Introduction

The Construction Contracts Act 2013 (Appointed Day) Order 2016 provides that the effective date of the Construction Contracts Act 2013 (Act) is 25 July 2016. Following this date, all ‘’construction contracts’’ as defined by the Act are subject to the well-known statutory timelines for payment with a corresponding right to seek adjudication in the event of a payment dispute.  

This past summer marked the eighth year that the Act was fully operational in the Irish construction sector. Given the growing popularity of adjudication, stakeholders in the Irish construction sector are continuing utilise adjudication as a method of unlocking payment disputes and are becoming well-versed in the statutory timelines concerning responding to payment claim notices.  

We continue to receive queries from our clients regarding the consequences of failing to adequately respond to payment claim notices. Generally, there appears to be no consensus amongst adjudicators on this fundamental issue. Some adjudicators consider that a default payment arises for the amount contained in the payment claim notice, while others consider that no such payment arises. It is therefore surprising that the Irish construction sector is fast approaching the 10-year anniversary of the effective date of the Act, and we are still debating the consequences, if any, of failure to respond to a payment claim notice and whether such failure gives rise to what has colloquially become known as a ‘’smash-and-grab’’ adjudication.

What is a ‘’smash-and-grab” adjudication?

In the context of the Act, a ‘’smash-and-grab’’ adjudication is an adjudication initiated in circumstances where a response to a contested payment claim notice has not been delivered within 21 days or the response does not specify the necessary requirements as set out in section 4(3)(a) and section (4) of the Act. Accordingly, the referring party in the adjudication seeks the award of the full amount claimed. In the United Kingdom, similar legislation expressly states that, absent a pay less notice, the notified sum is payable. However, the Act does not expressly contain such a provision. The Irish Courts have not clarified how the Act ought to be interpreted in this regard.

It is notable that on 19 May 2010 during the Second Stage debate of the Construction Contracts Bill in Seanad Éireann, Senator Ruairi Quinn stated as follows:

‘’The main purpose of this Bill is to provide for a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due to contractors must be given. Otherwise, payments must be made in full and-or the payee may suspend the provision of works and-or services under the construction contract until payment is made in full.”

This suggests that the legislative intent of the Bill was that there must be some form of consequence on a party for failing to respond to a payment claim notice. However, as the Bill moved through the legislative process the wording became somewhat diluted. Nevertheless, if there are no consequences for failing to issue a response to a payment claim notice, it is unclear whether there is a need to comply with the detailed payment provisions in the Act (which are often replicated in construction contracts for consistency). A question arises as to whether the purposes of the Act are achieved if there are no consequences for failing to comply with its provisions.

Protection against ‘’smash-and grab’’ adjudications?

It should be noted that ‘’smash-and-grab’’ adjudications arise from a late or otherwise non-compliant responses to payment claim notices. In this regard, commenting on the equivalent legislation in the United Kingdom, Mr. Justice Edwards-Stuart observed as follows in ISG Construction Limited v Seevic College [2014] EWHC 4007 (TCC):

‘’The employer can defend itself by serving the notices provided for by the contractual provisions.”

Therefore, the onus is placed on the parties to construction contracts to ensure that their personnel are familiar with the relevant legislative and contractual provisions as regards responding to payment claim notices. Importantly, they should strictly follow the legislative and contractual provisions to protect against ‘’smash-and-grab” adjudications.

Conclusions

The question of whether failure to respond to a payment claim notice gives rise to a ‘’smash-and-grab’’ adjudication is in urgent need of clarification – either through judicial or legislative intervention. Many would say that it is unfortunate that at present, this question is determined by on a case-by-case basis by each adjudicator, thus creating an undesirable level of uncertainty for stakeholders in the Irish construction sector.

We have been involved in adjudications where adjudicators consider that a default payment arises in the absence of a valid response to a payment claim notice and where adjudicators consider a default payment does not arise. Our experience in dealing with adjudicators is very useful when advising clients on the best strategy to follow when a valid response it not delivered. In many instances, the appointed adjudicator is a central factor in considering the most suitable approach. In the absence of clarity, it is advisable for all parties to construction contracts to stay organised to avoid complacency around the statutory requirements so as to reduce the business risk of potentially being on the receiving end of a ‘’smash-and-grab’’ adjudication.