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The Adjudication Situation: 5 years of the Construction Contracts Act

  • Ireland
  • Construction and engineering - Articles

22-06-2021

Rome wasn’t built in a day. It’s not clear to what extent this was due to construction disputes but the adage is worth bearing in mind when considering the development of adjudication in Ireland under the Construction Contracts Act 2013 (the “CCA”) which celebrates five years in operation on 25 July 2021. Essentially a by-product of the 2008 financial crash, the primary goal of the CCA was to improve cash-flow in the construction sector, particularly for sub-contractors. The system of statutory adjudication that the CCA introduced was intended to be the key weapon in its arsenal.

While modelled on the system of statutory adjudication introduced in the UK by the Housing Grants Construction and Regeneration Act 1996, adjudication under the CCA has not had the same quick impact as its equivalent did across the Irish Sea. However, the latest indicators suggest that half-a-decade since its coming into force, adjudication is on the increase and finally starting to establish a foothold in the construction dispute resolution market-place.

Before looking at the latest developments, it is worthwhile examining some of the reasons cited for the apparent reluctance of the construction sector to embrace adjudication as a dispute resolution mechanism.

At a fundamental level, the CCA applies to payment disputes only and it is arguable that limiting its applicability and naturally reducing the scope for disputes falling within its remit was always going to impede the frequency with which it was invoked.

More frequently cited, if only anecdotally rather than empirically, is that the relatively small size of the Irish construction market does not lend itself to a culture of quickly pushing the button to refer disputes to adjudication, particularly when perceptions can exist that the short timelines applicable lead to rough rather than fast justice. Before sailing into new waters, parties may be conscious that making waves can often have the effect of rocking your own boat. To look at the same issue less cynically, the compactness of the Irish market could itself be said to reduce the need for formal processes to resolve disputes.

That conciliation is well-developed in the construction industry is likely another contributing factor to the slow development of adjudication under the CCA. Not only are concerned parties familiar with the process so that a preference for the devil-you-know comes into play, but furthermore, conciliation is often the mechanism provided for in the dispute clauses of contracts. While parties cannot contract out of the CCA, adjudication may also have suffered from being out of sight and out of mind. In the UK, the primacy of conciliation began to decline as standard form contracts moved away from it and an upsurge in adjudication in Ireland would not be surprising if a similar trend developed in the preparation of contracts here and specific adjudication provisions became more common.

It is also arguable that the market for which the CCA was designed was not the one into which it was launched in 2016. While the term “Celtic Phoenix” may have been coined by then, the industry was still really in recovery mode and a reluctance to start trying new processes in such circumstances is understandable.

However, even taking into account the Covid-19 pandemic, it seems that if adjudication received a cold reception on its introduction, five years on, the industry is beginning (albeit tentatively perhaps) to warm to it. At face value, this is evident from the upward trend in the number of applications for the appointment of an adjudicator to the Construction Contracts Adjudication Service recorded in its first four years of Annual Reports. Applications rose from 11 in 2018 to 39 in 2019 and to 54 in 2020 (whether the pandemic and associated closures of construction sites led to fewer or more applications than would otherwise have been the case is not clear as of yet but the former would seem to be the most likely).

An increase in litigation in relation to a subject is also generally a good barometer of its popularity and a number of cases relating to statutory adjudication under the CCA have come before the courts over the last 12 months.

Both Hines Greit II Ireland Fund ICAV v. Bunni & Others and Kevin O’Donovan and the Cork County Committee of the GAA v OCS One Complete Solution Limited related to judicial review. In O’Donovan, the applicants sought judicial review of an adjudicator’s determination that he had jurisdiction to deal with a payment dispute which the applicants said arose from a Letter of Intent that came into force before the CCA applied. The Court affirmed that based on section 6 of the CCA, which allows parties extend the relevant time periods for an adjudication, there was nothing preventing a stay on adjudication being put in place and the adjudication was stayed pending the outcome of the judicial review. While the relevant thresholds are such that they should prevent judicial review being used for strategic purposes, following the O’Donovan decision, it is not beyond the bounds of possibility to envisage a situation where a respondent issues judicial review proceedings in an attempt to frustrate or delay an adjudication through the obtainment of a stay.

In Construgomes, a sub-contractor sought to prevent pay out on an on-demand bond as it maintained that the issues leading to the call on the bond had already been dealt with in an adjudication. The sub-contractor sought an injunction preventing payment on the basis that the call on the bond was fraudulent and in effect a collateral attack on the adjudicator’s decision. The contractor maintained that the matters dealt with in the adjudication were distinct and that the amount now claimed included liquidated damages. The Court found in favour of the Contractor and held that parties were not compelled to bring the entirety of their claims in an adjudication and could enforce their contractual rights separately.

The recent decision in Gravity Construction represented another welcome milestone for adjudication related jurisprudence in Ireland. In Gravity Construction, the Court made the first Order for enforcement of an adjudicator’s award under the CCA. Proceedings were commenced after the Respondent had failed to make payment on foot of the adjudicator’s decision and the Order granted by the Court provided leave to the applicant to enforce the award in the same manner as a judgment or order of the High Court. While the question of the degree to which a recalcitrant payee is more likely to comply with a Court Order than an adjudicator’s award is for another day, the case is a significant step in giving practical effect to the provisions of the CCA and imbedding it into the construction industy’s dispute resolution landscape.

A further advancement in the status and visibility of adjudication arrived hot on the heels of the Gravity Construction decision with the announcement of a new Practice Direction by the Courts Service establishing a specific Court list for enforcement applications under the CCA and naming Mr Justice Simons as the presiding judge for Adjudication matters.

The Covid-19 pandemic has demonstrated the continued centrality of the construction sector to the Irish economy and adjudication could well experience a surge in use whenever parties attempt to begin navigation of the definitive post-pandemic landscape. Much will depend on whether or not the frequently touted pandemic spirit of in-this-togetherness and holding firm will, if it ever existed, manifest in lenient attitudes and creative solutions to payment issues post-covid. If it does, recourse to dispute processes may be stalled. On the other hand, it is difficult to see a return to business and normality, however creative, that will not require cash and cash-flow sooner rather than later and in this scenario, adjudication would be an attractive weapon of choice.

Five years on from its introduction, the CCA cannot be said to have been an overnight success. However, slowly and steadily, it appears to be establishing its place in the construction industry. As the pandemic subsides and parties deal with inevitable difficulties around payment in its aftermath, forbearance may well be the order of the day. However, if cash is sought quickly, the original purpose of the CCA to improve cash-flow could have a greater relevance than at any time since its inception and adjudication claims could increase hugely. A case perhaps of “per aspera ad(judication) astra”.

For more information, please contact

Dermot McEvoy, Partner, Dispute Resolution & Litigation - dermotmcevoy@eversheds-sutherland.ie

Aidan Kirrane, Associate, Dispute Resolution & Litigation - aidankirrane@eversheds-sutherland.ie