The Irish courts’ continued support for construction adjudication

On 23 June 2023, the High Court delivered judgment enforcing two adjudicator's decisions relating to the same parties but on two different construction projects. In McGurran Civils (ROI) Limited v K&J Townmore Construction Limited[1] an unusual aspect of resisting enforcement was that the respondent opposed the leave applications but did not challenge the validity of the adjudicator's decisions. Instead the respondent sought minor reductions in relation to interest and VAT. Also, the respondent complained that the applicant did not send a claim letter prior to instituting proceedings.

Background

The first adjudicator's decision was issued in December 2022 and thereafter the applicant sought payment as a result of that decision. Following this, the parties engaged in correspondence with a view to reaching agreement on a schedule of payments. The respondent made part payment as a result of one of the decisions. On 23 May 2023, as no agreement was reached, the applicant started enforcement proceedings. The amount claimed in the enforcement proceedings was subsequently reduced to account for retention and VAT implications. The application also sought interest.

On 17 May 2023, the applicant started enforcement proceedings for the second adjudicator's decision. The court heard both matters together. As the respondent did not challenge the validity of the adjudicator's decisions and sought to review the interest and VAT aspects only, the court considered the approach that should have been adopted by the respondent was:

'19 … to discharge so much of the claim as it did not dispute or, alternatively, to consent to judgment in respect of so much of the claim as it did not dispute. The approach which it actually adopted resulted in a prolonged hearing and may have consequences in terms of its liability for legal costs.'

Letter prior to proceedings

The respondent made an objection that the applicant did not send a formal letter in advance of issuing proceedings with the suggestion that, had this been done, the dispute in relation to certain items could have been addressed by the parties without the need for proceedings. The court considered this objection was not well founded as, at the date of the hearings, payment of the adjudicator's awards had still not been made by the respondent. The court considered that a warning letter would be beneficial if it would 'obviate the necessity for legal proceedings' and in those circumstances may have consequences 'in terms of legal costs'. However, the court pointed out that:

'21 … any requirement to issue a warning letter has to be seen in the context of the very tight timelines prescribed for adjudication. As noted in the introductory part of this judgment, there would be little practical benefit to an expeditious adjudication process if there were to be significant delays thereafter in the enforcement of an adjudicator’s award. There is no obligation upon the party seeking to enforce an adjudicator’s award to give repeated warning to the defaulting side of an intention to issue proceedings.'

The court considered that the 'applicant could not be criticised for not having sent a formal … letter prior to the institution of the proceedings'.

Issues in dispute

The respondent considered that, because a portion of the payment as a result of the adjudicator's awards had been paid, the daily rate of interest identified in the adjudicator's decision should be reduced accordingly. The court considered that the adjudicator's decision did not make allowance for such a reduction.

The adjudicator had directed the repayment of an initial upfront payment relating to the adjudicator's fees by the applicant and a question arose as to whether this was confined to the fee or the fee plus VAT. The respondent argued that in circumstances where the applicant is registered for VAT, any VAT paid on the adjudicator’s fees would be recoverable as a trading expense and cannot, therefore, be claimed as against the respondent. In this regard the court considered the adjudicator's decision was clear and the fee plus VAT was to be repaid. VAT was a matter between the applicant and the Revenue Commissioners and 'does not obviate the respondent’s obligation to comply with the adjudicator’s award'.

The respondent had made an initial payment as a result of the adjudicator's decisions and an issue arose as to whether the initial payment should be credited to the first adjudicator's decision or whether part thereof should be credited to the second adjudicator's decision. This had a bearing on legal costs because, if the initial payment was credited to the second adjudicator's decision, this meant that the second adjudicator's decision was satisfied before the institution of proceedings. On the facts, the court concluded that the amount was credited to the first adjudicator's decision only.

The legal costs of enforcement

In relation to the legal costs of enforcement proceedings the court ruled that the applicant was entitled to recover 90% of its costs in the first adjudication and all of its costs in the second adjudication. The reduction in the recovery of costs related to the fact that the proceedings as initially issued overstated the amount sought to be enforced. The court noted that:

'31 … this error was innocent, was quickly corrected and did not cause any prejudice to the respondent, it is important that a party seeking to enforce an adjudicator’s award should state their claim with precision. A discount of 10% will be applied to the legal costs to reflect the error.’

Although the enforcement proceedings related to different projects, the court considered it reasonable to have both proceedings linked and heard together, which may ultimately have been more economical than dealing with both matters separately.

Conclusion

The judgment provides an example of the Irish courts' support for the adjudication process under the Construction Contracts Act 2013. Interesting points to highlight include:

• how quickly the matter came on for hearing - the proceedings for the enforcement of both adjudicator's decisions were started in mid-to-late May, with a written judgment delivered on 23 June 2023
• the court's understanding of the need for a quick and efficient enforcement process with the court noting that 'there would be little practical benefit to an expeditious adjudication process if there were to be significant delays thereafter in the enforcement of an adjudicator’s award'
• the court's unwillingness to interfere with the adjudicator's decision
• where appropriate, and considering the speed of the adjudication process, an initial claim letter may not be required prior to instituting adjudication-enforcement proceedings
• where appropriate, the court's willingness to deal with enforcement matters together, although, two sets of legal costs may still be awarded

For further information in relation to this topic, please contact Conor Owens, partner, Enda O'Keeffe, partner, Paul Hughes, senior associate or any member of ALG's Construction & Engineering team.

Date published: 28 June 2023