RESOLVING CONSTRUCTION PAYMENT DISPUTES
The three pillars of Construction are known to be quality, time and cost.
The Construction Contracts Act 2013 (The Act) came into force on the 25th July 2016. It was stated that it addressed a serious power imbalance in the sector. Primarily, the act was introduced to impose mechanisms for payment, particularly to subcontractors who, at the time, were losing out on the third pillar mentioned above.
The Financial Crisis between 2009 and 2012 left a large number of contractors exposed to non-payment by employers and, in the case of sub-contractors, non-payment by main contractors. The industry practices of oral contracts, “pay when paid” clauses, lack of clarity on payment dates and, in some cases, deliberate non-payment or slow payment arrangements, were seen as significant problems and The Act went a long way to addressing these flaws.
it is certainly of benefit to subcontractors that the act provides for two main elements:
- A mechanism where main contractors may, and sub-contractors will, be paid promptly for the value of their work as the contract proceeds
- The introduction of statutory adjudication in relation to payment disputes, with a view to ensuring that payment cannot be unduly delayed, simply because it is disputed in whole or in part.
The objectives of the act were to be achieved through:
– A right to interim, periodic or stage payments, making clear when payments become due. (A subcontractor is entitled to make application at least every thirty days and is entitled to payment within a further thirty days).[1]
– A statutory right for the payee to suspend performance[2], following service of notice where a sum due is not paid by the final date for payment
– The prohibition of “pay when paid” clauses[3], which delay payment until it is received by the payer
– A statutory right for parties to a contract to refer payment disputes to adjudication and the introduction of an adjudication procedure to deal with disputes about payments.
Sub-contractors are now in a significantly better position than they were before the introduction of the Act. It has given sub-contractors the ability to monitor and accurately predict their cashflow, through interim and stage payments and the ability to achieve a quick resolution to payment disputes, through adjudication, essentially saving time and saving unnecessary costs.
Section 6 of the Construction Contracts Act, 2013 provides a right for any party to a construction contract to refer a payment dispute for adjudication.
In Ireland, the statutory right to refer
a dispute under a construction contract for adjudication is restricted to any dispute relating to payment. This is narrower than the scope of disputes which can be referred to adjudication in the UK, which is not restricted to payment disputes only.
Contracts valued at less than €10,000 and between state authorities and their partners in a public private partnership arrangement are also excluded in Ireland.
The recent decision of the English Court of Appeal in Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP[4] has held that a collateral warranty constituted a construction contract. While this is yet to be tested in Ireland, it may broaden the scope for the use of adjudication in Ireland.
In Ireland, upon the issue of a notice of intention to refer a dispute to adjudication, parties have five days to agree the appointment of an adjudicator, or the appointment will be referred to the chair of the construction contracts adjudication panel.
The code of practice states that the appointment will normally be made and notified in writing to the parties within 7 days by the Chair of the Contracts Adjudication panel in Ireland, but there is no set time frame.
The time frame from service of the notice of intention and the service of the referral will normally be within 19 days under the Irish adjudication procedure.
A decision must be made within 28 days and is binding on the parties until it is finally settled. However, if an adjudicator makes an award under the Irish procedure and the sum is not paid within 7 days, the party to which the sum is owed has a right to suspend work by giving notice to the other party. This is different to the UK regime.
The Courts in this jurisdiction have, to date, been supportive of Adjudicators’ decisions, which follows the UK, where only a very small percentage of adjudicators’ decisions have been successfully challenged and the award is seen as, almost invariably, final.
The attitude of the Irish Courts, when it comes to the enforcement of adjudication decisions, is that there will be limited scope to challenge decisions[5]
An application can be made to the High Court to enforce the decision of an adjudicator (with a claim being issued and affidavits of evidence being served. The preference is for claims to be dealt with by way of written submission only, with no requirement for an oral hearing.
Given the supportive attitude of Irish Courts toward adjudication and that it is seen to save time and cost, the view is that adjudications will only increase in popularity as time moves on.
William Hanly
Senior Associate
Diploma in Construction Law
021 4277788
[1] Section 3(3) of the Act
[2] Section 5 of the Act
[3] Section 3(5) of the Act
[4] [2022] EWCA CIV 823
[5] John Paul Construction Limited v Tipperary Co-Operative Creamery Limited [2022] IEHC 3
