Adjudication Article Series: When a payment dispute is – or is not – (a) a dispute and (b) a dispute relating to payment!

23-09-2019

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In last week’s adjudication article we looked at the right to refer a dispute to statutory adjudication from the perspective of whether a contract is covered by the statutory scheme. In this article we look further at the scope of statutory adjudication – this time from the point of view of whether a “dispute” has arisen.

Section 6(1) of the Construction Contracts Act 2013 (the “Act”) provides that a party to a construction contract may refer for adjudication “any dispute relating to payment” arising under the construction contract. At first glance, this language seems simple and unambiguous. The parties may agree they are in dispute but, if they don’t, how does a “dispute” arise? And, secondly, is the “dispute” a dispute “relating to payment”? These are two important questions to consider when embarking on any adjudication.

Question 1: Has a dispute actually arisen?

To avail of adjudication under the Act, a party must establish that there is a dispute which has crystallised. The clearest example of this is where a claim has been formally presented by one party and is manifestly rejected by the other. If the construction contract giving rise to the issue identifies when a disagreement formally constitutes a dispute, matters should be straightforward (provided the parties comply with those provisions of the contract). However, what if a party simply fails to respond when notified of a claim for payment? Or, what if they delay in responding and contend that they do not fully understand the claim being made against them? Will a dispute have arisen? That depends!

The leading authority in the UK on the point (Amec Civil Engineering Limited v Secretary of State for Transport(1)) clarifies that “a dispute does not arise unless and until it emerges that the claim is not admitted”. The decision provides further key takeaways, including that:

  • silence does not always imply rejection of a claim, and how long you should wait for a response will depend on the particular circumstances of the case including the relevant contractual mechanics. A sensible approach that takes account of the reasonable time needed to respond to the claim should prevail; and
  • you should ensure that your claim is clearly presented. If it is not possible for the responding party to understand how your claim has been formulated, it is unlikely that a dispute will have crystallised.

A recent example of the application of Amec in the UK is the case of Sitol Ltd v Finegold(2). In that case Finegold refused to pay Sitol for works it carried out, arguing that they had no contractual relationship. (A NEC3 Short Form Contract had been provided but Finegold had not signed it, and asserted through its lawyer that Sitol was a sub-contractor to Finegold’s now insolvent project manager.) The court was satisfied that there was a contract between the parties. Interestingly, the court considered that a dispute had crystallised – it took the form of Finegold’s lawyer asserting in writing that there was no contract between the parties. (Under the UK adjudication regime, all disputes, not just payment disputes, are referable to adjudication.) Unfortunately for Sitol its case failed because, once it had become aware of the dispute, it had not commenced the adjudication in time under the terms of the contract, which meant that the adjudicator lacked jurisdiction. This case is a good illustration of how the question of whether there is a dispute is highly dependent on the particular facts of the case.

All things considered, a party should carefully check and follow the provisions of its construction contract concerning the crystallisation of a dispute. If the construction contract is silent in this regard, it is prudent to ensure that any claim is clearly presented to the other party and that they are afforded sufficient time to respond before proceeding to adjudication. Taking the time to consider these issues at the outset may help to avoid wasted time and costs down the line.

Question 2: Does the dispute relate to payment?

A dispute may have been established but the questions do not end there. Unlike the position in the UK where the legislation(3) provides for the referral of adjudication of “disputes”, the Act in Ireland provides only for referral of disputes “relating to payment”. The Act does not provide any further detail and, to date, there has been no decision from an Irish court as to what constitutes a payment dispute. Taken at face-value, the Act appears far-reaching given that disputes arising from construction contracts typically have implications for payment. However there remains potential for disputes that do not fall neatly into this description and many in the industry have questioned whether the legislator intended something more restrictive.

In its simplest terms, if you sufficiently present a demand for payment under a construction contract which is clearly rejected, then it’s likely there’s a dispute relating to payment. However, what if your claim relates to the interpretation of a payment provision in a contract and you are not seeking any payment?

The Code of Practice Governing the Conduct of Adjudications (the “Code”) offers some guidance. It indicates that when commencing an adjudication via service of a written Notice of Intention under the Act, the notice should include:

  • the amount in dispute (even if the amount is zero) which, it is arguable, suggests that a payment dispute is not necessarily a dispute in which money is sought; and
  • a copy of the relevant payment claim notice and any response. This has led some to wonder whether the legislator intended adjudication to be available to claims relating to interim or final payment disputes only.

The form of Notice of Intention issued by the Construction Contracts Adjudication Service is for guidance only and can be amended.

Interestingly, if we look to what has been happening in practice the trend has been one of adjudicators accepting jurisdiction to hear a wide remit of disputes including disputes on issues of interpretation (of monetary provisions) – even where payment was not being sought. Perhaps this is reflective of a commercial, practical approach appropriate to adjudication. Whether the legislator did or did not intend “disputes” to be limited in scope, the approach in practice has been to adopt a fairly liberal interpretation of this aspect of the Act. Pending further clarification from the legislator or a decision from the Irish courts, the current trend seems set to continue.

May you live in interesting times

It really is a question of ‘watch this space’ to see how things unfold over the course of the next year, but if the present trend continues then hopefully adjudication – as an efficient way to smooth bumps in the road – will flourish in Ireland. At present, it seems likely that so long as you can (a) establish that you have a dispute that has crystallised, and (b) link your claim to an ultimate monetary entitlement (albeit that you may not actually be seeking payment), an adjudicator in Ireland would not decline jurisdiction to hear your dispute.

(1) [2005] EWCA Civ 291

(2) [2018] EWHC 3969 (TCC)

(3) Housing Grants, Construction and Regeneration Act 1996

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