This is the second published judgment in Ireland dismissing such an application. It is unusual for a Court to reach this decision, as we outlined in our briefing on the first such dismissal (Tenderbids Ltd t/a Bastion v Electrical Waste Management Ltd).
Background
The construction contract was for the design, supply and erection of a timber frame structure at the site of an existing dwelling house. Works were completed to ground floor level and the Employer terminated the contract for repudiatory breach. The Judge described the terms and conditions of the contract as spare compared to standard form construction contracts. It did not provide for termination payments.
The Employer referred a dispute for adjudication, seeking to recover the purchase price paid and compensation for consequential losses. Following the adjudicator’s decision, the Employer applied to the High Court to enforce it. The Contractor resisted on three main grounds and was successful on the first of them.
Dispute relating to Payment arising under a Construction Contract
Section 6(1) of the Construction Contracts Act 2013 (the “Act”) gives a party to a construction contract the right to refer for adjudication any dispute relating to payment arising under a construction contract.
The adjudicator lacked jurisdiction to decide the dispute because it was not a dispute relating to payment arising under a construction contract. The concept of a “payment” under the Act captured not only an interim or final payment but any other payment stipulated under the contract including, for example, a payment provided for under a termination clause.
The concept of “payment”, however, did not embrace common law damages for breach of contract. A party referring a dispute for adjudication must either assert or resist a claim to be paid an amount provided for under the construction contract. Once that factor is present, the parameters of the dispute are not necessarily confined to this issue because a responding party is entitled to raise any defence or set-off that would reduce or exclude the liability to make the contractual payment.
The Court identified two issues of principle that it did not need to decide on to deal with this case, but of which it is worth being aware: (i) whether a referral to statutory adjudication may only be made following the service of a payment claim notice pursuant to section 4 of the Act, and (ii) the extent to which the paying party under a construction contract can pursue an independent claim for a monetary award against the executing party.
Breach of Fair Procedures
The Contractor argued that the adjudicator should not have proceeded with the adjudication in circumstances where the Employer had refused to consent to an extension of time. Section 6 of the Act requires the adjudicator to reach a decision within 28 days, which may be extended by up to 14 days with consent of the referring party. The Court found, however, that the Contractor sought an extension of time after the deadline for its response had passed. The Employer had not consented to an extension of time, as was its entitlement. The adjudicator had laid down a fair and reasonable timetable.
The Contractor also argued that the adjudicator failed to have regard to “matters raised by way of defence”. However, the Contractor had failed to submit a response to the Employer’s claim by the deadline set by the adjudicator and notwithstanding having been afforded a reasonable opportunity to do so. The adjudicator was entitled to continue with the adjudication process. The Contractor could not realistically argue that its formal response was an email it sent only to the adjudicator, not copied to the Employer, in which it asserted it had not “agreed” to adjudication and summared its version of events. Further, the adjudicator did consider potential arguments on behalf of the Contractor.
The Court was satisfied that the guidance at paragraph 32 of the Code of Practice Governing the Conduct of Adjudicators is an accurate summary of the correct legal position where a party fails to participate in an adjudication without showing sufficient cause. The Court stated that a party who fails to comply with the reasonable directions of an adjudicator cannot subsequently rely on their own default to resist an application to enforce the adjudicator’s decision.
Tainted by Illegality
The Contractor also asserted that the planning permission did not authorise the “demolition and revised rebuild” of the existing dwelling house, which was disputed by the Employer. Even if carrying out the works would have involved a breach of planning permission, that would not have justified refusing to enforce the adjudicator’s decision: the construction contract itself was not void or unenforceable. The Court applied the criteria in Quinn v Irish Bank Resolution Corporation Ltd [2015] IESC 29 in reaching the conclusion that it is not the intent of the Planning and Development Act 2000 that its enforcement mechanisms should be supplemented by the additional sanction of treating as void or unenforceable contracts which are lawful on their face but the performance of which entails a breach of planning control.
Costs
The Court’s provisional view was that the Contractor should recover two-thirds of its costs to reflect that it had not succeeded on two out of three of its grounds and that the original hearing date had to be vacated to allow the Contractor further time to obtain legal representation.
