Henry Hathaway
Henry Hathaway
Henry Hathaway, Principal, Henry Hathaway Solicitors.

HENRY HATHAWAY writes that in an environment where adjudications are becoming more popular and are in the main being enforced, construction companies should avoid court proceedings unless required as a last resort.

There has been a considerable amount written about adjudication in Ireland over the past number of years. And now, most certainly, that some decisions are arriving before the courts in order for those decisions to be enforced, we might consider that adjudication has the required teeth to be truly effective.

A recent judgement in January 2022 in John Paul Construction Limited v Tipperary Co-Operative Creamery Limited [2022] IEHC 3 furthers the court’s propensity to enforce an adjudicator’s decision except in only the most limited of cases.

This follows from the previously heard cases of Principal Construction Limited v Beneavin Contractors Limited [2021] IEHC 578 and Aakon Construction Services Limited v Pure Fitout Associated Limited No 1 [2021] IEHC 562.

Previously, it might have been said that without these types of judgements, then would it be the case that adjudication might have been toothless? However, what is clear now is that the very principles of “pay now, litigate later” are being consistently adopted, and the judgements of Mr Justice Garrett Simons are reasoned and detailed and follow many of the ratios and precedents that have been adopted in the courts of England and Wales. This makes complete sense given that adjudication has been in effect since 1996 in that jurisdiction, and the writer is involved in some 10 to15 adjudications yearly on average in the UK.

Procore

Propensity for adjudication

The question is this, will construction in Ireland now arrive at a point where any issue of contention will immediately descend into an area where a parties dispute is inevitably bound to end up in these types of proceedings?

After all, it is extremely quick and potentially attractive in order to gain redress of payment. It may be an interim binding decision until the matter is finally resolved by arbitration or formal litigation, but then the experience of the writer suggests that these proceedings, in fact, are less likely to be pursued eventually.

In terms of whether or not there is likely to be a higher propensity towards adjudication or not will depend on a number of factors. The predominant question is answered by way of whether or not a party has a developed mindset towards active dispute avoidance in the first place. The central ground here is whether or not there is a clear agreement between the parties and how it has been recorded.

Construction in Ireland has a mixed record of the quality of agreements that are in place. However, those who do not set out the agreements with clear terms will need to keep in mind the following point, if a dispute arrives in front of an adjudicator, arbitrator or judge, then the first question will be what the terms of the contract were and had the parties agreed on those essential terms, and, if so, is there any reason to depart from such terms? Courts or other tribunals are simply not there to make a bad bargain a good one, they will simply give effect to the terms that the parties agreed upon.

“Courts or other tribunals are simply not there to make a bad bargain a good one, they will simply give effect to the terms that the parties agreed upon”

Agree first, start work later

This is an area of construction law that is rife with precedent and case law. To give an understanding of the pitfalls of not having a properly particularised agreement in place, one must only look towards RTS Flexible Systems Limited v Molkerei Alois Muller Gmbh & Company KG [2010] UKSC 14. This was a Supreme Court case that had progressed through the courts from the High Court through to the Court of Appeal to eventually the Supreme Court. The central issue was on the Letter of Intent between the parties and the effect of the terms. Critically, in paragraph one of the judgement, it stated: “The different decisions in the courts below and the arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story is to agree first and to start work later.”

If only it were so easy. However, the reader must bear in mind the costs that would have been associated with this eventual process, the effects that it has on the development of the business, the damage that can be done and the costs involved both in legal fees and the costs of resources provided by a construction company’s staff.

There are a plethora of cases that involve disputes where the very basis of an agreement is in dispute itself, and this is an area that is rife for disputes. It is not unusual for parties to have competing terms, one, say, on a standard tender return, which may or may not be in conflict with those of the employing party. It is still a common feature where procurement departments of construction companies issue PO’s or purchase orders with terms that are bare. This is further complicated by the procurement process within many companies as the pressures of the rough and tumble of delivering a project overrides any formalities.

An example of such was in the case of British Steel Corporation v Cleveland Bridge & Engineering Co Limited (1981) 24 BLR 94. This related to the construction of a bank in Saudi Arabia and involved the negotiation of steel nodes. Work commenced on the back of a letter of intent. No contract was ever signed because the parties could not agree on the sequence of the delivery of the nodes. Quite fundamental, the reader might think. These cases can be fact-specific and differing courts may have differing views on the nature of the agreements depending on the facts of the case.

This is a significantly large area of construction law. However, what is clear is that if there is a dispute under a contract, the starting point will be to ascertain what, in fact, the parties agreed and what terms were incorporated.

The key message must be that in an environment where adjudications are becoming more popular and are being enforced but for minor exceptions, then the onus ought to be for construction companies to avoid these proceedings unless required to engage as a last resort. There are clear good reasons for a company to adopt a dispute avoidance mentality, which as a topic is larger than this article can particularise fully. However, whatever the case, be it in formal dispute resolution and/or negotiations, the key issue and starting point will be to ensure that the agreement contains the necessary terms, which may be required to be relied upon at a later stage. This is the first and perhaps most important stage in order to adopt a dispute avoidance ethos and potentially save on costs in the future.

Henry Hathaway is a solicitor who practises in Ireland, England and Wales and specialises in construction law. He is a qualified civil engineer and spent 12 years working in the industry. He advises on contract formation and provides practical advice when entering construction contracts, and regularly provides training and seminar days to companies to assist knowledge and application in order to assist them in avoiding disputes in construction. If you require further information in relation to contract formation or would like to discuss training and development in this area, contact henry.hathaway@hathawaysolicitors.ie 

This is one in a series of articles by Henry Hathaway for Irish Construction News, Click Here to read other articles

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