Practical Law

Some of us are old enough (just) to remember life before statutory adjudication was a thing, before the Construction Act 1996 was enacted and came into force. Those giddy days of the early 1990’s when the idea of responding to a notice of adjudication within a matter of days (not weeks or months or even years) was a mere twinkle in Sir Michael Latham’s eye (and horrified the rest of us)! Roll forward to 2021 and statutory adjudication is an integral part of the legal landscape that most construction practitioners have only ever known.

It is with this backdrop that I find events in Ireland of particular interest. Jonathan and I have been writing about Ireland’s Construction Contracts Act 2013 since long before it came into force in 2016. For example, see Behold the Celtic adjudication tiger (almost), Comparing adjudication enforcement in Ireland and England, More thoughts on adjudication in Ireland and Adjudication in Ireland is finally a reality.

Adjudication may be a relatively new feature in the Irish dispute resolution landscape but we are finally starting to see the odd court judgment filtering through the system. I began the year discussing O’Donovan and another v Bunni and others, then added a comment to that post about Gravity Construction Ltd v Total Highway Maintenance Ltd. Now it is time to turn the spotlight on Construgomes & Carlos Gomes SA v Dragados Ireland Ltd and others.

One thing all three cases have in common is the fact that none are dealing with enforcement issues per se but, in my view, all three demonstrate the court’s intention to support the adjudication process.

Construgomes & Carlos Gomes SA v Dragados Ireland Ltd and others

This was a case about a call under an on-demand performance bond and whether an interim injunction ought to be granted preventing the third defendant (Banco BPI SA) from paying some €135,000, when called to do so. The facts giving rise to that call are relatively straightforward:

• A joint venture company was set up by the second and third defendants. That JV was awarded work under a public private partnership contract worth some €230 million, consisting of 15 km of motorway and 29 structures including a bridge over the River Barrow. The plaintiff (Construgomes) was sub-contracted to carry out the bridge works under a contract worth just under €2.7 million. It provided a bond equivalent to 10% of the sub-contract’s value (which reduced in phases, leaving 50% at the time of the dispute).
• The parties got into a payment dispute, which Construgomes referred to adjudication, claiming some €1.1 million was due to it. The JV’s cross claim for defective work and liquidated damages was worth some €1.4 million.
• The adjudicator’s decision was issued on 20 November 2019 and it awarded Construgomes some €389,000. On the same day, the JV gave notice that Construgomes was “in violation of the terms of the subcontract” because of the defects and requested payment of the amount guaranteed by the bond. It said it would call on the bond if payment was not forthcoming.
• In turn, Construgomes argued that the defects issue had been raised by the JV in the adjudication, and so it had been determined by the adjudicator. It said the JV could not now claim for those matters separately. By doing so would be “tantamount to fraud in respect of the performance bond”. (There was also an issue over the extent to which its liquidated damages claim differed from the one the adjudicator had decided.)
• The JV paid the adjudicator’s decision in full in December 2019.

Proceedings to prevent the bank making payment under the bond were issued in September 2020, with the court giving interim relief restraining the bank from paying. The matter came back before the court in February 2021.

Was the bond call a case of fraud?

What I thought was interesting about this judgment was how Construgomes argued that because the adjudicator had dealt with defects and LDs, the JV was prevented from running those arguments again. It said there was:

“… an obligation on the responding party to bring forward all potential crossclaims in the adjudication process.”

Perhaps understandably, the JV rejected the claim that its call on the bond was fraudulent. It said the defects and LDs claims were different and this was not a case where there was a requirement to bring the whole case before the court (a Henderson v Henderson type of obligation). In fact, it had expressly stated in the adjudication that:

“… newer defects could not be vouched in time to be included in the crossclaim and that other defects were arising on an ongoing basis.”

It also argued that Construgomes had misconstrued the “nature and effect of adjudication” under the Act, and the Act does not stipulate that all claims must be referred to the adjudicator, otherwise the right to claim will be lost. It said:

“… there may be serious constitutional implications if the legislation were to be construed so as to require a party to make a crossclaim within this very tight timeframe or otherwise lose the entitlement completely.”

The judge effectively agreed with the JV and refused to grant the injunction. She felt a “seriously arguable case of fraud” had not been made out. In doing so, she made a number of supportive statements about the adjudication process under the Construction Contracts Act 2013, many of which are similar to the sort of comments we’ve seen from the TCC over the years.

For example, she noted the Act was designed to “improve payment practices” and makes “timely payment a legal obligation” that ensures cash flow for those carrying out construction operations. Parties cannot contract out of the Act (section 6) and it is designed to deal with payment disputes “speedily” and “other disputes” can be resolved by more traditional means. She also noted that there is no express reference to a party making a crossclaim:

“… as a crossclaim is not expressly part of the statutory process, it is difficult to see how an obligation to make a crossclaim can be said to arise much less how it could be said that a contracting party loses all entitlement to claim in any forum for matters that could have been part of a crossclaim. Therefore, I have considerable difficulty in accepting the proposition that Henderson v. Henderson applies to the adjudication process so as to compel the responding party to make the entire of any potential crossclaim in that process or lose the right to make the claim entirely.”

Interestingly, she noted that even if an Henderson v Henderson point did arise (which she doubted), she did not think the JV had acted fraudulently, although it might be said to have made a “legal error in not bringing forward the entire of its crossclaim in the adjudication”.

She was also supportive of the binding nature of an adjudicator’s decision, describing it as a “legally binding obligation to pay”, and rejected the suggestion that allowing payment of the bond would effectively be setting-off against the adjudicator’s decision. She did not accept Construgomes’ submissions regarding the judgment in MJ Gleeson Group plc v Devonshire Green Holding Ltd (although she did accept it supports the proposition that a party cannot unilaterally set-off against an adjudicator’s decision).

Res judicata in adjudication?

I was a little surprised to see an argument that was effectively a res judicata one. That isn’t something I think we’ve seen in the TCC, probably for good reason.

Clearly it didn’t get very far, just like it wouldn’t get very far in the TCC. After all, Coulson J (as he was then) told us in St Austell Printing Company Ltd v Dawnus Construction Holdings Ltd that cherry picking a claim referred to adjudication was not only permissible but it was “to be encouraged”. Even if the JV didn’t think it was cherry picking, one could argue that was the effect of its crossclaim and subsequent bond call.

My take aways

It’s good to see the courts supporting the adjudication process. All in all, I’d say this was a good day in court for the Construction Contracts Act 2013.

However, it would be good to see a judgment dealing with enforcement, rather than the issues we’ve seen so far (although, as someone sitting on the adjudication panel, perhaps I should be careful what I wish for). For example, I know there is a debate surrounding the computation of days under the Act. One school of thought says adjudicators (and the parties) only get 27 days (not 28) because:

“… the adjudicator shall reach a decision within 28 days beginning with the day on which the referral is made…”

That looks like the day of the referral is day 1 and not day 0 (the UK’s Construction Act 1996 expressly states that all time periods are calculated from the following day (see section 116(2)).

It is inevitably only a matter of time before it is argued that an adjudicator’s decision is made late, and that issue ends up being decided by a judge.