The decision of Mr Justice Garrett Simons in Gravity Construction Limited v Total Highway Maintenance Limited [2021] IEHC 19 is significant as it is the first judgment in Ireland concerning the enforcement of an adjudicator's decision pursuant to the Construction Contracts Act 2013.
Background
The Construction Contracts Act 2013 (the "Act") came into force on 25 July 2016. The purpose of the Act is to regulate payments under construction contracts and applies to both written and oral construction contracts commenced after this date. While the definition of a "construction contract" is quite broad under the Act, certain contracts are exempt from the provisions of the Act. These exemptions are:
- contracts valued at less than €10,000;
- contracts relating to owner-occupied residential dwellings of less than 200sq metres;
- employment contracts;
- public private partnership contracts;
- contracts relating to the manufacture or delivery to a construction site of building or engineering components or equipment, materials, plant, machinery or components for mechanical, electrical, fire or communications systems (however the Act will apply where these contracts for the supply of such items also provides for their installation).
Where the Act does apply, it creates new legal rights and obligations on the parties to a relevant construction contract including:
- an entitlement for subcontractors to be paid the full value of work completed every 30 days – this is irrespective of the provisions of the subcontract;
- a right to suspend work for non-payment;
- a prohibition on 'pay-when-paid' clauses; and
- a new right for a party to a "construction contract", to refer a payment dispute to Adjudication. The Act envisages that the Adjudication will be concluded within a short timeframe i.e. within 28 days from the date of referral, which may be extended in certain circumstances up to 42 days.
Enforcement of an adjudicator's decision
In accordance with section 6(10) of the Act, an adjudicator's decision is "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 a court in relation to the adjudicator's decision". If the amount awarded in the adjudicator's decision is not discharged, it is capable of summary enforcement, pursuant to section 6(11) of the Act, in the same way as any judgment or Court order.
The Rules of the Superior Courts have been amended to incorporate a provision for enforcement by the High Court of adjudicators' decisions. The procedure to be followed when applying for leave of the High Court to enforce or enter judgment in respect of an adjudicator's decision is set out in the Order 56B of the Rules of the Superior Courts (SI No 450 of 2016).
Gravity Construction Limited v Total Highway Maintenance Limited [2021] IEHC 19
Facts
The applicant (Gravity Construction Limited) had obtained an adjudication award on 28 April 2020. The adjudicator's decision directed that the sum of €135,458.92 (net of VAT) was payable by the respondent (Total Highway Maintenance Limited) to the applicant within 14 days of the date of the decision, together with the adjudicator's costs which came to €13,168.75 (plus VAT).
The respondent failed to pay the amount awarded against it and so the applicant initiated proceedings to enforce the adjudicator's decision. Initially, in response to the application for enforcement, the respondent sought to have the matter referred to arbitration and the payment of the award stayed pending determination of such arbitration. The respondent later indicated that it was prepared to pay the award (together with the adjudicator's costs and interests), without prejudice to the respondent's right to pursue the arbitration proceedings.
Issues
As a result of the respondent's change of position only two issues were remaining to be determined by the High Court:
(i.) Whether the Court should make an order against the respondent in circumstances where the respondent was prepared to provide a formal undertaking to the Court that the monies will be paid within two weeks of the hearing (26 January 2021).
(ii.) The allocation of the costs of the proceedings. In this regard the Court went on to examine the considerations to be taken into account by a court under the Legal Services Regulation Act 2015 ("the LSRA 2015") in relation to an award of costs.
The Enforcement Order
In relation to the first issue, the respondent sought to resist the making of an order against it, submitting that it was unnecessary to enter judgment in circumstances where an undertaking could be provided to the Court that the award would be paid within two weeks. Therefore, the respondent sought an adjournment to the proceedings to allow for this payment to take place. The respondent made a further alternative application which was that if the Court was minded to make an order against it then the order should be limited to a form of "unless" order (in other words that an order would only be made against the respondent if it failed to pay the award within the following two weeks).
In its response the applicant argued that the Court should have regard to the legislative intent underlying the Act. On that basis, it was submitted that the applicant should be entitled to judgment.
Having heard arguments from both parties, the Court considered the appropriate form of order was an "unless" order. The order was made pursuant to section 6(11) of the Act and provides that the applicant now has leave to enforce the adjudicator's decision in the same manner as a judgment or order of the High Court, and that judgment will be entered against the respondent in favour of the applicant in the sum claimed unless the said sum is paid to the solicitors acting on behalf of the applicant within seven days of the decision (by 2 February 2021).
In reaching his decision, Simons J. had regard to the "pragmatism" of the approach suggested by the respondent, whereby the provision of a solicitor's undertaking would serve to avoid the need for the making of a formal court order. Simons J. also took account of the fact that the respondent was no longer pursuing its objection that payment should be deferred pending the hearing and determination of the arbitration proceedings. However, in light of the legislative intent of the Act, the need for expediency in resolving construction disputes, and the fact that the applicant had waited six months for the hearing of the enforcement proceedings, the Court held that the applicant was entitled to have the matter ruled upon in the High Court.
In framing the order as an "unless" order, the Court sought to balance the interests of the parties by respecting the applicant's statutory entitlement to relief, while also affording the respondent a very short period to avoid judgment being formally entered against it.
The status of statutory adjudication in Ireland
In light of the decision, it is interesting to note the increasing uptake in statutory adjudications in Ireland. This is evident following publication of the Fourth Annual Report (the "Report") by the Construction Contracts Adjudication Service ("CCAS") in September 2020 (available here). The Report focuses on how regularly the adjudication process has been used, and the success of this process.
The Report covers the period from 26 July 2019 to 25 July 2020, during which 54 applications seeking the appointment of an adjudicator were received. This represents an increase of around 40% on applications for the appointment of an adjudicator recorded in the previous reported period (39 applications). The payment disputes recorded in the period of the Report amounted to €35.5 million.
The below table demonstrates that although the initial uptake in statutory adjudication was slow following the introduction of the Act, year on year, statutory adjudications are increasing in number and in value:
With the ever-increasing popularity of adjudication as a forum for resolving construction payment disputes, we can certainly expect more applications coming before the Irish courts seeking enforcement of adjudicators' decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
