Ireland: Construction Legislation Changes: A Glimpse Into The Future

The Society of Construction Law Annual Conference took place in Leeds on 2 March. The conference title was "The new Construction Act - 6 months on". The purpose of the day was to examine the practical effect in England and Wales of the recently implemented amendments to the Housing Grants, Construction and Regeneration Act 1996. These "Construction Act" amendments came into force on 1 October 2011. In Northern Ireland the same changes will come into force shortly (elements of the Northern Ireland amendments are still subject to consultation). I thought it would be interesting to attend in Leeds to form a view as to what we might have in store for us. The answer, it seems, is a degree of uncertainty and confusion; and ultimately litigation.

The forthcoming amendments to the Construction Contracts (Northern Ireland) Order 1997 have been spoken of in detail by many in the past. I do not intend to rehearse those details here, but by way of refresher the main changes include the following:

• The Order will apply to oral contracts as well as written contracts;
• There is a new "pay less" payment mechanism which replaces the old withholding notice regime;
• The "slip rule", i.e. the common law right for adjudicators to correct typographical/ manifest errors in their decisions, will be codified; and
• There is an amended provision on how parties can make agreements as to the costs of adjudication.

So how have our neighbours in England and Wales dealt with these changes and what can we learn from their experiences?

Which regime applies to the contract?

As mentioned above, the amendments to the Construction Act came into force in England and Wales on 1 October 2011. Any contract entered into before 1 October 2011 is subject to the old regime. Contracts entered into on or after 1 October 2011 are subject to the new regime. The position will be similar in due course in Northern Ireland. This seems straightforward. However, the challenges we will face will include deciding which regime applies to situations involving letters of intent, contracts with retrospective effect, changing the parties to a contract, changing the terms of contracts, assignment of contracts and framework agreements. These challenges are being faced currently in England and Wales and much reliance is being placed on the case law which was generated when the old regime first came into force. Although legal advice should be sought if there is any doubt, the case law suggests that the following statements summarise the general position:

• if a contract is entered into after the effective date for the new regime, it will be subject to the new regime even if it has retrospective effect over work carried out before the effective date;
• a deed of novation is a new contract so where a contract is entered into before the effective date for the new regime and then novated after the effective date, there is arguably a new contract which will be subject to the new regime;
• where a contract is entered into before the effective date and then assigned to another party after the effective date, the new regime will not apply to the contract;
• where a contract is entered into before the effective date and then varied after the effective date, the extent and nature of the variation will have to be taken into account to ascertain which regime applies; and
• framework agreements are not generally "construction contracts" for the purposes of the Construction Contracts Order and, as such, there should be less room for any confusion as to the applicability of the pre- and post-effective date regimes.

The above statements are not definitive. The factual circumstances and drafting of documents in each case will have to be examined to establish the position. For that reason, legal advice should be sought where there is any room for doubt.

Oral evidence in adjudications

The general feeling amongst adjudicators in England and Wales appears to be that they are nervous about the new regime and, in particular, about the fact that disputes relating to oral contracts entered into after the effective date can now be referred to adjudication by the parties. Since the original Construction Contracts Order came into force, adjudicators have been keen to point out that they have a very difficult job to do in an extremely tight timetable. Those representing the parties, and indeed the parties themselves, may have had little sympathy for the adjudicators who are remunerated for their efforts. However, sympathy is creeping in for adjudicators in England and Wales because they now have to deal with oral contracts. This increases the likelihood of adjudication meetings at which adjudicators can hear oral evidence on the content of oral contracts. In practical terms, this change will introduce another tier of decision-making for the adjudicator, i.e. what were the terms of the oral contract? They will often have to make their decision based on oral evidence without the benefit of witnesses who are under oath. There can be little doubt that this will make some adjudications much more difficult for adjudicators in terms of time and evidence management. The upshot for those in the construction industry is perhaps that adjudications may become even more "quick and dirty" where the contract at the heart of the dispute is an oral contract.

Tolent Clauses

A Tolent Clause is a clause in a contract which, put simply, seeks to make one contractual party (usually the "weaker" party) solely liable for all of the costs associated with any adjudication instigated in relation to that contract. Before the new regime's effective date in England and Wales, the position in relation to Tolent Clauses was reasonably straightforward. The England and Wales Courts had taken the view that such clauses were unlawful and contrary to the terms of the Construction Act as the effect of Tolent Clauses was deemed to be a restriction on the right of parties to construction contracts to exercise their legal right to adjudicate "at any time".

However, the new regime wording has been interpreted by some commentators, including some adjudicators, as reversing this position and it seems that the legality and enforceability of the Tolent Clauses is up for debate and, almost inevitably, litigation. Until the Courts are presented with an opportunity to address the issue, it is likely that there be some confusion as to the effect of Tolent Clauses.

Conclusion

Of course, we cannot with any certainty predict what will happen when the new regime comes into force here in Northern Ireland. In fact, it is perhaps a little early to learn much from our neighbours in England and Wales who are still getting to grips with the changes themselves. We all know that the upcoming changes to the Construction Contracts Order will mean that payment mechanisms in our standard contracts will have to be reviewed and perhaps revised. However, the issues highlighted above are also likely to become relevant. In the event that any such issues arise, the Arthur Cox Construction Group in Belfast is at hand to assist.

Adrian Kerr, Arthur Cox Construction Group, March 2012

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.