Paper presented to Chartered Institute of Arbitrators Irish Branch Construction Contracts Act Conference 13 July 2022
It’s hardly surprising that Ireland’s Construction Contracts Act 2013 differs from some similar legislation elsewhere. I like some of its particular features, such as—
Adjudication is a free-standing statutory process. This is more clear, straightforward, and honest than writing adjudication into contracts as a compulsory term.
One panel. More straightforward than a multiplicity of competing nominating bodies. (We could do with this for other dispute resolution.)
Adjudication is limited to payment disputes. In fact this is the case in most places with adjudication. The purpose is relatively modest: to get cash flowing, to pay for work done. The Act’s long title says it: ‘An Act to regulate payments under construction contracts and to provide for related matters.’
Some will say that Ireland should adopt the United Kingdom and New Zealand approach and extend adjudication to all kinds of construction disputes, for which it usually provides ‘de facto final resolution.’ I think this stretches adjudication beyond its useful purpose. It is not easy to unscramble temporarily binding decisions on, for example, a disputed specification interpretation, time extension, or termination. The money aspects of these can usually be reduced to a payment dispute, and if the adjudicator is wrong, the money must be repaid. That is where adjudication is useful.
This paper proposes 5 changes. The first 3 try to make the Act more coherent: to tie adjudication more closely to the payment claim notice & response process. The fourth shouldn’t require legislation. The last isn’t about adjudication.
1. DEFINE PAYMENT DISPUTE
The Act’s definition of payment dispute is vague and circular: ‘any dispute relating to payment arising under a construction contract.’ This could be interpreted broadly or narrowly.
A broad meaning could include any dispute where someone is asking for money. As well as progress and final payments, this could include claims for indemnity, liquidated damages for delay, damages for defects.
A narrower meaning would take account of the Act’s other provisions—a dispute over payment of the amount claimed in a payment claim notice under section 4. On this interpretation, a payment dispute would arise only on a payment claim made by the executing party.
My purpose here is not to try to say which interpretation is right. It needs to be clarified. As with the next point, we probably won’t get clarity from a court.
I suggest that any amending legislation should adopt the narrow interpretation. That would be consistent with adjudication’s modest purpose—cashflow for work done. It would follow the approach in Australian jurisdictions, Singapore, and Malaysia, where adjudication is limited to payment claims for progress payments. This would make the Act more coherent, linking to the payment claim notice and response process in section 4. This process would help ensure disputes crystalise before being referred to adjudication, reducing the scope for ‘no dispute’ skirmishes.
2. WHEN THERE IS NO RESPONSE
Under section 4(2), if the ‘other party’ or (‘specified person’ such as architect, engineer, employer’s representative, project manager) contests the amount claimed in a payment claim notice, they must deliver a response stating the amount proposed to be paid, how it is calculated, and the reasons for any difference between that and the amount claimed. This response must be delivered within 21 days after the payment claim date. Any amount acknowledged as due must be paid by the due date.
But what if there is no response? Must the amount claimed in the payment claim notice be paid by default? The Act does not say.
In Aakon Construction Services v Pure Fitout Associated the adjudicator had found that the amount claimed must be paid in the absence of a response. The adjudicator said that once the respondent paid this amount, it could go on to separately adjudicate the ‘true value’ of the interim application, and reclaim the amount paid if it is an overpayment. (This is how the equivalent English provision was interpreted in SAT (UK) v Grove Developments.) Mr Justice Simons in the High Court found that this was a decision within the adjudicator’s jurisdiction.
It seems that the consequence of a non-response is destined forever to be an issue to be decided by adjudicators case by case. They currently seem to be taking different approaches. There is unlikely to be occasion for the courts to lay down authoritative precedent.
The Act could usefully be clarified to resolve this uncertainty. It is logical to provide that the amount claimed in the payment claim notice must be paid if there is a default in responding. That is the approach in most adjudication jurisdictions, including the UK.
3. 'AT ANY TIME'
In Ireland, there are very short time limits for giving a payment claim notice (5 days after the specified date for payment) and of course for the adjudicator’s decision. But there is a big ‘time at large’ gap. A payment dispute may be referred to adjudication ‘at any time’.
For example, in O’Donovan v Bunni a payment dispute was referred to adjudication more than 2 and a half years after completion, while an arbitration was in progress.
‘At any time’ copies the UK legislation, which differs from most if not all other adjudication jurisdictions.
In New South Wales the claimant must give notice of intention to apply for adjudication within 10 business days immediately following the due date for payment. The respondent has 5 business days to provide a payment schedule. The claimant has to allow 5 business days for the payment schedule, but then has a very short window to apply for adjudication: 10 business days after receiving a payment schedule or expiry of the respondent’s time to provide one, or 20 business days after the respondent’s failure to pay the amount in the payment schedule.
The regime is similar in other Australian jurisdictions. In Victoria, the time limits to apply for adjudication are even shorter: 10 business days after receiving the payment schedule or non-payment, or 5 business days after expiry of the time (2 days) for a payment schedule. In Singapore, you have 7 days to apply for adjudication, starting when the right to apply first arises.
This is consistent with a rapid procedure whose purpose is to speed up cash flow. The ‘at large’ gap is not. It can also be unfair—giving the referring party unlimited time to prepare its referral at leisure, but the responding party very little time to respond.
I suggest allowing a referral up to 42 days after the payment claim date, or 21 days after the due date when payment hasn’t been made in accordance with a response (or response default). And I would give a party who had to pay because of its own response default 21 days to initiate a true value adjudication.
4. Transparency
‘There is not a crime, there is not a dodge, there is not a trick, there is not a swindle, there is not a vice which does not live by secrecy.’ ― Joseph Pulitzer
‘Sunlight is the best disinfectant.’ ― William O Douglas
There has been a great deal of adverse commentary on secrecy in international arbitration. In response, transparency has increased. Arbitration organisations from the International Centre for Settlement of Investment Disputes to the GAA Dispute Resolution Authority publish their awards. Queensland publishes adjudication decisions.
I can see no justification in principle for conducting a statutory dispute resolution process in secret. Article 34.1 of the Constitution of Ireland requires that, with only ‘special and limited’ exceptions, justice ‘shall be administered in public.’ Construction adjudication may or may not be administration of justice under the constitution, but the principle applies. Applying this principle, Workplace Relations Commission adjudication decisions are published.
The code of practice requires adjudicators to keep information disclosed in an adjudication confidential. I don’t know why. There does not seem to be anything to prevent the parties from making the decision public, unless they have separately agreed not to, either as a term of the construction contract or otherwise.
It should increase consistency and quality of decisions.
It would provide a body of decisions that parties and adjudicators could refer to.
It would be fairer. All parties would have the same information. The information is now unevenly spread. Advisors trade on their knowledge about adjudicators—for example, how they deal with the procedural issues I mention above. The playing field needs to be level.
Nor do I see a case for redacting published decisions. Redaction would only be justified where some overwhelming interest in confidentiality needed protection, such as a trade secret.
5. ARBITRATION COSTS
It’s a Construction Contracts Act. Not (just) an adjudication act.
Section 30 of the Arbitration Act 1954 provided that any provision in an arbitration agreement for parties to pay their own costs ‘shall be void,’ unless made as part of a submission to arbitration of a dispute that had already arisen.
The Arbitration Act 2010, which repealed the 1954 Act, reversed this. Section 21 of the 2010 Act allows the parties to ‘make such provision as to the costs of the arbitration as they see fit.’
Taking this cue, the Office of Government Procurement included in its (non-negotiable) form of tender for public works contracts a clause which the old law would have prohibited. Each party must bear its own costs (but, according to a footnote, the contractor is liable for both parties’ costs if it does not beat a sealed offer).
It could have gone further. Courts in England (Bridgeway Construction Ltd v Tolent Construction Ltd [2000] CILL 1662) and Scotland upheld clauses requiring the referring party to pay the costs of adjudication whatever the result. An English court eventually refused to enforce a clause requiring only the contractor to pay the costs of an adjudication it referred. Subsequent amendments to UK adjudication legislation deprived these Tolent clauses of effect.
The reason for the 2010 change to arbitration law on costs was to give effect to the principle of party autonomy, which underlies the 2010 Act and the UNCITRAL Model Law on International Commercial Arbitration.
But we are well past party autonomy in construction contracts — as the Construction Contracts Act and similar legislation throughout the world shows. This legislation imposes a compulsory regime for payments and adjudication because, in many parts of the construction industry, bargaining power so unequal that party autonomy is evanescent.
So, my last suggestion is to amend the Arbitration Act as it applies to construction contracts. The amendment could go further than the 1954 Act, and deprive of effect any pre-dispute allocation of costs. This could exclude international commercial arbitration (maintaining the existing existing distinction in section 21(4)) and foreign contract disputes arbitrated in Ireland, where party autonomy is more of a reality, and there are good policy reasons to respect it.
CONCLUSION
Drawing them together, here are 5 suggested changes:
Define payment dispute as a dispute arising from a payment claim notice.
Specify that the amount claimed in a payment claim notice must be paid if there is no timely response.
Impose a time limit for adjudication referrals.
Publish decisions.
No more pre-dispute allocation of arbitration costs in domestic construction contracts.
I had a go at drafting amending legislation. My effort is below. No doubt it can be improved.
AN BILLE UM CHRONRATHAÍ FOIRGÍOCHT (LEASÚ) 2022
CONSTRUCTION CONTRACTS (AMENDMENT) BILL 2022
Bill entitled An Act to amend the Construction Contracts Act 2013 to make further provision to regulate payments and adjudication of payment disputes under construction contracts; and to regulate agreements for allocation of costs in arbitration of disputes arising from construction contracts other than international commercial arbitrations or contracts for construction operations outside the State.Be it enacted by the Oireachtas as follows:
Short title and commencement
1. (1) This Act may be cited as the Construction Contracts (Amendment) Act 2022.
(2) This Act shall come into operation 3 months after its passing.
Definition
2. In this Act, “Principal Act” means the Construction Contracts Act 2013.
Amendment of section 4 of Principal Act
3. Section 4 of the Principal Act is amended by the addition of the following subsection after subsection 4:
“(4A) If no response is delivered in accordance with subsection 3(a) within 21 days from the payment claim date, the other party shall, not later than the date on which payment for the period, stage of work or activity to which the payment claim notice relates would be due, pay the executing party the amount claimed in the payment claim notice.”
Amendment of section 6 of Principal Act
4. Section 6 of the Principal Act is amended as follows—
(1) By the substitution of the following subsections for subsections (1) and (2)—
“(1) A party to a construction contract has the right to refer for adjudication in accordance with this section any dispute relating to payment of an amount claimed in a payment claim notice (in this Act referred to as a ‘payment dispute’).
(2) The party may exercise the right by serving on the other person who is party to the construction contract a referral to adjudication—
(a) within 42 days from the payment claim date, or
(b) in the case of a failure to pay in accordance with section 4(3)(b) or section 4A, within 21 days from the day payment fell due, or
(c) in the case of a claim for adjudication of the true value of a payment claim paid in accordance with section 4A (whether or not payment was made on foot of an adjudicator’s decision), within 21 days from the day of payment.”
(2) By the substitution of the following subsection for subsection (5)—
“(5) The party by whom the referral under subsection (2) was served—
(a) shall, within 7 days beginning with the day on which the appointment is made, send the adjudicator a copy of the same referral as was served under subsection (2), and
(b) shall at the same time send the other person who is a party to the construction contract written confirmation that the referral is being sent to the adjudicator that day and a copy of any covering letter to the adjudicator.”
Amendment of the Arbitration Act 2010
5. Section 21 of the Arbitration Act 2010 is amended by the insertion of the following subsection after section 3—
“(3A) (a) This subsection shall not apply in relation to—
(i) an arbitration agreement concluded before the coming into operation of the Construction Contracts (Amendment) Act 2022,
(ii) an international commercial arbitration, or
(iii) a construction contract relating to construction operations to be executed wholly or mainly outside the State.
(b) Notwithstanding subsection (1), a term in an arbitration agreement in or in connection with a construction contract which relates to the allocation of the costs of arbitration shall have effect only if it—
(i) provides for the arbitral tribunal to allocate those costs in accordance with its discretion, the applicable law or both, or