The law on contractual payment mechanisms and adjudication is an important element of construction law, introduced in Northern Ireland in 1999 and in Ireland in 2016.  Companies operating throughout the island of Ireland may find themselves dealing with two statutory regimes and so, in this briefing, we look at what it helps to know about both systems.

Overview

1) What is the statutory framework?

In Ireland, the relevant legal framework was introduced in 2016 by the Construction Contracts Act 2013 (the “Act”). Further details on process are in the Code of Practice Governing the Conduct of Adjudications (the “Code”).

The legislation in Northern Ireland is the Construction Contracts (Northern Ireland) Order 1997 (the “Order”) and the Scheme for Construction Contracts in Northern Ireland Regulations (Northern Ireland) 1999 (the “Scheme”) (both of which have been amended).

The principles in both jurisdictions are broadly similar (albeit that there are differences in the detail). The key aim is to ensure cash-flow in the construction industry by providing for prompt payment mechanisms in contracts, backed up by a right to refer disputes to be adjudicated upon speedily, usually during the life of a project.

In both jurisdictions, parties to a construction contract cannot contract out of the legislative framework.

2) How are payment mechanisms regulated in each jurisdiction?

The law in both jurisdictions sets out minimum requirements for the payment mechanisms to be included in construction contracts. It also prohibits the inclusion in contracts of ‘pay-when-paid’ provisions. 

The effect of the legislation is that construction contracts must contain adequate mechanisms to determine the amount of each payment that becomes due, the payment claim date, and the date by which the claim must be paid. 

If the parties fail to include provisions in their contracts that live up to the terms of the legislation, they are required to apply certain ‘default’ terms (which are in Part II of the Scheme in Northern Ireland and in the Schedule of the Act in Ireland).  While these provisions contain some details specific to each jurisdiction, there are broad commonalities, such as prescribed payment cycles (30 days in Ireland and 28 days in Northern Ireland).

In Ireland, the Schedule applies to subcontracts unless the subcontract gives the subcontractor a more favourable position than in the Schedule. The effect is that subcontractors have a statutory entitlement to minimum 30-day payment cycles.

A difference to be aware of is that the Northern Ireland legislation makes provision for ‘pay less’ notices whereby the payer may give to the payee a notice of intention to pay less than the notified sum, which must include the basis on which that sum is calculated. The legislation in Ireland is not set up in this way. Differences such as this should be borne in mind, as we consider further below at Question 8.

3) Is the system of adjudication broadly similar in the two jurisdictions?

Yes, both jurisdictions have a defined process with some key similarities. 

Expedition underpins both systems. Within seven days of the appointment of an adjudicator, the party who served the Notice of Intention to refer a dispute for adjudication must provide the adjudicator and the other party with the Referral for Adjudication.  Once the dispute is referred to the adjudicator, the adjudicator has 28 days to reach a decision (unless a longer period of time is agreed by the parties, or the period is extended to 42 days by the adjudicator with the consent of the referring party). 

The award of an adjudicator is binding in the interim (in other words, payment ordered by an adjudicator must be made) and can only be set aside by a court on narrow grounds (though parties may ultimately litigate, arbitrate or reach an alternative agreement if they continue to be in dispute). 

Both systems require an adjudicator to act impartially. Both systems address cost-effectiveness, with the Scheme in Northern Ireland (where it applies) requiring the adjudicator to avoid incurring unnecessary expense, and the Code in Ireland requiring the adjudicator to use reasonable endeavours to process the dispute in the shortest time and at the lowest cost.

Under whichever system your adjudication is being conducted, consult the details of the rules carefully. They do contain minor differences, and failure to follow the process (or object when another party fails to comply with it) may impact your ability to challenge or enforce an award at a later stage.

4) What are the main differences between the two systems of adjudication?

A key difference is that the law in Northern Ireland requires adjudication to be provided for in construction contracts.  The Order provides the right for a party to a construction contract to refer a dispute arising under the contract for adjudication under a procedure that must be set out in the contract and which must comply with the requirements in the Order. If the parties do not provide for adjudication in their contract, then the default rules in the Scheme apply. 

By contrast, in Ireland the entitlement to refer a payment dispute at any time for adjudication is a freestanding entitlement provided by statute and there is no need to provide for it in the contract (although it is wise to ensure coherence between statutory adjudication and any other dispute resolution mechanisms in your contract). 

A further difference is that, in Northern Ireland, a party to a construction contract has the right to refer for adjudication “any dispute” whereas, in Ireland, adjudication is for “any dispute relating to payment”. In practice, the latter wording may not narrow the scope of adjudication much, given that disputes arising from construction contracts typically have payment implications. 

In practice, adjudicators in Ireland have accepted jurisdiction to hear a wide remit of disputes including disputes on issues of interpretation (of monetary provisions) – even where payment was not being sought. The current position seems to be that, so long as you can establish that you have a dispute that has crystallised, and link your claim to an ultimate monetary entitlement, an adjudicator in Ireland will likely accept jurisdiction to hear your dispute.

In both jurisdictions, adjudications must be conducted in accordance with the principles of natural justice relating to fair procedure. Failure to so do can potentially provide grounds for challenging an adjudicator’s decision.

A legal difference is that, in Northern Ireland, such principles are grounded in common law while, in Ireland, they flow mainly from Article 40.3 of the Constitution. The presumption of constitutionality means that Irish statute law must be interpreted consistent with the Constitution such that the legislator cannot create a statutory procedure that seeks to exclude fair procedure. However, principles of proportionality apply, and there are many examples of processes being run on the papers. Oral hearings are typically required only where oral questioning is needed to resolve a divergence in the parties’ evidence. In John Paul Construction v Tipperary Co-operative Creamery Ltd, the Court said that an allegation that an adjudicator acted unfairly in not directing an oral hearing had been “very sensibly withdrawn”.

5) I have referred a dispute for adjudication, but the other party will not agree to the appointment of an adjudicator.  What happens?

Both jurisdictions contemplate various options for securing the appointment of an adjudicator.

In Northern Ireland, the Order envisages that parties provide for adjudication in their contract and so your contract may indicate what should happen in these circumstances.  The Scheme envisages that the referring party would: (i) request the person named in the contract; (ii) if no person is named in the contract (or the person named is unwilling or unable to act), and the contract provides for a specified nominating body to select a person, request that nominating body to select an adjudicator; and (iii) if neither of the first two options is available, request an adjudicator nominating body to select a person to act as adjudicator.  (The Adjudication Society provides a list of ANBs here.) 

In Ireland, the parties can appoint an adjudicator of their own choice, or from the Panel of Adjudicators appointed by the Minister. (It is possible for parties to agree in advance in their contract adjudicators they would appoint.) Failing agreement between the parties, the adjudicator is appointed by the Chair of the Panel of Adjudicators. The Panel comprises individuals who are selected for their experience and expertise in dispute resolution procedures under construction contracts. 

6) I have an adjudicator’s decision but the other party is refusing to pay the amount stated in it.  What can I do to enforce the decision?

It is possible to apply to the High Court for an order to enforce the adjudicator’s decision.

There have been a number of enforcement decisions in Northern Ireland, an example being Brennan Associates and others v the Bloody Sunday Trust. In that case, the court referenced the legislative intent of introducing a speedy mechanism for settling disputes in construction contracts on a provisional interim basis and requiring the decisions of adjudicators to be enforced pending the final determination. The Court indicated that the Commercial Hub in Northern Ireland has made it clear that it is sympathetic to the adjudication regime and its Practice Direction ensures that adequate court time will be made available to ensure that adjudication awards can be enforced promptly.

In Ireland, a first enforcement decision was given in 2021 in the case of Gravity Construction Ltd v Total Highway Maintenance Ltd. We considered this, and several enforcement decisions that followed, in briefings which you can access below:

• Gravity Construction Ltd v Total Highway Maintenance Ltd: Gravity Brought to Bear on Adjudication
• Principal Construction Ltd v Beneavin Contractors Ltd: Construction Law Update: Irish Court Comments on Adjudication as it enforces a Second Decision
• Aakon Construction Services Ltd v Pure Fitout Associated Ltd: Construction Law Update: Court elaborates principles that apply in Ireland to Enforcement of Adjudication Decisions
• John Paul Construction v Tipperary Co-operative Creamery Ltd: Construction Law Update: Adjudication going strong as Irish Courts enforce Fourth Decision
• McGurran Civils ROI Limited v K&J Townmore Construction Limited: Latest on Adjudication: No Quibbling! – Arthur Cox LLP

As in Northern Ireland, the High Court in Ireland has consistently expressed its commitment to upholding the intent of the Act as a means of expeditiously dealing with payment disputes. It also signalled a warning that those refusing to comply with an adjudicator’s decision without grounds to do so would be liable to be stung by High Court costs. Practice Direction HC 105 now provides that all applications for leave of the Court to enforce an adjudicator’s decision are made returnable before the High Court on the first available Wednesday, at which point directions should be given to ensure the application will be heard and determined with all due expedition.

7) An adjudicator’s decision has been made against me and I would like to challenge it. What should I do?

It is important to remember that you are bound by the decision unless it is overturned in arbitration or court proceedings (or you reach a different agreement with the party that obtained the decision)

The grounds on which a Court will set aside an adjudicator’s decision are fairly narrow.  They are that the adjudicator acted outside his or her jurisdiction; that there has been a breach of the principles of natural justice; or that the decision is the product of a fraud. In Ireland, the Court has left open the question of whether errors in law could leading to a finding that the adjudicator did not have jurisdiction (in Aakon Construction Services Ltd v Pure Fitout Associated Ltd).

There is now a significant body of case law from the Technology and Construction Court in England and Wales which provides helpful guidance (and though not binding on the courts in Northern Ireland, has persuasive authority). 

In Northern Ireland, the Court affirmed in Brennan Associates and others v the Bloody Sunday Trust that the ways in which an adjudication award can be challenged are limited. The Court cited five propositions from case law in England & Wales, the first of which is that a “decision of an adjudicator whose validity is challenged as to its factual or legal conclusions or as to procedural error remains a decision that is both enforceable and should be enforced”. In deciding to enforce the adjudicator’s decision, the Court noted that the issues raised before it “could have been raised and should have been raised during the adjudication if the Defendant had been properly advised”. In Northern Ireland Housing Executive v Dixons Contractors Ltd, however, the Court found that there had been a clear error of contract interpretation by the adjudicator (and invited submissions on the appropriate relief to be granted). 

In Ireland, there have been instances in which the respondent to an adjudication sought judicial review of whether or not the adjudicator had jurisdiction to hear the dispute in question. In O’Donovan and others v Bunni and others, which we looked at here, the High Court stayed the adjudication process pending hearing of the judicial review. On hearing the judicial review, the Court decided that the adjudicator did have jurisdiction to hear the payment dispute, and it lifted the stay. We looked at that decision here. The Court in Aakon Construction Services Ltd v Pure Fitout Associated Ltd confirmed that, because adjudication in Ireland is a statutory entitlement, an adjudicator’s decision may be amenable to judicial review.

A further case in Ireland – Construgomes & Carlos Gomes SA v Dragados Ireland Limited, BAM Civil Engineering & Banco BPI SA – highlights two key principles.  First, if issues have been included as part of a claim in an adjudication, whether by the claiming party or respondent, and the adjudicator has issued a decision, unless and until that decision is overturned, neither party can seek to raise those issues as a dispute in another forum.  Secondly, a party and, notably, a respondent, does not have to raise all defences and counterclaims that might be available to it in response to a referral to adjudication. Rather, a respondent can choose to advance certain claims in an entirely different forum. Our briefing on this case is available here.

If you are involved in an adjudication, it is important to raise concerns relating to jurisdiction and natural justice as soon as they arise if they arise. Failure to do so may make it difficult to rely on them later before a Court, whether you are a party seeking to enforce the decision, or a party seeking to resist it.

8) Can the caselaw of the Technology and Construction Court in England and Wales provide helpful guidance in Ireland?

Judgments of the TCC can provide guidance on how courts would approach issues that might arise in adjudication. The High Court in Ireland has considered certain principles set out in TCC judgments.

However, the starting point in applying the law to issues that arise is the Act and Code in Ireland. Where these differ from the UK framework, tread carefully when considering how to use the guidance to be gleaned from TCC case law. As Simons J indicated in Aakon Construction Services Ltd v Pure Fitout Associated Ltd, while the case law in England & Wales is of great assistance, it cannot simply be “read across” to the Act and the procedures governing enforcement.

9) A dispute has arisen relating to a site in Co Antrim but the construction contract says it is governed by the laws of Ireland. Which rules apply?

The rules in Northern Ireland. The Order applies only to construction contracts which relate to the carrying out of construction operations in Northern Ireland and applies whether or not the law of Northern Ireland is the applicable law in relation to the contract.

10) A dispute has arisen relating to a site in Co Donegal but the construction contract says it is governed by the laws of Northern Ireland. Which rules apply?

The same applies to the reverse situation: the Act applies to a construction contract whether or not the law of Ireland is the applicable law governing the contract.

11) Can I say in my construction contract that I do not want adjudication to be available?

No, it is not possible in either jurisdiction to contract out of adjudication.

In both jurisdictions, there has been an upward trend in the use of adjudication since its introduction. The process has proved to be effective and is underpinned by common principles in many jurisdictions across the world. That the systems are so similar is helpful for companies operating across the island of Ireland, but bear in mind that some differences in details of implementation do exist – don’t let the differences trip you up!