Why (so called) 'smash and grab' adjudications in Ireland are not only fair, but essential

Adjudication is a fast and cost-effective way of resolving construction disputes concerning payment. It was set up to promote cash flow in the industry and to develop a ‘pay now, argue later’ approach to disputes.

Across the water (and in the north)¹ parties to a construction contract are entitled to be paid in instalments; and the paying party is to provide a notice setting out:

Not only how much they intend to pay; but also
The basis on which it is calculated.

If they do not do so, then the payee is entitled by way of a ‘default’ payment notice and (if they were permitted by the contract to make an application), then their application automatically becomes the default payment notice: ie they will be due to be paid the amount in their payment claim application in full, no ‘ifs’, no ‘buts’.

This has led to adjudication (which I prefer to refer to as 'technical payment notice adjudications'), but others refer to as 'smash and grab' adjudications. The term 'smash & grab' was crafted by counsel who were resisting enforcement of such an adjudication in the early days, and so was, and is, a deliberately pejorative term. It has stuck.

I have always felt that the payment system was entirely fair. Why or how can an employer just ignore a properly made and valid payment claim? After all, the contractor has spent good money buying materials and paying labour to do work for the employer, so is it not fair that all the employer has to do, is be polite enough to let the contractor know how much they intend to pay that month? Many in the construction industry agree with my sentiment.

However reasonable my thoughts on the process, such an approach has been contested by others, who thought such an adjudication was some dastardly sleight of hand by the unscrupulous: interestingly, those that felt that way, were mainly from the legal profession.

I think in more recent times that view has diminished. I recall the comment by the English eminent judge, Sir Rupert Jackson, in the seminal case of S&T v Grove² that an employer, to protect itself against any harsh consequences, should:

“…be scrupulous to protect itself by serving timeous Payment Notices or Pay Less Notices”.

It is that simple.

The story in Ireland

The situation so far in Ireland is not so clear, unfortunately. Under our legislation here (the Construction Contracts Act 2013, which really only took effect in 2016)³ the steps are that:

The contractor issues their payment claim notice;
If the employer contests that the amount is due and payable; then
They shall deliver a response to the payment claim notice.

However, Irish legislation (modelled on the English law) does not say what the effect, if any, is if the employer does not do so. So an employer ignoring a contractor and starving it of cash, for no valid reason can, and does happen.

Thought processes out there…

Many in the construction industry say, if the employer does not issue a response to the payment claim notice, they cannot then contest the amount claimed. Others, say the lack of a response to a payment claim notice does not mean the amount applied for becomes due. Interestingly this later view is more prevalent in solicitors and barristers.

What is clear is that it is arguable either way.

Unfortunately, we may never get any judicial guidance on the point in Ireland. This is because, across the water, when the courts are considering whether to enforce decisions or not, they do not concern themselves with whether the adjudicator was right or wrong: just whether they had jurisdiction (the right to hear the dispute) and whether there was a breach of natural justice (a party did not get a fair hearing).

On top of this, in the standard forms of contract, the final dispute forum is arbitration, which is private, it is not litigation (ie via the courts).

This means that until, and if, the legislation is amended to be explicit, we will constantly argue over the point. Already repeat users of adjudication will know that the panel of adjudicators in Ireland are in two camps; and will know who is in each camp. A highly unsatisfactory situation.

Dealing with this issue, caused by the wording in the Irish legislation (the Act), has made me recall something from the past, that I think we should remember.

Both sets of legislation require a payer to issue a payment notice. The reason is simple: so we know what, if anything, is being disputed. In the English case of Henia v Beck⁴ Akenhead J indicated that one way to test whether a notice was adequate was whether it would have provided ‘an adequate agenda for an adjudication’.

Let me give an example: a contractor makes an application for payment. In doing so, they set out their calculation as to the quantity of work done for each rate in the bill of quantities. They also set out each variation they contend for and how much they claim against each.

If the employer disagrees with the amount claimed and they set out in a response to the payment notice the amount they intend to pay, including the basis on which it is calculated, then everybody can identify:

What elements the employer disagrees with;
What quantities they agree on;
Which they don’t;
Which variations they accept but disagree on value; and
Which the employer denies outright.

This then allows those items to be referred to and decided by an adjudicator (ie provide an ‘agenda’ for adjudication).

But if the employer simply makes a payment ‘on account’, with no ‘Response’ to the payment notice, showing how they have arrived at their figure (the sum due and the basis of the calculation and reasons for deductions), what can we refer to adjudication?

It will be necessary for the contractor to prove every element of its claim because it does not know what the employer disagrees with. That will be at best extensive, disproportionate and wasteful; at worst it will be uneconomic or even impossible.

So, if the legislature wish parties to be able to adjudicate, then we need to know what is being disputed, and that comes from the response to a payment claim notice.

That leaves us in this position; if in Ireland the lack of a response to a payment claim notice has no effect, then an employer may decide never to issue one and so never let a contractor know what is in dispute and so stymie any risk of adjudication from a contractor. This equally applies to a main contractor not giving a response to a payment claim notice to a subcontractor, and so effectively preventing a subcontractor from bringing an adjudication.

That is not just unfair, but will deprive the Irish construction industry of the benefits of adjudication. Everybody I speak to in the industry believes adjudication is a force for good. In the UK, as Coulson LJ stated, adjudication “is the only game in town”⁵.

I hope the same can be said in Ireland in a few years’ time.

Author: Edward Quigg is a director and joint owner of Quigg Golden. He is a solicitor, a Chartered Procurement and Supply Professional, an ICC arbitrator and civil engineer. Edward.Quuigg@QuiggGolden.com