Construction Law Update: Court elaborates principles that apply in Ireland to Enforcement of Adjudication Decisions
Aakon Construction Services Ltd v Pure Fitout Associated Ltd is the third case in which the High Court in Ireland has enforced an adjudicator’s decision following an adjudication under the Construction Contracts Act 2013 (the “Act”). The Court has taken this opportunity to set out some key principles underpinning adjudication in Ireland, emphasising that case law from England & Wales cannot simply be “read across” to the Act because the Irish legislation differs in a number of important respects from the equivalent legislation in the UK.
In the latest case, Aakon Construction Services Ltd v Pure Fitout Associated Ltd, the background to the dispute referred to adjudication was that Aakon entered into a subcontract with Pure Fitout, the main contractor. Following termination of the subcontract, Aakon delivered a payment claim notice to which Pure Fit Out did not respond. Aakon also made alternative arguments about the value of additional works required to comply with Pure Fitout’s instructions. Aakon referred the matter to adjudication.
In the adjudication, Aakon said that Pure Fitout’s failure to respond to the payment claim notice within 21 days entitled Aakon to be paid the full invoiced amount. This was an interesting argument in the context of section 4 of the Act which, as the Court noted: (a) does not set out the consequences of a failure on the part of the paying party to deliver a response within the required time; and (b) does not state that, in the absence of a response, the amount claimed in the payment claim notice is payable by default.
Pure Fitout’s arguments in the adjudication were that the payment claim notice was invalid on the basis that it had several deficiencies. Alternatively, Pure Fitout made detailed submissions to demonstrate that Aakon had not established entitlement to the sums claimed in accordance with the contract mechanisms relating to variations.
The Adjudicator’s Decision
The adjudicator issued a decision in favour of Aakon, finding that the payment claim notice was valid under both the sub-contract and the Act.
The adjudicator considered that Pure Fitout’s failure to respond to the payment claim and, in particular, to serve a “valid pay less notice”, triggered a requirement to pay the full amount claimed. The adjudicator indicated he would not evaluate the sum that was “properly” payable under the claim (by evaluating the measured works and variations). Pure Fitout would have to pay the amount in the adjudicator’s decision, and then it would be entitled to refer a new adjudication if it still wished to dispute the true value of the claim. In reaching this conclusion, the adjudicator took into account the judgment in Grove Developments Ltd v S&T (UK) Ltd, in which the Court in England & Wales held that an earlier finding that a default payment had been triggered did not preclude subsequent adjudication or litigation on the question of the “true” value of the payment claim.
Application to Court to enforce the Adjudicator’s Decision
When Aakon applied to the High Court to enforce the decision, Pure Fitout resisted on two main grounds. It is important to note that in proceedings for the enforcement of adjudicator’s decisions, the court will be concerned with ensuring that the procedural requirements for the adjudication have been complied with.
The first ground concerned the jurisdiction of the adjudicator. Pure Fitout argued that an adjudicator’s jurisdiction is defined by the notice of intention to refer the payment dispute for adjudication (the “Notice of Intention to Refer”). Pure Fitout claimed the Notice of Intention to Refer was invalid, describing it as ambiguous in a number of respects. It submitted that several claims were advanced under the Notice of Intention to Refer, evidenced also by Aakon having to make two attempts to apply to the Chairperson of the Construction Contracts Adjudication Panel for the appointment of an adjudicator (having been directed by the Construction Contracts Adjudication Service to reapply). Pure Fitout also submitted that the adjudicator’s decision went beyond the terms of the payment dispute that had been referred to him.
The Court rejected these arguments. The wording of the Notice of Intention to Refer was not ambiguous. The issue underpinning the dispute decided by the adjudicator (that is, whether the failure by Pure Fitout to respond to the payment claim notice triggered an entitlement for Aakon to be paid the full claim amount) was perfectly obvious from the details in the Notice, so there was no basis for saying the adjudicator exceeded his jurisdiction. Furthermore, Pure Fitout was able to prepare a very comprehensive response to this claim.
As to Pure Fitout’s arguments that the notice was invalid, the court characterised these as being concerned with the merits of one of the issues referred to the adjudicator. The adjudicator had jurisdiction to decide that issue and Pure Fitout could not resist an enforcement application by arguing that the adjudicator’s decision was incorrect. This finding appears to confirm the court’s role on enforcement of adjudicators’ decisions being to review the integrity of the procedure, rather than substantive findings of the adjudicator.
2. Fair Procedures
The second ground on which Pure Fitout resisted enforcement of the decision concerned the requirements of fair procedures and constitutional justice. Pure Fitout argued that the adjudicator failed to consider all of its lines of defence.
The Court did not accept this, noting that the adjudicator’s decision acknowledged that one of Pure Fitout’s lines of defence – based on the “true” value of the works under the payment claim notice – was not being considered by the adjudicator.
Nor did the Court consider there had been a breach of fair principles. The adjudicator in effect held that the legal consequence of Pure Fitout not responding to the payment claim notice was that it had to pay the entire claim. The Court indicated it was not concerned with whether this interpretation of the legal position was correct, but rather the narrow issue of whether failure by the adjudicator to embark on a “true” valuation of the works constituted a breach of fair procedures. The purpose of enforcement proceedings focused on whether there had been a breach of fair procedures and the Court was not concerned with determining whether principles similar to those stated in Grove Developments Ltd v S&T (UK) Ltd should be applied to the Act.
What are some of the key messages conveyed by the Court in this judgment?
- The Act put in place a statutory scheme of adjudication whereby payment disputes under construction contracts can be heard and determined in a very short period of time. The process is designed to be far more expeditious than conventional litigation or arbitration.
- To assist in achieving compliance with a tight timeframe, the Act allows an adjudicator to take the initiative in ascertaining the facts and the law in relation to the payment dispute. The role of an adjudicator is more inquisitorial than that of a court.
- The Court endorsed the principles set out at paragraph 12 of Principle Construction Ltd v Beneavin Contractors Ltd. It stated that the fast-track process would be of limited benefit if the outcome could not be enforced promptly. Thus the Act makes the adjudicator’s decision binding in the interim, unless and until superseded by another decision. The adjudicator’s decision gives rise to an immediate payment obligation but the paying party may pursue the matter further (in arbitral or court proceedings) and, if successful, recover any overpayment. This is sometimes described as “pay now, argue later”.
- Given that the “pay now, argue later” approach presents, in certain instances, a risk of injustice, Courts in England & Wales have identified two grounds for not enforcing an adjudicator’s decision: breach of jurisdiction and breach of fair procedure. While the case law in England & Wales is of great assistance, it cannot simply be “read across” to the Act and the procedures governing enforcement.
- In Ireland, the precise contours of the Court’s discretion to refuse to enforce an adjudicator’s decision should be developed incrementally. One has to consider whether jurisdiction is concerned only with the initial jurisdiction of the adjudicator to accept the appointment or whether an error of law made during the adjudication might mean an adjudicator acted outside his/her jurisdiction. It will be interesting to see how this particular aspect evolves.
- The role of the Court in an enforcement application is narrow. The Court is entitled to confirm that the adjudicator’s decision does not exceed the scope of the referral of the payment dispute to the adjudicator (the “Referral”). This can also be seen through the lens of fair procedures as the Referral needs to be adequately particularised to allow the responding party to know the case to defend. The Court should not enforce an adjudicator’s decision which has clearly been reached in breach of fair procedures.
- There are several important differences between the Irish and UK legislative frameworks, some of which are summarised below. By way of reminder, the Court in Aakon was very clear in stating that UK case law, whilst helpful in many instances, cannot simply be read across to the Irish context.
- Because adjudication in Ireland is a statutory entitlement (whereas UK law gives effect to adjudication by implying terms into construction contracts), an adjudicator’s decision in Ireland may be amenable to judicial review.
- It should not be assumed that a Notice of Intention to Refer has the same status as a notice of adjudication under UK law. The Act is silent on the interrelationship between (i) a Notice of Intention to Refer, and (ii) the subsequent Referral. However, the Act envisages that the Referral will be accompanied by extensive documentation and the Code of Practice contemplates it will to a large extent be self-contained and will itself identify the relevant details of the dispute. Provided that the Notice of Intention to Refer identifies the gravamen of the payment dispute and, in particular, the construction contract; the parties; the site address; the payment claim notice; the response to the payment claim notice; and the sum claimed, then the refinement of legal argument in the Referral will normally be permissible.
- It is permissible to pursue more than a single dispute in an adjudication and alternative arguments advanced on behalf of an applicant in support of its payment claim do not constitute separate “disputes”. The litmus test in assessing the adequacy of a Notice of Intention to Refer must be whether the alleged defects impinged upon the responding party’s ability to defend the claim against it.
- The wording of the Act – as contrasted with the law in England & Wales – might suggest that referring the dispute further for arbitral or court proceedings might necessitate a challenge to the adjudicator’s decision head on, rather than de novo proceedings.
This judgment signals a careful analysis of some of the main issues in adjudication in Ireland. Even though, in this case, the Court did not consider it appropriate to look at the merits of the adjudicator’s decision, it indicated that an error of law made during an adjudication might be seen as outside the jurisdiction of the adjudicator. The Court signalled that: “As the case law evolves, it will be necessary to address more difficult questions, such as whether errors of law are similarly capable of examination in the context of an application for leave to enforce”.
Not the End of the Matter
However, that was not the end of the matter. The High Court published a second judgment considering the form of the enforcement order to be made.
As might be expected, Pure Fitout had itself referred an adjudication to obtain a “true value” of the sum it owed Aakon. This led to a second adjudicator’s decision valuing the works at less than half the figure in the first adjudicator’s decision.
Pure Fitout argued that the second adjudicator’s decision superseded the first adjudicator’s decision.
The Court rejected this argument. It said the interrelationship between a first and second adjudication is not clear cut and would require careful consideration of the legislative intent underlying the Act. It was not appropriate to do this here for several reasons.
First, Pure Fitout had not adduced the necessary evidence (such as the second adjudicator’s decision). Second, the legal basis of Pure Fitout’s argument was misconceived. It relied on section 6(10) of the Act, but that section required a different decision in arbitral or court proceedings before an adjudicator’s decision was superseded. The existence of a subsequent adjudicator’s decision was “merely a factor which a court might, in a suitable case, take into account in the exercise of its discretion to grant leave to enforce.” Third, it was inconsistent for Pure Fitout to argue that it could pursue a second adjudication without having complied with a first adjudication decision, while also relying on Grove Developments Ltd v S&T (UK) Ltd.
Accordingly the Court ordered the full amount in the first adjudication to be paid. It ruled that the Court’s power under section 22 of the Courts Act 1981 to order interest on a judgment debt does not apply to the enforcement of an adjudicator’s decision (though interest from the date of the Court’s judgment would accrue under the Debtors (Ireland) Act 1840). Costs were awarded to Aakon as the successful party in the enforcement proceedings.
The authors would like to thank Laragh Lee for her contribution to this briefing.