This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
It has been a decade since the Housing Grants, Construction and Regeneration Act 1996 (HGCRAConstruction Contracts (Northern Ireland) Order 1997as amended) was enacted in the United Kingdom (Northern Ireland was covered by the , ). Drafted with the intention of increasing cash flow and addressing the high rates of insolvency in the industry, there can be no doubt that the HGCRA’s dual innovations of compulsory payment terms and an automatic right to refer a dispute to adjudication has had a (generally) positive impact on the industry’s culture.
In particular, like it or loath it, the right to refer any dispute to adjudication has changed the industry landscape, providing access to a ‘short sharp’ form of dispute resolution for any dispute arising under a ‘construction contract’ (albeit that the adjudicator’s decision is only binding to the extent that an arbitrator or court does not disagree). In practice, although the original aim of the HGCRA from a construction perspective was to ensure prompt payment practices throughout the industry, the right to adjudication applies in respect of all disputes, not just payment disputes. The (perhaps unintended) effect of this is that complex or highly technical disputes can be processed through adjudication – a form of dispute resolution arguably unsuited to such matters.
Nevertheless, the legislation (amended by the Local Democracy, Economic Development and Construction Act 2009 (LDEDC) and elaborated by the Scheme for Construction Contracts (England and Wales) Regulations 1998, as amended (the Scheme) and equivalent legislation for Scotland and Northern Ireland), has been viewed domestically and internationally as a success and the Republic of Ireland, whose industry culture and practices are similar to those of the UK, has enacted its own legislation based heavily on the HGCRA: the Construction Contracts Act 2013 (the Act).
Similarly named to its kin north of the border, the Act (which came into force this month, just over six years after it was originally introduced as a private member’s bill in the Seanad) is virtually identical to the HGCRA in a number of areas: the definition of ‘construction contract’ and ‘construction operations’ is almost exactly the same, as is the timetable for the adjudication process and the mandatory payment provisions (which prohibit pay when paid clauses and introduce a provision analogous with the concept of a ‘pay less’ notice).
There are differences, though. Crucially, the Act only grants the automatic right to adjudication for payment disputes arising out of construction contracts. It’s possible that this approach has been taken to avoid the scenario referred to above where complex disputes which relate to one or a number of technical matters are rushed through the limiting adjudication process. However, this may create an artificial boundary in the context of disputes where the payment dispute arises as a result of a defect, for example. It will be interesting to see how the Act is applied in such a circumstance because inappropriate application of the Act may give rise to jurisdictional challenges. Of course, limiting statutory adjudication to payment disputes is not unique to the Act, Singapore also takes this approach and, anyway, it may be that the parties choose to extend the scope of the adjudication to cover other disputes.
Adjudicators can be agreed between the parties, selected from the Panel of Adjudicators chosen by the Minister of Public Expenditure and Reform, or by the Chairperson of the Panel in the absence of such agreement (this panel is composed of a selection of solicitors, barristers, quantity surveyors and architects a number of whom are experienced UK adjudicators). The appointed adjudicator must comply with the government-issued Code of Practice which requires them to impose an adjudication procedure commensurate with the value of the payment dispute and to use reasonable endeavours to process the dispute in the shortest time and at the lowest cost. Unlike in the UK, the adjudicator is required to publish reasons for the decision. These points suggest that they’ve taken some lessons from the UK experience.
The Act also differs from the HCGRA on a number of more minor points: unlike under the HGCRA (and its exclusion orders), drilling for oil, tunnelling and boring are among the industrial activities which are not excluded from the Act. Similarly, under the Act, the act of making, installing or repairing artistic works is included in the definition of ‘construction operations’, whereas in the HGCRA it is expressly excluded. More significantly, the Act only applies to residential occupier clients with dwellings over 200 square metres whereas contracts with a value of less than €10,000 are, surprisingly (given that the possible cost-savings associated with adjudication would suit low-value contracts) excluded.
Also of note is the different approach taken by each jurisdiction to adjudicator fees. The Scheme allows for the payment of the adjudicator’s fees to be proportioned between the parties at the adjudicator’s discretion, providing the adjudicator the ability to ‘punish’ vexatious claimants or poor behaviour. The position under the Act, on the other hand, is that each party shall bear his or her own legal costs and any other costs associated with the adjudication, although the Code of Practice does set out limited circumstances in which the adjudicator might apportion costs differently between the parties (namely where a party fails to: (i) attend a meeting, (ii) comply with an adjudicator direction (iii) disclose information relating to a potential conflict or (iv) produce a document requested by the adjudicator).
A possible difference between the two countries, however, may be the likely extent of the enforcement of the Act. Under the HGCRA, if the decision of the adjudicator is challenged, the British judiciary has demonstrated a notably supportive approach to adjudication.
By contrast, it’s unclear at present how much the Republic of Ireland’s judiciary will embrace the Act. Much like the HGCRA, the adjudicator’s decision will be binding until referred to the courts or to arbitration. Disputes are likely to be referred to the Commercial Division of the High Court and commentators have been quick to point out that there, unlike in the UK, legislation is not king. The Irish Constitution will trump the Act in the event of a perceived discrepancy between the two.
Ultimately, whether the Act will change the construction industry to the same extent as the HGCRA remains to be seen. If the Irish courts apply the same deferential attitude to the Act as the TCC applies to the HGCRA, then that would certainly support the Act’s aims, but, ultimately, by limiting the Act to payment disputes only, it seems likely that the Act will not achieve the paradigm-shifts that its UK counterparts did.
