In a recent adjudication, the draconian and harsh consequences of 'smash and grab' adjudications were considered highlighting the necessity for strict compliance with the Construction Contracts Act 2013.
Why Should I read this?
In this adjudication, we acted for an Employer to a construction contract successfully defending a very significant seven-figure 'smash and grab' adjudication under the Construction Contracts Act 2013 ("CCA 2013/the Act") issued by a significant Irish Contractor.
A "smash and grab" adjudication may occur when, in the absence of a valid and timely payment notice or pay less notice, the payee claims payment for the full sum claimed in the disputed payment application. In such cases, it is open to an adjudicator to decide not to assess the valuation of the payee's application, but instead to make an award solely on the claimed amount, albeit in dispute.
The UK Courts recognise smash and grab adjudications, but it is not yet formally endorsed by the Irish Courts. Irish adjudicators have to date taken differing approaches and hence this recent decision highlights the importance for the applicant to ensure it has strictly complied with all of its own obligations under the Construction Contract and under the CCA 2013, and most particularly with regard to the notice provisions relied upon. The decision shows a marked reluctance to permit a Referring party securing a "windfall" where its own processes are in default.
Background
The dispute arose between the Employer and the Contractor under a construction contract for a large residential development in South Dublin City (the "Contract"), where a mid-eight figure valuation was in dispute. The Contractor claimed that a payment notice had been issued in accordance with the provision of the Contract, with the payment claim date falling on the last day of each month. The Contractor further alleged that the Employer failed to respond by failing to issue a payless notice within the statutorily mandated 21 days from the payment claim date, leading the Contractor to assert their entitlement for payment of the full sum submitted, under the CCA 2013.
The Contractor argued that the sum specified in the payment claim notice became due and owing, akin to the "smash and grab" provisions in the UK regime. Although not explicitly provided for in the CCA 2013, the Contractor interpreted Section 4 of the CCA 2013 to support their position that the Contractor was entitled to the full amount in the payment claim notice, notwithstanding arguments put forward by the Employer, to the contrary. Accordingly, the Contractor submitted that the Grove Principals 1 applied in the UK for supporting smash and grab adjudications, should be instructive and apply in Ireland, and any true value adjudication provided by Section 6 of the CCA 2013 is sub-ordinate to payment obligations imposed by Section 4.
The Employer in response submitted that the payment claim notice was invalid due to the incorrect payment claim dates submitted by the Contractor, that the Contractor did not comply with Contract delivery requirements for payment claim notices and the Contractor failed to deliver collateral warranties, a condition precedent under the Contract, disentitling them to make payment claims under the Contract. The Employer therefore maintained that no payment dispute existed, and the Contractor was not entitled to the sum sought.
The Employer further submitted that CCA 2013 remained silent on the consequences where a party fails to respond to a payment claim notice and that the silence within the Act does not impose a positive inference from the Oireachtas that smash and grab provisions are included in the statutory framework. The Employer rejected that the Grove Principals had been adopted in Ireland and further, should the Adjudicator find that a valid payment claim notice had issued, then the Employer would be entitled to a true value adjudication to be undertaken as a matter of constitutional justice.
Decision
In this decision, the Adjudicator acknowledged the strict language of Section 4 of the CCA 2013, which imposes severe consequences on a responding party by requiring full payment of the claimed amount without considering its true value. The Adjudicator emphasised that if a responding party fails to comply with the CCA 2013's provisions (specifically Sections 4(1) and 4(2) of the CCA 2013), the Referring party also bears a corresponding responsibility to adhere to the Act's requirements due to the draconian and harsh consequences which follows from a responding party's failure to reply.
The Adjudicator determined that, based on the CCA 2013 and the terms of the Contract, the relevant payment claim date occurred 30 days after the Contract's commencement and every 30 days thereafter. Consequently, the Contractor failed to comply with the mandatory provisions of Section 4(1) of the CCA 2013 and the Contract by not issuing the payment claim notice within 5 days of the relevant payment claim date, as the payment claim dates it relied upon were incorrect. As a result, the Contractor was not entitled to the sum specified in the disputed payment claim notice and was unsuccessful in its referral.
As the payment claim notice issue resolved the dispute, the Adjudicator did not consider the other issues raised relating to delivery of payment claim notices, collateral warranties, or fair procedures under the operation of the CCA 2013.
Conclusion
While this recent adjudication award provides valuable insights, the question of whether "smash and grab" adjudications are legally valid in Ireland remains unresolved by the Courts. Consequently, considerable uncertainty persists regarding parties' entitlement to conduct such adjudications under the current form of the CCA 2013 and whether the Grove principles established in the UK apply in the Irish context.
Despite this uncertainty, parties engaged in construction contracts should thoroughly grasp the payment provisions outlined in the CCA 2013 and construction contracts. Irrespective of any contractual arrangements, every party to a construction contract retains the right to refer a payment dispute to adjudication, and this right cannot be waived. As exemplified in the recent decision, strict adherence to the CCA 2013 is essential when initiating an adjudication referral. It would seem Adjudicators are reluctant to endorse a smash and grab adjudication unless it is evident that all relevant sections of the CCA 2013 have been meticulously followed.
Footnote
1 S&T (UK) Limited v Grove Developments Limited [2018] EWCA Civ 2448
A special thanks to Cian McKeagney for his contribution to this article.
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.