ADJUDICATION UNDER THE CONSTRUCTION CONTRACTS ACT 2013 Siobhan Kenny ADJUDICATION UNDER THE CONSTRUCTION CONTRACTS ACT 2013

INTRODUCTION Adjudication has been described as a fast track dispute resolution process designed to produce a binding decision enforceable immediately, pending full determination of the dispute in Court, at Arbitration or by Agreement between the Parties. Statutory Adjudication - Available in the UK since 1998 – statistics demonstrate that it is effective, speedy and that, in the vast majority of cases the adjudicator’s award, and payments which follow, bring the underlying dispute to an end. Benefit of the UK experience - extensive body of law and authority from which we can draw. Important differences between UK system and the system now introduced.

INTRODUCTION In 2010 Senator Quinn introduced the proposed legislation the intention behind the legislation – stated purpose of it – to improve cash flow in construction. How do they propose to do that ? 2 mechanisms – payment provisions and speedy dispute resolution aka – adjudication. Act has been passed but not yet commenced

Construction Contracts Act 2013 12 Sections Definitions Exclusions Payment provisions – mechanism and default provisions; no pay when paid Payment provisions – payment claim notices – claims procedure Payment provisions – failure to pay – right to suspend Adjudication – the procedure. Adjudication – the remedy - suspension Adjudication – the panel Adjudication - Code of Practice Notice Expenses Commencement

Construction Contract Act 2013 Section 1 – Definitions ‘construction contract’ – written or oral carrying out ‘construction operations’ arranging for the carrying out of ‘construction operations’ providing labour for the carrying ‘out of construction operations’ ‘construction operations’ – intentionally broad definition building and civils contracts; specialist works contracts; cleaning operations; preparatory works; decoration works; craftsmen contracts ‘payment dispute’- meaning assigned to it by Section 6 which is “any dispute relating to payment arising under the construction contract”

Construction Contract Act 2013 Section 1 Section 1(2) consultants contracts covered Section 1(3) supply only contracts not covered Section 1(4) supply and install contracts covered. Section 2 – Excluded contracts: Value less than €10,000 Dwellinghouses (less than 200 m2) Contract of employment PPP contracts Mixed contracts provision Section 2(5) No contracting out. Sections 3- 5 – Payment provisions Section 10 – Notice provisions and time limits – care required Sections 11 & 12 - procedural sections

Construction Contract Act 2013 Section 6: “Right to Refer Payment Disputes to Adjudication” Section 6(1): “A party to a construction contract has the right to refer for adjudication in accordance with this section any dispute relating to payment arising under the construction contract (in this Act referred to as a "payment dispute")” Note 1: The corresponding section in the English Act relates to a “dispute” and not a “payment dispute” Note 2: Whilst the Courts initially in England put a very narrow definition on dispute (Edmund Nutall v RG Carter [2002] EWHC 400 TCC), the Courts now interpret that word very widely, and in accordance with common parlance.

Construction Contract Act 2013 Section 6(2): “The party may exercise the right by serving on the other person who is party to the construction contract at any time notice of intention to refer the payment dispute for adjudication”. Note 1: This provision, coupled with, presumably, a wide definition of the word “dispute” opens the process to ambush. Note 2: Ambush is no longer prevalent in the UK, being controlled by the Adjudicators rather than the Courts.

Construction Contract Act 2013 Section 6(3): “The parties may, within 5 days beginning with the day on which notice under subsection (2) is served, agree to appoint an adjudicator of their own choice or from the panel appointed by the Minister under section 8”. Section 6(4): “Failing agreement between the parties under subsection (3) the adjudicator shall be appointed by the chair of the panel selected by the Minister under section 8”. Section 6(5): “The party by whom the notice under subsection (3) was served– (a) shall refer the payment dispute to the adjudicator within 7 days beginning with the day on which the appointment is made, and (b) shall at the same time provide a copy of the referral and all accompanying documents to the person who is party to the construction contract”.

Construction Contract Act 2013 Section 6(6): “The adjudicator shall reach a decision within 28 days beginning with the day on which the referral is made or such longer period as is agreed by the parties after the payment dispute has been referred”. Note 1: This 28 day time limit is achieved in respect of about 45% of determinations made by Adjudicators in the UK. Section 6(7): “The adjudicator may extend the period of 28 days by up to 14 days, with the consent of the party by whom the payment dispute was referred”. Note 1: In about 80% of adjudication disputes in the UK the determination is given within 42 days. Note 2: In the UK in larger or more complex disputes experienced adjudicators have ways and means of persuading the parties to agree to extend the time as necessary.

Construction Contract Act 2013 Section 6(8): “The adjudicator shall act impartially in the conduct of the adjudication and shall comply with the code of practice published by the Minister under section 9, whether or not the adjudicator is a person who is a member of the panel selected by the Minister under section 8”. Note 1: The code of practice has not yet been published Note 2: The Irish legislation contains no sanction if the Adjudicator fails to act impartially or indeed if he fails to adhere to the code of practice or meet the deadline for issuing his determination. Statutory Scheme for Construction Contracts UK – allows for revocation of appointment in circumstances including default or misconduct. Note 3: There is no process for challenging the appointment of the Adjudicator.

Construction Contract Act 2013 FAIR PROCEDURES – NATURAL JUSTICE Note 4: In the UK, challenge to the award of an adjudicator is very difficult. Allegations of failure to apply principles of natural justice will not succeed unless the behaviour complained of is substantive. In Herbosh – Kiene Marine Contractors v Dover Harbour Board (2012)) Mr Justice Akenhead determined that the adjudicator had gone off “on a frolic of his own” in using an assessment method that had not been advanced by either party and in respect of which he had not entertained submissions from the parties. The challenge was successful.

Construction Contract Act 2013 Section 6(9): “The adjudicator may take the initiative in ascertaining the facts and the law in relation to the payment dispute and may deal at the same time with several payment disputes arising under the same construction contract or related construction contracts”. Note 1: This sub-section corresponds exactly with a sub-section in the UK - Legislation except the words “or related construction contracts” are added. This must be considered to be a significant addition. What exactly are “related construction contracts? Note 2: The corresponding section in the UK (contained in the Scheme rather than the Act) goes on to set out a large number of measures available to the Adjudicator such as demanding that documents be supplied to him, issuing directions etc. It must be assumed that similar issues will be dealt with in the code of practice.

Construction Contract Act 2013 Note 3: In practice 70% of disputes are decided on documents only in the UK. It would be extremely difficult to fit a hearing as such into a 28 day period. Note 4: Nonetheless the case law in England makes it clear that an Adjudicator must comply with the requirements of natural justice. At the very least this requires that both parties are given a reasonable opportunity to state their case, within of course the time restraints of the legislation. Note 5: Notwithstanding the very tight time restraints, the practice in the UK is for Adjudicators to give reasoned determinations.

Construction Contract Act 2013 Section 6(10): “The decision of the adjudicator shall be binding until the payment dispute is finally settled by the parties or a different decision is reached on the reference of the payment dispute to arbitration or in proceedings initiated in court in relation to the adjudicator's decision”. Note 1: Whether the matter goes to Arbitration or to Court for a final decision is dependent on the terms of the contract. Note 2: The advent of adjudication in the UK has annihilated the need for arbitration. The number of construction related arbitrations in the construction industry has been reduced by about 75% by reason of adjudication. Note 3: Parties tend to accept the Adjudicators determination once they know they are going to have to comply with it in any event.

Construction Contract Act 2013 Binding as between parties: Not binding on subsequent Arbitrator or Judge hearing the dispute proper. Sequential adjudications – same project - is decision binding on a subsequent adjudicator? Issue tested Arcadis v Mary Burke 2013 – where second adjudicator reviewed the decision of the first adjudicator. The judge upheld the decision and rejected the challenge – the second adjudicator agreed with the conclusions of the first – he was not bound by them. The distinction is important.

Construction Contract Act 2013 Section 6(11): “The decision of the Adjudicator if binding shall be enforced either by action or by leave of the High Court in the same manner as a judgement or order of that Court with the same effect and, where leave is given judgement may be entered in terms of the decision”. Note 1: Obtaining the leave of the Courts can take months even when there is no objection. Note 2: Adjudication works better in England than it does in Northern Ireland because leave of the Court can be obtained very quickly in England. Note 3: There is nothing sinister in the words “If binding”. The decision is binding unless one of the events set out in sub-section 10 has occurred. Note 4: “by action” or “by leave” of the High Court. Reference to “action” not understood.

Construction Contract Act 2013 Section 6(12): “The decision of the adjudicator, if binding, unless otherwise agreed by the parties, shall be treated as binding on them for all purposes and may accordingly be relied on by any of them, by way of defence, set off or otherwise, in any legal proceedings”. Note 1: This does not entitle the parties to contract out of the binding nature of the Adjudicator’s decision. Sub-section 2(5) prevents the parties from purporting to limit or exclude the application of the Act and this sub-section would be in conflict with sub-section (10) if it was read otherwise. Note 2: The words underlined should have been deleted. They add nothing but confusion Note 3: Substantive debate in the UK about the right of set-off of counterclaims as against adjudication awards. Appears to be the position at present that by virtue of the fact that the award is a binding determination that a debt is due by one party to another, the right to set-off a counterclaim as against that obligation to pay, does not arise unless the counterclaim has been considered by the adjudicator.

Construction Contract Act 2013 Section 6(13): “The adjudicator may correct his or her decision so as to remove a clerical or typographical error arising by accident or omission but may not reconsider or re-open any aspect of the decision”. Note 1: A similar provision was only introduced in England and Wales in 2009 by virtue of an amendment to the 1996 Act. As a result, in the Bouygues case [1999] the Court enforced an Adjudicator’s decision in circumstances where it was clear that instead of the Claimant paying the Respondent money, the Respondent should have had to pay the Claimant money. Dyson J observed that it is “……inherent in the scheme that injustices will occur, because from time to time adjudicators will make mistakes. Sometimes those mistakes will be glaringly obvious and disastrous in their consequences for the losing party”. Note 2: It is to be noted that there is no time limit on the Adjudicator to make such a correction. Section 6(14): “The adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his or her functions as adjudicator unless the act or omission is in bad faith, and any employee or agent of the adjudicator is similarly protected from liability”.

Construction Contract Act 2013 Section 6(15): “Each party shall bear his or her own legal and other costs incurred in connection with the adjudication”. Section 6(16): “The parties shall pay the amount of the fees, costs and expenses of the adjudicator in accordance with the decision of the adjudicator”. Section 6(17): “An adjudicator may resign at any time on giving notice in writing to the parties to the dispute and the parties shall be jointly and severally liable for the payment of the reasonable fees, costs and expenses incurred by the adjudicator up to the date of resignation”. Section 6(18): “The parties to a dispute may at any time agree to revoke the appointment of the adjudicator and the parties shall be jointly and severally liable for the payment of the reasonable fees, costs and expenses incurred by the adjudicator up to the date of the revocation”.

Construction Contract Act 2013 Note 1: What if the Adjudicator fails to give his decision within the time prescribed, or indeed at all? In the UK the parties can appoint another Adjudicator and are not obliged to pay the first Adjudicator in these circumstances. Note 2: Adjudicator decides which party pays his costs – but the parties must discharge their own costs. Note 3: Scheme in the UK deals with circumstances in which the adjudicator fails, for some reason, to deliver the decision. Where that failure is due to misconduct – there is no obligation to pay fees. Note 4: Why should the parties be liable for the Adjudicators fees if he simply resigns for his own convenience and does not give the parties value?

Section 7: “Right to Suspend Work for Failure to Comply with Adjudicator’s Decision” This section provides that if the amount decided upon by the Adjudicator is not paid in full within seven days a party may give seven days notice of his intention to suspend the works. The suspension must be lifted “after the decision of the Adjudicator is referred to arbitration or proceedings are otherwise initiated in relation to the decision”. (Sub-section 7(4)(b)). Period of suspension will be disregarded for the purpose of assessing any delay on the part of the contractor under the contract. It does not however provide for the contractor being compensated for any loss sustained by reason of the suspension. Very important relief – however – the fact that it can /must be lifted in the event of a referral undermines its strength.

Sections 8 & 9 Section 8: Selection of Panel of Adjudicators Minister for Public Expenditure & Reform is to appoint a panel of adjudicators. Panel will comprise experienced quantity surveyors, architects, chartered engineers, barristers, solicitors and fellows of the Chartered Institute of Arbitrators. Experience and expertise of the candidates in the field of dispute resolution procedures under construction contracts – relevant factor. Section 9: Code of Practice To be introduced as a Statutory Instrument. The Scheme for Construction Contracts in the UK is a comprehensive and detailed document. Assume: the Code, when issued will provide a clear framework for the conduct of adjudications. Draft awaited.

What is Not Included? There is no provision in the legislation that enables an Adjudicator to award interest. There is no provision which requires the Adjudicator to provide reasons for his decision. There is no provision dealing with a circumstance whereby the Adjudicator fails to provide his decision. There is no provision entitling the Adjudicator to withhold his decision pending payment of his fees – nor is there any provision preventing the Adjudicator from doing so.

What is Left to be Done? The Minister is to publish a code of practice. This could very well deal with issues that have been omitted, albeit the issue of interest should be dealt with in the legislation and not through a code of practice. It is essential that Rules of Court be introduced specifically to ensure that adjudicators decisions can be recorded as judgements without delay. A panel of adjudicators will have to be set up by the Minister before the legislation can be implemented. Commencement