OPI NION
T h e e ff e c t o f n o t r e s p o n d in g t o a c la im f o r p a y m e n t under a construc tion contrac t and the consequences HENRY HATHAWAY writes that construction companies need to revisit their payment procedures as payers now must respond to payee payment claims or applications for payment, or amounts claimed for could become payable in full regardless of the what of the actual application value is.
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his article concerns payment in construction and the recent development in the courts of Ireland. While the contents of this article do not focus on the potential impact overall of the recent judgement of Aakon Construction Services Limited v Pure Fitout Associated Limited [IEHC] 562, it intends to set out what the practical ramifications are and how they will invariably apply to every entity that is under a payment mechanism and caught by the Construction Contracts Act 2013 (the Act). This article does not deal with all of the judgement itself; it seeks at this point to raise the issue of what the adjudication (which was subject of the enforcement) decided and how all construction companies should be aware of the process that led to that adjudication decision. In summary, an adjudication decision has been upheld that concerned the principle that if a payment claim notice is deemed to have been made validly and is not met with the appropriate response to that payment claim notice within the strict timeframes, then by default and where fraud is absent, those amounts may become payable in full, regardless of what the true value of the applied sum was. This is a draconian position and is derived entirely through procedure rather than merit. In short, this ruling means that every construction contract is to have an adequate payment mechanism, and if not, terms will be implied to supplement those payment provisions. Essentially, what this case concerns is where an application for payment by the payee is submitted, it must be met and addressed with what the payer intends to pay and the basis of calculation as a minimum. Either under the contract or implied provisions, this is a strict timeline. Note that there are tests in respect of what a basis of calculation is to be also presented.
BACKGROUND
The question then becomes this, what if the application or claim for payment is not addressed or responded to within the given timeframe or at all? This very question was raised in a case that occurred in 2013 in the UK and became famous (or infamous). It was called ISG Construction Limited v Seevic College [2014] EWHC 4007. In summary, in that case, it was decided that where a default payment notice was not met with a valid pay less notice by the given timeline, then the full amounts become payable. This is regardless
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Henry Hathaway, Principal, Henry Hathaway Solicitors. of whether or not the stated sum reflects the true value of the work undertaken. It was a procedural point, and the merits of the value were not relevant. This judgment commenced a whole genre of adjudications and became known colloquially as “smash and grab” adjudications, though that term itself has not been appreciated. The theory is straightforward, had the payer intended to pay less than the amount applied for or became due under the payment mechanism, then they had every right and opportunity to do so. The fact that they did not then must mean that they agreed that those sums would become payable. Practically, this may not be the case. However, again, it is a procedural point rather than one of merit. This launched a number of adjudications and indeed a number of cases in the following years that then attempted to address what was a draconian but evidential procedural point of law. Eventually, in Grove Developments Limited v S&T (UK) Limited [2018] EWCA Civ 2448; [2018] 181 ConLR 66, the Court of Appeal did address the point to set out that even though the amounts by procedural
