Costly Errors in Statutory Adjudication

September 29, 20252689 Views

Statutory adjudication as an expedient dispute resolution forum – with Thompson Barry Doherty

In Ireland, statutory adjudication under the Construction Contracts Act 2013 (the “Act”) continues to gain momentum in the construction industry as a popular dispute resolution forum for resolving payment disputes expediently.

The Act creates a statutory scheme of adjudication predicated on the principle “pay now, argue later” – aiming to ensure speedy dispute resolution and prompt payment. An adjudicator’s decision under the Act may give rise to an immediate payment obligation that is capable of enforcement in the High Court, provided the adjudication was validly commenced.

The objective of expedition also underlies the enforcement mechanism under the Act – the default position for applications to enforce an adjudicator’s decision in the High Court is that proceedings will be heard in a single hearing (typically within a few weeks of the institution of proceedings) and determined on a summary basis on affidavit evidence. Importantly, the High Court’s discretion to refuse to make an enforcement order is limited to grounds of procedural unfairness (such as lack of jurisdiction of an adjudicator or breach of natural justice/fair procedures) where there has been a blatant or obvious breach such that it would be unjust to enforce the immediate payment obligation.¹

Decisions on enforcement of adjudicators’ decisions under the Act have generally shown there is strong judicial support for adjudication and the principle of expediency underpinning the Act. However, a recent case highlights that missteps by a referring party (i.e., the party initiating adjudication) during the adjudication process could potentially undermine their referral or even render an adjudicator’s decision unenforceable. Where a procedural defect arises, the implications for a party, in terms of both cost and time, could be significant.

Tenderbids Limited trading as Bastion v Electrical Waste Management Limited (“Tenderbids”)

The first decision in Tenderbids², is notable for the High Court’s refusal to enforce an adjudicator’s award under the Act, being the first time in Ireland that this has occurred. The dispute in Tenderbids arose from non-payment by the responding party for construction work on a waste metal facility. The respondent did not formally engage in the adjudication process which proceeded and a favourable decision for the referring party was obtained. Later, in the enforcement action, the respondent raised a jurisdictional challenge for the first time. The High Court upheld the respondent’s challenge and found that the adjudication process was a nullity due to improper service of the originating document (i.e. the notice of intention to refer the dispute to adjudication). Section 10 of the Act provides that the parties to a construction contract may agree on the manner by which notices under the Act shall be delivered. In this case, the parties’ contract required service by registered post, but the referring party used email. In reaching its decision on the enforcement action, the High Court rejected the referring party’s argument that effective service by email should suffice, noting that such an interpretation would render Section 10 of the Act “superfluous”. It also dismissed the notion that the responding party’s failure to raise a jurisdictional challenge earlier constituted a waiver of its rights. Since the adjudication was invalid from the outset, the responding party was not obliged to engage with it.

This is an interesting outcome. A prudent party will typically raise a jurisdictional objection at the earliest stage, or otherwise have to justify later having complied with the process and thereby accepted that the adjudicator did have jurisdiction to determine the dispute. Deciding to not engage at all with the process, however, is an approach that would require careful consideration. In this case, it worked in the respondent’s favour, as became clearer in a second supplemental judgment.

The second supplemental judgment in Tenderbids addressed the issue of costs.³ The issue was whether a delay in raising a jurisdictional challenge would lead to a costs order against the respondent party. As noted above, parties typically raise jurisdictional objections at the earliest opportunity, normally during the adjudication process, to allow the adjudicator to consider jurisdiction, or in pre-enforcement correspondence, to avoid unnecessary litigation and costs.

The referring party as applicant in the costs application argued that the responding party should have raised its jurisdictional objection to the adjudication earlier, including as a preliminary issue in the enforcement action. As a consequence of the delay, the applicant sought to recover costs up to the date of the disclosure of the defence. The court rejected this argument. The respondent had not been required to engage with the adjudication process to raise the jurisdictional ground; the entire adjudication was a nullity and the respondent was not obliged to engage with a nullity. Neither had the respondent been required to raise the jurisdictional point as a preliminary issue in the enforcement proceedings; that would have been contrary to the objective of expediency underlying the Act. Further, the jurisdictional point was the exclusive ground on which the respondent sought to defend the proceedings; it was not a case where failure to pursue a knock-out point as a preliminary issue resulted in parties having to incur otherwise avoidable costs of a full trial where multiple issues had to be litigated. In reaching its decision on costs, the court was influenced by the fact that the respondent had made an offer previously to compromise the enforcement proceedings because of the jurisdictional issue, with each side bearing its own costs. The applicant had refused the offer and chosen to proceed with the enforcement proceedings.

Ultimately, having been successful in the proceedings, the responding party in Tenderbids was entitled to recover its costs against the applicant, subject to a modification based on the circumstances in which the proceedings were heard: the respondent was not entitled to recover costs relating to two initial listings of the case, reflecting possible inconvenience caused to the applicant by the respondent’s delay in disclosing its defence. However, the responding party’s conduct was not considered unreasonable.

Cost and Time Implications

The two Tenderbids decisions show that, where a procedural defect (e.g., improper service of a notice) results in an adjudication process being invalid, the implications could be significant for a referring party both in terms of cost and time. The referring party may lose the right to enforce an award, even if they win the adjudication. As a result, they could face increased exposure to:

Costs

Legal: the referring party may still incur substantial legal costs in preparing the adjudication submissions, engaging legal counsel for enforcement proceedings and responding to jurisdictional challenges.
Adjudicator’s fees: the referring party may be liable for the adjudicator’s fees, even if the decision was ultimately unenforceable. These fees could be significant, depending on the complexity of the dispute.
Costs orders: if the referring party fails in the enforcement proceedings (as they did in Tenderbids), the court may award costs against them, potentially requiring them to pay the respondent’s legal expenses.

Time

Delayed recovery: an invalid adjudication process means the referring party does not receive the awarded sum, further delaying cash flow and potentially impacting project financing or operations.
Restarting the adjudication process: the referring party may need to restart the adjudication from the beginning.
Alternative dispute forums: the referring party may pursue an alternate forum such as litigation or arbitration, which are typically longer and more expensive processes.

Key Takeaways

The two decisions in Tenderbids offer a salient reminder of the importance of procedural compliance (in this case, adherence to contractual notice provisions) from the outset, and how failure to do so can undermine jurisdiction of the adjudicator under the Act. The High Court’s decision may prompt parties to review and even revise notice provisions in their contracts and consider an effective method of delivery to avoid similar pitfalls. Interestingly, while account was taken of the responding party’s delay in raising its jurisdictional objection in the enforcement and cost applications, it was still validly raised by the respondent at the enforcement stage without necessarily being penalised on costs. The High Court’s decision again emphasises that the adjudication and enforcement processes under the Act are designed to be expeditious.