Courts in Ireland Continue to Support Adjudication: Minor Matters Will Not Hinder Enforcement

McGurran Civils ROI Limited v K&J Townmore Construction Limited [2023] IEHC 355 - Courts in Ireland Continue to Support Adjudication: Minor Matters Will Not Hinder Enforcement

Introduction?

This is a very recent case (heard by Garrett Simons) which highlights that the Courts in Ireland continue to support to the process of construction adjudication, and its intention from its inception to be used as an expedited form of redress for construction-related disputes

The judgment, in this case, proves that Irish Courts are of the view that not enforcing an adjudicator’s decision “in respect of minor matters” will not be permitted, as such action would impinge upon the “pay now argue later” spirit set out in the Construction Contracts Act 2013.?

Background Facts and Adjudications?

In McGurran Civils ROI Limited v K&J Townmore Construction Limited [2023] IEHC 355 both parties: (“McGurran” and “Townmore”) were involved in construction contracts for projects at Elbana Avenue and Carr’s Lane in County Dublin.?

On 19 December 2022, a first adjudicator’s decision was issued in relation to the Elbana Avenue project (“Adjudication 1”).?Townmore did not raise any issue regarding the validity of this decision, nor did it raise any objections as to the fairness of the procedure that led to the adjudicator issuing their decision.?

In a subsequent adjudication, (“Adjudication 2”) McGurran was also successful in being awarded payment.?Similarly, to Adjudication 1 Townmore did not raise any objections regarding the validity of the decision.?

McGurran did not issue any letters advising of enforcement proceedings in either adjudication.?

Soon after the decision in #1, McGurran sought payment per the decision.?This in turn sparked a process of negotiation between parties.?This process of negotiation resulted in Townmore making a partial payment (with no agreement reached as to the balance).?This meant the award in the decision had not been discharged in full.?

Subsequently, on 23 May 2023 McGurran initiated enforcement proceedings, seeking the principal sum of €123,560.78 plus VAT.?

Proceedings under Adjudication 2 had been initiated on 17 May 2023 with McGurran seeking payment of €5,402.90 (plus VAT).?

The Key Issues?

The key issues to be decided by the Court were:?

1. Should Townmore be able to pay a reduced rate of interest, because it had made part payment in Adjudication 1? What penalty if any should there be for McGurran’s failure to issue a letter of warning??
2. Was Townmore obliged to pay with or without VAT??
3. Should the initial (part) payment be credited to Adjudication 1 or Adjudication 2??
4. McGurran mistakenly overclaimed the amount to be enforced – so what??

The Judgement?

Reduced rate of interest?

It was Townmore’s position that, because as it has already paid a portion of the award set out in Adjudication 1, the daily rate of interest per the adjudicator’s decision of “€18.37 per day until payment is made” should be adjusted accordingly.?

Judge Garrett Simons did not agree with this approach, stating that staged payments are not permitted: an adjudicator’s award provides no such deduction:?

“24. With respect, the adjudicator’s award makes no provision for such abatement. The adjudicator did not allow for the making of staged payments but rather had directed that the full sum be paid within seven days. The adjudicator did not contemplate staggered payments and accordingly the possibility of same is not built into the daily rate of interest.”?

Importance of Issuing a formal letter of warning?

Townmore raised an objection that McGurran failed to issue a formal letter of warning prior to commencing its enforcement proceedings.?Townmore argued that if a letter had been issued then it might have addressed such a letter without the need for proceedings.?

The Court did not accept this as a defence.?It held instead that any letter of objection would not have made a difference: payments were still pending at the date of the hearing.?

The Court further stated that any warning letter was NOT necessary, as requiring such steps would fetter the “very tight timeframes” laid down by the Act and McGurran should not be criticised for its failure to issue one:?

“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.”?

Sums to be paid With or Without VAT?

At the start of the process, the adjudicator directed an initial upfront payment by McGurran in relation to the adjudicator’s fee.?The adjudicator's fees are subjected to “VAT at a rate of 23%”.?In the decision in Adjudication 1, the adjudicator later directed that any payment made by McGurran should be reimbursed by Townmore.?The question for the Court was whether it would be a ‘net’ fee of €5,000 or €5,000 plus VAT.?

The Judge decided that it would be €5,000 plus VAT because he held that the adjudicator’s award “is clear on the point.”?

At paragraph 25, while commenting on Townmore’s concern that McGurran is registered for VAT and the adjudicator's fee would be recoverable as a trading expense, the Judge stated:?

“25 …This is a matter between the applicant and the Revenue Commissioners: it does not obviate the respondent’s obligation to comply with the adjudicator’s award. A similar logic applies in respect of the adjudicator’s fees in Carr’s Lane.”?

Crediting the Initial Payment?

As noted above, Townmore made an initial payment against decision #1.?Here, the question for the Court was whether the initial payment of €75,000 should be credited exclusively to Adjudication 1 or whether €5,402.90 thereof should be credited to Adjudication 2.?

The issue was, if the smaller sum was allocated to Adjudication 2 then it would mean that the full payment had been made in accordance with the adjudicator’s award prior to commencing the enforcement proceeding, and that would impact any cost orders made in the proceedings.??

On this point, the Judge decided that based on the facts in hand “the applicant was entitled to credit this against the Eblana Avenue award” (i.e. Adjudication 1).?

Overstatement of the amount to be enforced?

After the judgement had been handed down, the parties made submissions on allocations of legal costs.?

The Court decided that McGurran was entitled to only 90% of its costs for the Adjudication 1 and 100% of its costs for the Adjudication 2 enforcement proceedings.?

The Courts decided this because the initial notice of motion by McGurran overstated the amount sought.?The Court considered the error to be made innocently (a genuine mistake) but made a discount of 10% to reflect the importance of a party precisely preparing its claim.?At Paragraph 31 it was held:?

“31…Whereas 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.”?

Quibbling over minor matters?

The Court criticised Townmore's attempt to contest the enforcement over what it saw as trifling points: the calculation of interest and so forth, labelling them as a “quibble in respect of minor matters”.?While suggesting the proper approach, the Court stated in paragraph 19:?

“19. The proper approach for the respondent to have adopted in the circumstances would have been either 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...”??

Support for Construction Adjudication?

The enforcement proceedings regarding both adjudications were heard on 19 June and 21 June 2023 respectively.?A combined decision was issued on 23 June 2023.?The Judge's opening remarks in paragraph 6 highlights Irish Courts’ strong support towards adjudication as a process:?

“6.Of course, the fast-track process will be of limited practical benefit if the outcome of the process, i.e. the adjudicator’s decision, cannot be enforced promptly. There is little point in putting the adjudicator under the cosh to produce a decision within a matter of weeks, only for there to be a delay of months, or even years, thereafter in the enforcement of that decision. The Act seeks to ensure that an adjudicator’s decision may be enforced promptly by making it binding upon the parties on a provisional basis. This is the so-called “pay now, argue later” principle: see, generally, Aakon Construction Services Ltd v. Pure Fitout Associated Ltd (No. 1) [2021] IEHC 562 (at paragraphs 31 to 34).”?

Quigg Golden Commentary?

This judgment demonstrates the Irish Courts’ support for the Construction Contract Act 2013 and adjudication as a speedy and effective dispute resolution process.?This is not surprising.??

This is even evident from the pace at which the matter concluded: the enforcement proceedings were initiated in mid-May 2023 and the decision was issued in June 2023.?

Other points to note are, that:?

• Trifling matters will not prevent enforcement;?
• The Courts are willing to deal with different enforcement matters together; and?
• It is not necessary to issue a letter of warning before commencing enforcement proceedings.?

Quigg Golden are experts in construction adjudication and public procurement in Ireland.?If you need any assistance in a construction adjudication, or other construction dispute, feel free to contact [email protected] for advice or Quigg Golden directly here .?

The MCGURRAN CIVILS ROI LIMITED V K&J TOWNMORE CONSTRUCTION LIMITED case can be found here .