The introduction of construction adjudication in Ireland
16 June 2015
In this article Paul Hughes examines the adjudication procedure in the context of the Irish Construction Contracts Act 2013. Hughes discusses the procedure from the emergence of a dispute right through to the adjudicator’s decision
Author: Paul Hughes; Barrister-at-Law, PhD
In Ireland construction disputes are normally resolved by arbitration, conciliation or mediation. On occasion disputes may proceed to litigation. However, pursuant to the provisions of the Construction Contracts Act 2013 adjudication will be introduced into Irish law in the near future and will apply to construction contracts entered into after it becomes law. This will give the parties to a construction contract an alternative method for potentially resolving a dispute. The legislation does not demand that the parties take their dispute to adjudication. The policy of adjudication in construction is ‘pay first, argue later’. The parties are at liberty not to accept the adjudicator’s decision, albeit they are bound by the decision temporarily at least. Adjudication provides ‘temporary finality’.
Adjudication was introduced in the UK in the late 1990s with the intention of resolving construction disputes faster and more economically. The idea behind adjudication in construction disputes is to deal with the gross inequality of the financial strengths between the various parties in construction contracts, from developer, to main contractor to sub-contractor and so forth. The policy considerations relating to construction adjudication in Ireland appear to be similar to that in the UK. During Dáil debates in relation to the adjudication provisions it was stated that:
“This is a critical aspect of the Bill and creates an important mechanism by which unpaid parties to construction contracts can have a relatively quick and cost-effective resolution of their payment disputes … where there is a contract, the bulk of the power rests with the main contractor. In cases where work is carried out on an informal basis, the subcontractor has no way of securing payment where there is a dispute. In the minority of cases where formal contracts are in place, the route to resolving such disputes – arbitration or the courts – is costly and time consuming.”
In broad terms the adjudication process as set out in the Irish legislation is similar to the adjudication legislation in the UK. However, the UK legislation applies to a dispute which includes ‘any difference’, whereas, the Irish legislation only applies to a ‘payment dispute’. The parties cannot limit or exclude adjudication and the legislation applies in circumstances where the substantive law is that of another jurisdiction.
In this article we will examine the adjudication procedure in the context of the Irish Construction Contracts Act 2013. We will discuss the procedure from the emergence of a dispute right through to the adjudicator’s decision. It is difficult to predict at this stage how the Irish courts will apply the legislation. The UK has built up a value resource of information on the process. Consequently, reference will be made to adjudication in the UK.
The type of contracts falling within the scope of The Construction Contracts Act 2013
The Construction Contracts Act 2013 does not affect every contract. To that extent there are a number of hurdles which must be overcome before any attempt at adjudication is made. Firstly, there must be an enforceable construction contract and secondly, the dispute must relate to payment arising under the contract. The party initiating the process is called the ‘referring party’ while the party defending the matter is called the ‘responding party’. The construction contract does not have to be in writing.
Under the Construction Contracts Act 2013, a construction contract is defined as an agreement between an executing party and another party, where the executing party is engaged for, the carrying out of ‘construction operations’, or arranging the carrying out of construction operations, or providing the labour for the carrying out of construction operations. Construction operations include: construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures, forming or to form part of the land (whether permanent or not). The legislation outlines many different construction operations including, for example, the installation of heating systems, lighting, cleaning carried out in the course of construction, painting or decorating and artistic works.[i] Construction operations also include providing services ancillary to the construction contract such as design work, advice and project management. The manufacture of, or the delivery to site of building components and the like does not come within the scope of construction operations. For the purposes of the legislation, contracts worth less than €10,000, and smaller dwellings for occupation by one of the parties to the contract, are not considered construction contracts.
The adjudication process
A crystallised payment dispute
A very important issue in relation to adjudication is the fact that a dispute must have arisen and has crystallised before the notice of adjudication can be served. The UK courts have refused to enforce any adjudicator’s decision which is based on a notice of adjudication issued before a dispute has arisen. The point at which a dispute has crystallised may be easier to determine in Ireland as compared with the UK. This is because the Irish legislation sets out a procedure that must be followed when a payment is not made on time. Within five days of the due date the referring party must deliver a ‘payment claim notice’ to the responding party.
The notice must specify the amount claimed, the period or stage of work or activity to which the payment relates, the subject matter of the payment, and the basis of the calculation of the amount claimed. The responding party then has 21 days to reply. If the reply is not to the satisfaction of the referring party, it is likely that it is at this point the dispute will have crystallised.
Once a payment dispute has crystallised a party to a construction contract can then refer the matter to adjudication. In referring the dispute to adjudication the parties and the adjudicator must comply with the adjudication code of practice and any request or direction of the adjudicator. If without showing sufficient cause a party fails to comply with any request or direction of the adjudicator or any of the provisions relating to the adjudication, the adjudicator may, continue in the absence of that party or any document requested, draw such inferences from the failure to comply and make a decision on the basis of the material properly provided.
Commencing the adjudication process
In order to commence the adjudication procedure a party to a construction contract serves on the other party to the contract a notice of intention to refer a payment dispute for adjudication (a ‘notice of adjudication’). The method of service may be agreed by the parties but if there is no agreement a notice may be delivered by post, fax or email. Where delivery is required to be on a particular date and this falls on a Saturday, Sunday or public holiday, if the notice is delivered on the next day, it is deemed valid delivery. The notice can be served at any time which could mean before the works commence or long after completion.
The notice of adjudication must contain the following information: details of how and when the contract, under which the payment dispute has arisen, was formed; a description of the payment dispute and of the parties involved; the name, address and contact details of each party to the payment dispute; the date of service of the notice of adjudication; the redress sought; copies of relevant payment claim notices and responses to payment claim notices, if any. The notice of adjudication is considered to be the most important document in adjudication because it defines the scope of the dispute which the adjudicator has to decide. It is therefore extremely important that the notice of adjudication is carefully drafted to properly identify the dispute which the claimant requires the adjudicator to decide and that the dispute identified in the notice of adjudication is the dispute which has crystallised.
In the UK the notice of adjudication must refer to just one single dispute and it could be fatal to a claim if more than one dispute is referred to in the notice of adjudication. This appears to be the position in Ireland also as when referring to the notice of adjudication the legislation refers to a ‘dispute’ singular rather than ‘disputes’. However, the adjudicator may deal with several payment disputes at the same time provided they arise under the same construction contract or related construction contracts.
Nominating and appointing of the adjudicator
Once the notice of adjudication is served the parties may by agreement appoint an adjudicator of their own choice. Where the parties agree upon the adjudicator to be appointed, the adjudicator must respond to the parties within two days either accepting or declining the appointment. If the appointment is accepted by the adjudicator then the adjudicator must notify this to the parties in writing and this is the date on which the appointment is made. If the parties do not agree on the adjudicator then a written request for the appointment is sent to the chair of the panel established by the Minister for Public Expenditure and Reform. The written request is also copied to the other party to the contract and must include a copy of the notice of adjudication; a statement of when and how the notice of adjudication was served on the other party, together with any information which is considered will assist the chair in appointing the appropriate adjudicator.
The chair of the panel must appoint the adjudicator within seven days after receipt of the written request but not sooner than five days after the date of service of the notice of adjudication with the date on which that appointment is notified to the parties being the date on which the appointment is made. Once appointed the adjudicator must promptly provide that parties with his proposed terms of appointment including the basis for fees, costs and expenses. These must be reasonable having regard to the complexity of the dispute, the time spent and other relevant circumstances. The parties may at any time revoke the appointment in which case they are jointly and severally liable for the payment of the adjudicator’s fees up until that date of revocation. Likewise, the adjudicator can resign at any time with the parties being jointly and severally liable for the costs up to that point.
The adjudicator has a duty to avoid conflicts of interest, to act fairly, impartially, independently and without bias. Each party must be given an equal opportunity to make their case and to respond to the case against them. The adjudicator must use reasonable endeavours to process the payment dispute in the shortest time and at the lowest cost. The procedure followed must be commensurate with the nature and value of the payment dispute and the adjudicator must promptly notify the parties of any matter that will slow down or increase the cost of making a determination. The adjudicator is not liable for any act or omission in the discharge of his duties unless the act or omission is done in bad faith.
The referral notice
Once the adjudicator is appointed the party initiating the adjudication must refer the payment dispute to the adjudicator (by way of a ‘referral notice’) within seven days beginning on the day on which the appointment was made. In the UK it has been held that failure to comply with such a timescale even by one day renders the adjudicator’s decision to be a nullity. Upon receipt the adjudicator must inform the parties of the date on which it was received. At the same time the referring party refers the matter to the adjudicator a copy of the referral notice together with all accompanying documents which must be provided to the responding party. The referral notice must be consistent with the notice of adjudication. If new issues are introduced the responding party will be able to argue that the referral notice relates to a dispute which has not yet arisen and the adjudicator has no jurisdiction.
The referral notice must include the contentions on which the referring party relies on and the redress sought; copies of, or relevant extracts from, the construction contract and such documents relied upon; and a copy of the notice of adjudication. The referral notice is often stated to be the equivalent of the particulars of a claim which are served in court or arbitration proceedings. It is quite possible that the referral notice will be the only submission which is provided to the adjudicator by the referring party.
Conduct of the adjudication
The adjudicator has a number of powers in relation to the adjudication procedure including taking the initiative in ascertaining the facts and law in relation to a payment dispute. The adjudicator may request any reasonable supporting documents detailed in the referral notice; invite written submissions and evidence from the parties; meet jointly with the parties and question them and their representatives; make site visits and inspections; obtain and consider the representations; appoint experts, assessors or legal advisers provided the parties have been notified; give directions as to the timetable for the adjudication, set any deadlines or limit the length of written and oral submissions; and issue directions relating to the conduct of the adjudication. All documents or information supplied in the course of the adjudication are confidential.
The adjudicator must set a time frame by which the responding party submits its response document. Just as the referral notice is the referring party’s principle opportunity to set out the details of its case, the response document is the responding party’s key document. The responding party is usually at a disadvantage as the referring party may have taken months to prepare the referral notice, while the responding party will only have a short time frame to prepare the response document. Moreover, in the short time frame it may be difficult to for experts to prepare reports for attachment to the response document. As adjudication is intended to be a flexible process the adjudicator may allow the referring party to submit a reply to the responding party’s response document, although, there is no specific provision in the legislation for this. The referring party’s right of reply will depend on the nature and complexity of the dispute.
Meetings and the oral hearing
Depending on the nature of the dispute, it will often be the case that the adjudicator will not require any meeting with the parties. In some cases a meeting might be scheduled at the outset to discuss the timetable and procedural matters. Further meetings might take place after the response document is provided in order for the adjudicator to ask questions of the parties and their experts or to clarify any technical matters. These meetings are regarded as the adjudicator’s investigation into the dispute.
In the UK a large number of adjudications are decided by way of written documentation only, however, if there are major disputes of fact or complex points of law, the adjudicator may hold an oral hearing. Most of these hearings will be taken up with oral submissions by each party in order to elaborate upon points contained in the referral notice and response document. It is rare for the adjudicator to require oral evidence which is principally due to time constraints. However, there are occasions when oral evidence will be necessary, particularly, on matters of fact.
The adjudicator’s decision
The adjudicator must reach a decision within 28 days from the date upon which the referral is made or such longer period as may be agreed by the parties. The 28-day period can be extended by 14 days if the referring party agrees. In the UK there have been cases where the adjudicator has failed to provide the decision within the statutory time frame. As a result, parties have sought to resist the enforcement of those decisions on the grounds that the adjudicator lacked jurisdiction to make the decision once the time limit for making it had expired. In the UK it is considered that upon the expiry of the time limit for the adjudicator to make a decision, the adjudicator’s jurisdiction ceases. However, the decision will be valid if the adjudicator makes the decision within the correct time limit and communicates it to the parties within a day or two after the time limit.
The adjudicator’s decision must be in writing, signed and dated by the adjudicator; with reasons unless the parties agree in writing that no reasons are included. The adjudicator may correct the decision so as to remove clerical or typographical errors arising by accident or omission but is restricted from reconsidering or reopening any aspect of the decision. The adjudicator’s decision must also allocate such fees, costs and expenses which the parties must pay in accordance with the decision.
However, the parties are obliged to pay their own legal and other costs incurred in connection with the adjudication. The decision of the adjudicator is binding upon the parties until the dispute is finally settled by the parties or a different outcome is reached on reference of the dispute to arbitration or litigation. In the UK the courts have not entertained applications on the basis that the adjudicator simply was wrong on the facts or in law. It is likely that a similar approach will be followed in Ireland as this is the position in relation to arbitration.
The Construction Contracts Act 2013 will give the parties to a construction contract the right to refer a payment dispute to adjudication. The aim of the legislation is to balance the financial inequality that often exists between the parties. It gives the parties to a construction contract a method of resolving disputes quickly and cheaply. As the decision of the adjudicator is binding (at least temporarily) this should help with cash flow.
However, in the long run these benefits may be outweighed by the possibility that the parties might still proceed to litigation or arbitration in order to challenge the adjudicator’s decision. If this happens the resolution of the dispute may ultimately become more costly for the parties as they will have to fund the additional costs associated with the adjudication process. In order to minimise the possibility of the adjudicator’s decision being challenged, it is vital that care is taken by the referring party to ensure that the dispute has crystallised. This can be achieved by strictly following the requirements of a valid payment claim notice and allowing the responding party the statutory 21-day period to reply. Also, the referring party must take precautions to ensure that the notice of adjudication is drafted correctly as this document sets the parameters of the adjudicator’s jurisdiction. Likewise, the referring party should ensure that no new elements of the dispute are introduced in the referral notice. Similarly, there is an onus on the adjudicator to comply with the provisions of the legislation and act fairly. It is intended that the process takes place in a short space of time. However, where the payment dispute is complex with voluminous documentations, it may be very difficult for the adjudicator to reach a sound decision in this period. If it becomes normal for the adjudicator to request additional time, then the process will be slower than intended.
In the UK the adjudication process has some similar traits to arbitration with one commentator concluding that, “in effect, what the industry has finished up with is a form of arbitration without a binding award”. Often the parties are not satisfied with the adjudicator’s decision as they feel they were not able to put forward their best case because there is no discovery in the adjudication process, whereas, there is in arbitration.
It is difficult to say at this stage how smoothly the adjudication process will run in Ireland. Much will depend on how the parties decide to engage with the process and how they regard the adjudicator’s decision. If, on the whole, an adjudicator’s decision is accepted, then adjudication should be welcome in the industry. However, if the parties decide to constantly challenge the process and an adjudicator’s decision, then adjudication might be seen as an additional burden.http://www.engineersjournal.ie/2015/06/16/introduction-construction-adjudication-ireland/http://www.engineersjournal.ie/wp-content/uploads/2015/06/Construction-Adjudication1.jpghttp://www.engineersjournal.ie/wp-content/uploads/2015/06/Construction-Adjudication1-300x300.jpgCivilconstruction,Construction Contracts Act,contracts,Ireland,legislation,United Kingdom