The Construction Contracts Act 2013: latest decision on principles of enforcement of adjudication award – “Pay Now, Argue Later”

The decision in John Paul Construction Limited v Tipperary Co-Operative Creamery Limited [2022] IEHC 3 relates to an application for leave to enforce an adjudicator's decision pursuant to the Construction Contracts Act 2013 (the Act). It further endorses the key principles of adjudication, including "pay now, argue later", which have been considered in detail in Principal Construction Ltd v. Beneavin Contractors Ltd  [2021] IEHC 578 and Aakon Construction Services Ltd v. Pure Fitout Associated Ltd (No. 1) [2021] IEHC 562.

A&L Goodbody LLP on record for John Paul Construction Limited (JPC).

Summary

JPC was engaged by Tipperary Co-Operative Creamery Limited (TCC) under a construction contract (as defined under the Act) to carry out development works at TCC's milk drying and evaporation facility in Tipperary town. Pursuant to Section 6(2) of the Act, a notice of intention to refer was issued in relation to a payment dispute relating to delay events and prolongation costs.

The adjudicator issued a decision in favour of JPC, which ordered TCC to pay JPC the sums awarded within four weeks. In circumstances where TCC failed to pay the sums awarded, JPC sought leave to enforce by order of the High Court in accordance with section 6(11) of the Act. Section 6(11) of the Act provides that an adjudicator’s decision can, with the leave of the court, be enforced in the same manner as a judgment or order of the High Court.

TCC sought to defend the application based on two grounds:

• that the adjudicator failed to comply with fair procedures and natural justice
• that the adjudicator reopened a matter which had previously been decided upon in a separate adjudication between the parties

In finding that the adjudicator's decision was enforceable, Mr Justice Simons held that:

"The legal effect of an adjudicator’s decision is merely to impose an obligation to make a payment in the interim...Certainly, there is no call for the court, on such an application, to carry out a detailed review of the underlying merits of the adjudicator’s decision…This does not affect the right of either party to pursue arbitration or litigation thereafter".

The role of the Court in enforcement of adjudications is therefore narrow.

Leave to Enforce Principles

Under subsections 6(10) and (11) of the Act an adjudicator's decision is binding in the interim, unless and until it is superseded by a subsequent decision reached in arbitration or court proceedings. Even though it is not final and conclusive, the adjudicator's decision gives rise to an immediate obligation to pay. This is described as "pay now, argue later".

The Court noted a "twofold rationale" for its limited role in an application to enforce. First, the adjudicator's decision is not "final and conclusive" in that the "unsuccessful party is entitled to a full rehearing of the underlying payment dispute - in subsequent arbitral or court proceedings - and has a right to recoup any monies paid…". Second, statutory adjudication is designed to be far more expeditious than arbitration or litigation. It would therefore "undermine the legislative policy of “pay now, argue later” were the court to refuse to enforce an adjudicator’s decision precisely because the adjudicative process failed to replicate that of conventional arbitration or litigation".

Grounds of Resistance

In resisting the enforcement proceedings, TCC sought to rely on two main grounds:

1. Fair procedures

Importantly, on the grounds of fair procedures, the Court acknowledged that it would not enforce an adjudicator's decision where there has "been a blatant or obvious breach such that it would be unjust to enforce the immediate payment obligation". This clearly indicates that the Court retains a discretion to refuse to enforce. However, this is a high bar to meet.

• Alleged failure to consider defence

As its main ground of resistance, TCC inferred that a particular section of its defence had not been considered, as opposed to "expressly excluded" by the adjudicator. The Court noted that these were two distinct scenarios. The Court adopted a pragmatic approach and, in rejecting TCC's attempt to "embark upon a reconsideration of the underlying merits of the adjudicator's decision", it noted that it would have regard to:

"the adjudicator's decision in the round: the decision is not to be parsed line-by-line. Where a respondent has sought to raise a number of distinct defences…or has raised a counterclaim, then the decision should record the adjudicator’s findings on each of these distinct defences. The position in respect of a single line of defence which comprises a number of interrelated issues is otherwise: the adjudicator will not necessarily be required to set out separate findings on each and every subtopic. It is sufficient that the substance of the defence have been addressed in the decision."

The Court stated that this position is "broadly similar, but not identical" to that adopted in England and Wales.

• Allowing "new" claim to be made

TCC also alleged that the adjudicator had permitted a "new" claim to be made during the course of the adjudication in breach of fair procedures. In rejecting this ground outright, Mr Justice Simons stated:

"this complaint is premised on a misunderstanding on the part of the employer. The supposed new claim is, in fact, simply a better particularised version of the original claim."

It is important to note that the revised claim was provided as a result of a request for further and better particulars by TCC and that the adjudicator allowed TCC nine extra days to respond. The Court stated that this period was "reasonable in the context of a statutory adjudication, having regard to the need for expedition" and it noted the detailed supporting discussion in Aakon [No.1].

2. Matters determined by first adjudication

TCC claimed that the adjudicator exceeded his jurisdiction in purporting to determine issues which were already the subject of an earlier binding adjudication decision (delivered by the same adjudicator). The Court rejected this argument on the basis that the first adjudication related to variations and "did not involve a claim for an extension of time nor were prolongation costs sought". The Court was satisfied that the adjudicator’s decision "did not trespass upon issues which had been the subject of a binding determination in the first adjudication".

Additional Issues – Judicial Review and the Act

JPC had submitted that, in resisting enforcement on alleged breach of fair procedures, TCC had attempted to judicially review (JR) the decision via the back door and that this was time barred due to the three month time-limit for JR under Order 84 of the RSC having expired. Ultimately, the question of whether adjudication under the Act is amenable to JR under Order 84 was not addressed in circumstances where TCC had failed to demonstrate that the adjudicator breached fair procedures and / or exceeded his jurisdiction. The Court noted "the opposition failed on the merits, rather than as the result of any supposed failure to comply with the three month time-limit". Although the Order 84 issue was not decided upon in this matter, it is important and it is likely to arise before the Court in due course. It is clearly necessary for the Court to provide direction on this issue.

Final Comment

This judgment clearly sets out and reaffirms the principles of the Act, in that:

• an adjudicator’s decision can, with the leave of the court, be enforced in the same manner as a judgment or order of the High Court
• the adjudicator's decision gives rise to an immediate payment obligation
• leave to enforce does not preclude the paying party from pursuing the matter via arbitral or court proceedings

Importantly, the Court elaborates further on the principles set out in Aakon [No.1] and Principal Construction to the extent that it is now clear that the role of the Court in the enforcement of adjudications is particularly narrow and, although the Court retains jurisdiction under the Act to refuse leave to enforce, that the Court will not carry out a detailed review of the underlying merits of the adjudicator’s decision in this regard.

For further information in relation to this topic please contact Conor Owens, partner, Michael Kennedy, associate, or any member of ALG's Construction & Engineering team.

Date published: 13 January 2022