LK Shields Interviews Construction Adjudicator Niall Lawless in respect of “Smash and Grab” Adjudications

PUBLISHED: 28th June 2023

“There has been some considerable debate as to what the consequences are for the absence of a valid “Pay Less Notice”, and until we have judicial authority on the matter in Ireland, different adjudicators may make different decisions based on the evidence presented.”  Niall Lawless

Jamie Ritchie is a Partner and Head of Projects and Construction at LK Shields. He leads a multi-disciplinary team with first-hand experience of acting on behalf of parties in construction adjudications commenced under the Construction Contracts Act 2013 (the 2013 Act). 

Niall Lawless is an Irish Construction Adjudicator (appointed to the Construction Contracts Adjudication Panel), co-author of the textbook, Adjudication Practice and Procedure: Ireland:  Construction Contracts Act 2013, and the CIC Users’ Guide to Adjudication: Ireland.

Background

The 2013 Act started applying in relation to Irish construction contracts entered into after 25 July 2016.  Jamie previously interviewed Niall in October 2017, when adjudications under the 2013 Act were still in their infancy.  Almost six years on from that initial interview, Jamie had an opportunity to sit down again with Niall to discuss the rise of “Smash and Grab” adjudications in an Irish context. 

Jamie: Niall, thank you for taking the time to talk to me today.  In your own words, how would you define a “Smash and Grab” adjudication? 

Niall: I would define a “Smash and Grab” adjudication as an adjudication in which a Referring Party asserts that an automatic obligation for the Responding Party to pay the full amount claimed in a valid Payment Claim Notice has been triggered by the failure of the Responding Party to deliver a response to that Payment Claim Notice (often referred to as a “Pay Less Notice”) within the required 21 days in accordance with section 4(3)(a) of the 2013 Act. For further understanding of this concept, I recommend consideration of the excellent paper that Gerard Meehan SC presented to the Construction Bar Association on 16 February 2023.

Jamie: Have you ever been involved in a “Smash and Grab” adjudication in an Irish context?

Niall: On more than one occasion while acting as an adjudicator under the 2013 Act, and based on the Parties’ contentions, I have decided that in the absence of a “Pay Less Notice” that the amount claimed in the relevant Payment Claim Notice should be paid in full. In December 2021, I was one of the speakers at a construction law conference, where I spoke on the topic of contemporary issues in adjudication.  In my presentation, I referred to my experience as adjudicator in the matter of Aakon Construction Services Limited v Pure Fitout Associated Limited [2021] IEHC 562 where my decision was successfully enforced.  

In Aakon, my decision was described by the Court as follows:

“Ultimately, the adjudicator decided that the respondent’s failure to respond to the payment claim notice and, in particular, to serve a valid pay less notice had the draconian consequence that the respondent was obliged to pay the whole sum stated in the payment claim notice. Put otherwise, the adjudicator accepted that the failure to respond to the payment claim notice had the consequence of triggering a default requirement to pay the amount claimed.”

It is my personal view that Aakon is not authority for the contention that in the absence of a valid “Pay Less Notice”, that the sum claimed in a valid Payment Claim Notice is due in full. The Court emphasised that it was “not concerned, on this application for leave to enforce, with the question of whether this interpretation of the legal position is correct”, but rather was concerned only with the question of whether the application for leave to enforce could be challenged on the basis that there was a breach of a fair procedure, which was a separate issue.

Jamie: Have you ever decided that in the absence of a valid “Pay Less Notice” that the sum claimed in a valid Payment Claim Notice is not due in full?

Niall: Yes, I recently made such a decision.  I believe that it is incumbent on the adjudicator to go back to the beginning in every dispute in order to consider and decide what the consequences are for the absence of a valid “Pay Less Notice”, based on the arguments and evidence presented by the Parties. In the aforementioned matter, the Referring Party presented no persuasive reason(s) why the adjudicator should decide that in the absence of a valid “Pay Less Notice”, the Referring Party was entitled to the entirety of the sum claimed within its Payment Claim Notice. Accordingly, in that dispute, on receipt of the Response I summarily declined to make the “Smash and Grab” decision requested by the Referring Party in the Referral.

Jamie: What are the circumstances that might lead you to decide that in the absence of a valid “Pay Less Notice” that the sum claimed in a valid Payment Claim Notice is due in full?

Niall: While acting as an adjudicator, I have decided that the provisions of section 4(3)(a) of the 2013 Act exist so that a Contractor, or a Subcontractor, will know what sum it is due to be paid in a timely manner, and the reason or reasons why the amount claimed will not be paid, if that is the case. Therefore, it follows that there would be consequences if the Responding Party failed to comply with the provisions of section 4(3)(a).

On 19 May 2010, during the Second Stage debate of the Bill in the Seanad Éireann, the purpose of the 2013 Act was unambiguously set out by Senator Quinn, the chief architect of the legislation: “The main purpose of this Bill is to provide for a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due to contractors must be given.  Otherwise, payments must be made in full and-or the payee may suspend the provision of works and-or services under the construction contract until payment is made in full.”

Section 4 of the 2013 Act was clearly designed to achieve this objective. That is, to deter widespread abuse in the payment regime the legislation must be construed so as to give it the sensible meaning which makes it operative, and which does not defeat the manifest intentions of the legislature.

Jamie: Ultimately, the 2013 Act is silent on the consequences of failure to deliver a “Pay Less Notice”, nor does it state that in the absence of a response, the full amount stated within a Payment Claim Notice is payable by default.  In the absence of such express language, how can it be concluded that the amount stated in a Payment Claim Notice is therefore payable in these circumstances?

Niall: You are correct that there is nothing express within the 2013 Act which addresses this scenario. However, authority for this proposition is to be found in Byrne v Commissioners of Public Works [1994] 1 IR 92. The High Court refers to the rule of construction ‘ut res magis valeat quam pereat’, which when applied to statutes means that the legislature is presumed to have intended its legislation to have some rational effect and the Court must seek out the legislature’s intention and give effect to it, unless it seems impossible to infer with reasonable assurance what the legislature’s intention was.

The High Court quotes from Halsbury’s Laws of England (4th edition) volume 44, paragraph 860, as follows:

“Statutes must be so construed as to make them operative. If it is possible, the words of a statute must be construed so as to give them a sensible meaning. A statute must, if possible, be construed in the sense which makes it operative and does not defeat the manifest intentions of the legislature and nothing short of impossibility so to construe it should allow a Court to declare a statute unworkable … Where the main object and intention of a statute are clear, it should not be reduced to a nullity by a literal following of language which may be due to want of skill or knowledge on the part of a draughtsman unless such language is intractable.”

Whereas England and Wales is clearly a different jurisdiction to Ireland, in the UK, the Courts have used Hansard where it discloses the purpose of legislation. For example in Pepper v Hart [1993] AC 593 reference to Parliamentary material was permitted. In Connex South Eastern Ltd v M J Building Services Group Plc [2005] EWCA Civ 193, the UK Court of Appeal referred to Parliamentary debates:   although Lord Justice Dyson in considering the principles set out in Pepper v Hart expressed reservations about referring to Hansard, he then does exactly that in deciding how the “at any time” provision in the Housing Grants, Construction and Regeneration Act 1996 should be interpreted.

Jamie: What do you think the judgment in Aakon has achieved?

Niall: I believe that it has achieved a lot.

For adjudication to be successful there are three essential ingredients: (1) Construction industry’s necessity; (2) Willing policy-makers and legislators; and (3) A supportive judiciary. The Court has bolstered that by sending a clear message that the judiciary will support adjudication as an efficient dispute resolution mechanism.

There is persuasive anecdotal evidence that there has been a vast improvement in contract administration in respect of compliance with section 4(3)(a) since the judgment of the Court in Aakon.  Indeed, by way of example, it was communicated to me that a senior commercial manager working for one of Ireland’s premier contractors had said that the outcome of the Aakon matter has “rocked Dublin to the core!”.

Jamie: Is it fair to say that until such time as the Court is asked to specifically consider the ramifications of a failure to respond to a Payment Claim Notice, there will continue to be ambiguity over whether the sum stated within such a Notice should become fully due and binding?

Niall:  There has been some considerable debate as to what the consequences are for the absence of a valid “Pay Less Notice”, and until we have judicial authority on the matter in Ireland, different adjudicators may make different decisions based on the evidence presented.  This is an issue which has vexed the Irish construction industry and would benefit from further judicial authority.  

Jamie: Thank you for talking to me today Niall.  Time will tell how the Courts approach these matters on a case by case basis, but, the insight and direct feedback from someone in your position is extremely useful.

The views expressed by Niall Lawless in this interview are his own and do not necessarily reflect the position of LK Shields Solicitors LLP. Each case will inevitably turn on its own facts with reference to the position at law and under any relevant construction contract. This article is for information purposes only and is not intended as, and does not constitute, legal advice.