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Maples and Calder recently represented an Irish main contractor in successfully defending a payment dispute in adjudication.
The adjudicator's decision hinged on two issues:
- An interpretation of the Construction Contracts Act 2013 (the "Act"); and
- The effect that he gave to contractual provisions agreed by the parties to remove ambiguities left by the provisions of the Act.
The main contractor (the "Contractor") appointed a specialist sub-contractor (the "Sub-Contractor") to coordinate the façade works on a high-profile building project in Dublin City Centre. The sub-contract entered into by the parties (the "Sub-Contract") included a number of specific provisions drafted by Maples to respond to the provisions of the Act, including:
- A provision dictating what was to happen in circumstances where the Sub-Contractor delivered a payment claim notice but the Contractor failed to deliver a response to the payment claim notice; and
- A provision specifying the manner in which a payment claim notice was to be delivered.
Relevant Provisions of the Act
The Act makes provision for payment claim notices in section 4(2). Section 4(3) specifies that, if the other party contests that the amount claimed by an executing party in a payment claim notice is due and payable, it shall deliver a response to the payment claim notice specifying: the alternative amount that the other party intends to pay in response to the payment claim; the basis on which the alternative amount is calculated; and the reason(s) for the difference between the alternative amount and the amount claimed.
(The "other party" is the term used in the Act to refer to the main contractor in the context of a sub-contract. The sub-contractor is referred to as the "executing party".)
In contrast to the equivalent English and Welsh legislation, the Act does not expressly state that the amount claimed in a payment claim notice shall become payable if no response to the notice is issued by the other party. Instead, the Act is simply silent on what is to happen in these circumstances.
The first of the two above provisions in the Sub-Contract filled this lacuna in the Act by specifying that, where no response was issued by the Contractor to a payment claim notice, the Sub-Contractor would become entitled to the unpaid value of the Sub-Contract works that it had performed prior to the relevant payment claim date, as determined in accordance with the Sub-Contract.
The second Sub-Contract provision is catered for by section 10(1) of the Act, which states:
"The parties to a construction contract may agree on the manner by which notices under this Act shall be delivered."
The Alleged Payment Claim Notice
The Sub-Contractor submitted what it asserted was a payment claim notice to the Contractor, by email. The relevant Sub-Contract provision, agreed to by the Sub-Contractor, differentiated between 'ordinary' payment claims, and payment claim notices. It said that payment claim notices should be prominently described as such, and should be delivered by registered post.
The Contractor did not issue a response to the alleged payment claim notice, within 21 days of the asserted payment claim date (being the time period stipulated by the Act) or otherwise.
The Payment Dispute
The Sub-Contractor declared a payment dispute and referred the dispute to adjudication.
Importantly, the Sub-Contractor opted not to claim the value of the Sub-Contract works that it had performed up to the asserted payment claim date. Instead, the Sub-Contractor asserted that the full amount claimed by it in the alleged payment claim notice had, in the absence of a response from the Contractor, become due and payable to the Sub-Contractor. This type of claim is common in England and Wales and is facilitated by the express words of the equivalent legislation in that jurisdiction.
The Contractor argued that the Act did not support the Sub-Contractor's claim, and that the parties had made provision for what would happen in these circumstances. The Contractor also asserted that, in any event, the alleged payment claim notice was not in fact a proper notice for the purposes of the Act in circumstances where it had been delivered by email and not by registered post.
The Adjudicator's Decision
The adjudicator found in favour of the Contractor. He decided that:
- In the absence of express words like those contained in the equivalent English and Welsh legislation, the Act did not facilitate claims of the nature made by the Sub-Contractor; that is, the absence of a response by the other party did not necessarily mean that the full amount of an executing party's payment claim notice would become due and payable to the executing party;
- In any event, the parties had agreed in the Sub-Contract what would happen in these circumstances: the Sub-Contractor would become entitled to be paid the unpaid value of the Sub-Contract works, determined in accordance with the Sub-Contract. In circumstances where the Sub-Contractor had opted not to make a claim for that relief, it was entitled to no payment on foot of its payment dispute; and
- The Sub-Contractor's alleged payment claim notice was not a valid payment claim notice in circumstances where it had been delivered by email, and not by registered post in accordance with the parties' agreed protocol for the delivery of such notices.
The adjudicator decided that, accordingly, the Sub-Contractor should pay the adjudicator's fees.
An adjudicator's decision is confidential, applicable only to its subject payment dispute, and does not bind other adjudicators. The decision nonetheless offers a possible indication of how the relevant provisions of the Act will be interpreted by other adjudicators in future, and is interesting in circumstances where those provisions are ambiguous.
The decision also demonstrates the benefit of including provisions in construction contracts that are specifically designed to remove any ambiguity left by the Act, and to give parties greater certainty regarding the protocols around payment and payment disputes.
If you require any further advice or assistance, please speak to your usual Maples and Calder contact or those listed above.