‘Pay now, argue later’

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Very similar to Part II of the Housing Grants, Construction and Regeneration Act 1996 in England and Wales, in Ireland the Construction Contracts Act 2013 sets out a statutory scheme where construction contract payment disputes can be referred to adjudication for quick decisions, so cash flow is maintained. The adjudicator’s decision is provisionally binding and so the paying party must ‘pay now, argue later’. The adjudicator’s decision is capable of enforcement by the High Court.

The Construction Contracts Act 2013 states that a payment claim notice must be made by the party seeking payment, and if the paying party does not think this amount is owed, it must provide a pay-less notice. However, the Act does not provide an answer to what the next steps are if the pay less notice is not served.

There has been two recent Irish cases, both between Aakon Construction Services Limited v Pure Fitout Associated Limited ([2021] IEHC 562 and [2021] IEHC 619).

Background

Aakon Construction Services Limited was engaged by Pure Fitout Associated Limited under a subcontract. The dispute arose after Pure Fitout allegedly terminated the subcontract.

In the first Aakon case, the adjudicator found that, as Pure Fitout did not answer to the payment claim (in England and Wales this would be via a pay less notice), this triggered an obligation on Pure Fitout to pay the full amount claimed by Aakon. It was acknowledged that the amount may not be the ‘true’ value, but this could be adjudicated on after Pure Fitout paid the full amount to Aakon.

Aakon requested that the High Court enforce this decision, which the High Court did (First Order), on the basis that it agreed with the adjudicator’s decision that the ‘true value’ of the payment could not be determined until the original amount was paid to Aakon.

There then followed a second adjudication, which decided what the ‘true value’ of the claim was. On that occasion, the High Court was asked to look at the First Order, to consider whether the debt owed to Aakon should be amended to reflect the ‘true value’ decided in the second adjudication.

The High Court did not favour Pure Fitout’s argument that the first adjudication was no longer binding by virtue of the decision in the second adjudication. The First Order could only be superseded by an arbitrator or court. Therefore, the High Court made an order of the same value as in the First Order.

Comment

Whilst these cases were brought in Ireland, they are persuasive in the English and Welsh courts.

The Aakon decisions reinforce the policy that, in the absence of pay less notices, employers are required to pay contractors and consultants what they have claimed. Only after they have paid will employers be entitled to any re-payment based on the ‘true value’ of the claim determined in any separate adjudication. This endorses the approach taken in the case of S&T (UK) Limited v Grove Developments Ltd [2018] EWCA Civ 2448.

The decisions highlight the importance that the paying party under a building contract or subcontract should serve a timely and valid pay less notice if they feel that the payee is not entitled to the amount claimed in the payment notice. Failure to do so could result in an unfavourable adjudication where the payer must pay the full amount claimed in the payment notice before the payer can refer to a second adjudication to evaluate the payee’s true entitlement.

To find out more about how our construction team can help you, please contact Lucilla Waugh on 0191 211 7984 or e-mail [email protected]