awarded to Gravity and sought to refer the dispute to arbitration. Gravity rejected this and sought to rely on Section 6(10) of the Act which provides that a decision of the adjudicator shall be binding.
Gravity commenced proceedings in the High Court seeking to enforce the Adjudicator’s decision pursuant to section 6(11). THM sought a stay on the enforcement proceedings and contested that the sums were not payable because it had commenced arbitration proceedings,
Before the full hearing of the case, which was heard before Mr Justice Simons, THM conceded to the proceedings and submitted that an undertaking would be provided to the court that they would pay the award within two weeks, and the proceedings should be adjourned to allow this to happen. It would therefore be unnecessary to enter judgment against THM. This meant that THM would not pursue its application to stay the proceedings to arbitration.
Simons J. did not grant the adjournment to allow THM make payment and, in making an ex-tempore judgment, decided that the appropriate form of order was an “unless” order. In line of Section 6 (11) of the Act, he ordered that judgment would be made against THM enforcing the decision of the adjudicator unless the said sum was paid to the Applicant’s solicitors within seven days.
In his decision to grant costs to Gravity, Simons J. focused on the objective of the Act and the need for expedition. The conduct of THM throughout the proceedings were considered a delaying tactic and costs were granted to Gravity.
Construgomes & another -v- Dragados Ireland Limited & others [2021] IEHC 79
The recent injunction application ruling by Ms Justice Butler in early February 2021 highlights how a court will deal with adjudication in the context of counterclaims and payments on foot of bonds.
The first two named Defendants formed a joint venture (the “Defendant”) for the construction and operation of the New Ross Bypass in Ireland. The Plaintiff was the Sub – Contractor who took on some aspects of the work of the construction project (the “Plaintiff”). In February 2019, a payment dispute arose between the parties and the Defendant withheld payment. The Plaintiff referred the dispute to adjudication under the Act, seeking payment of €1,157,919.30. The Defendant counterclaimed and sought payment from the Plaintiff of €1,482,744.88. Following the adjudication, the Adjudicator found in favour of the Plaintiff and awarded payment of €388,274 to be paid by the Defendant. With regard to the Defendant’s counterclaim, the adjudicator awarded €1,275.
As is common in the framework of agreements underpinning construction projects, the Plaintiff sub-contractor was required to procure a performance bond in favour of the main contractor (a joint venture between the first and second named Defendants).
On the same date as the Adjudicator’s award, the first and second named Defendants notified the Plaintiff that it was in breach of its sub-contract due to an alleged failure to carry out specific works. Payment was demanded, failing which the first and second named Defendant would call upon the performance bond.
The Plaintiff fully disputed this demand and claimed that the issues had been raised and dealt with during the adjudication process. The Plaintiff argued that the first and second named Defendants were prevented from making a separate claim for matters dealt with in the adjudication process. The Plaintiff issued injunction proceedings in the High Court to restrain payment out on foot of the bond. The Defendant maintained that the call on the bond was valid and the claim for payment was separate to the claims made in the adjudication process.
Butler J. found that payment on foot of an on-demand bond can only be interfered with by the Courts in very limited circumstances. Those circumstances are essentially limited to where there is “clear, obvious or established” fraud on the part of the beneficiary. Butler J. found that the Sub-Contractor had not made out a seriously arguable case of fraud and the Court dismissed its application for an injunction. The result being that the Plaintiff was not entitled to resist payment of the bond. It is important to bear in mind that this was an application for injunctive relief only and that the trial of the substantive matter has not yet been heard.
Conclusion
These decisions come against the backdrop of an increasing preference for adjudication among parties involved in construction disputes. According to the Fourth Annual Report of the Construction Contracts Adjudication Service (September 2020), from July 2019 to July 2020, applications for appointments of adjudicators increased by around 40% from the previous reported period.
The objective of adjudication is for a speedy resolution in comparison to other more formal dispute resolution methods such mediation, litigation, and arbitration. While an Adjudicator has a strict timeframe within which to decide the dispute once it has been referred to him, other dispute resolution mechanisms’ timeframes can depend on the parties’ agreement as well as court or tribunal availability.
The President of the High Court has issued a new Practice Direction for Adjudication Enforcement Applications (HC 105) which came into effect on 26th April 2021. The Practice Direction will allow for applications to enforce or enter judgment in respect of a decision of an Adjudicator. Mr. Justice Simons was assigned as the presiding Judge for Adjudication matters. The Judge will give such directions that are deemed necessary in ensuring that an application will be heard and determined with all due expedition.
These recent decisions and the introduction of this new Practice Direction endorse adjudication as an enforceable and efficient dispute resolution mechanism in construction contracts.
For more information please contact Jackie Buckley jbuckley@hayes-solicitors.ie, Matthew Austin maustin@hayes-solicitors.ie or Gill Cotter gcotter@hayes-solicitors.ie.
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About the Authors
Jackie Buckley
Jackie is Head of the Property team at Hayes solicitors. She is a highly experienced adviser to clients in the banking, public and retail sectors on all aspects of the sale, purchase, leasing, development and financing of properties. She has extensive experience of advising landlords and tenants in insolvency situations and has advised in recent high profile examinerships.
Gill Cotter
Gill is an Associate in the Commercial & Business team. Gill acts for a variety of private companies and financial institutions in the High Court and Commercial Court. Gill advises commercial clients on a broad range of topics including contract disputes, insolvency, enforcement and recovery actions.
Matthew Austin
Matthew is a partner in the Commercial & Business team and has considerable expertise in a range of practice areas, having acted for Irish and International clients in domestic and multi-jurisdictional issues. Matthew has advised in civil and administrative law disputes and in regulatory and advisory matters including insolvency/restructuring, IP, defamation and media law, competition and consumer protection and data protection.