In this series we've touched on some key points relating to the scope of adjudication under the Construction Contracts Act 2013 (the "Act"). We now turn to the broader legal picture and look at how statutory adjudication may work alongside constitutional rights in Ireland.
Bunreacht na hÉireann and fair procedure
The Irish Constitution is the fundamental law of Ireland and provides for rights of all Irish citizens. Flowing mainly from Article 40.3 are principles of natural justice relating to fair procedure. Key to fair procedure is firstly, that citizens have an entitlement to be heard and, secondly, that no one can judge his own case (this is the rule against bias).
The presumption of constitutionality means that Irish statute law must be interpreted in a way that is consistent with the Constitution so that, for example, it must be presumed that the legislator intended principles of fair procedure to apply to adjudication under the Act. The other point to bear in mind is that fair procedure is flexible – it should be proportionate to the circumstances of the case including the type of decision-making body. If a decision maker exercises statutory power in breach of constitutional justice, then the courts can quash that decision.
The focus of this article is on the right to be heard. What does the concept of a fair hearing involve? Typically the following:
- parties must be properly informed of the matter to be decided on;
- parties must have adequate opportunity to present their materials and arguments. This includes adequate time to prepare;
- parties must be properly informed of the materials and arguments on which the other side intends to rely and given adequate opportunity to comment on them; and
- oral hearings, with evidence being adduced through examination and cross-examination, have tended to be a fundamental aspect of fair procedure. However oral hearings may not always be required so long as parties have a chance to make their own case such that it can be fully and fairly considered by the decision maker. Bodies exercising functions of a quasi-judicial nature that determine legal rights and obligations of citizens are generally required to give reasons for their decisions.
I'm happy to get paid, thanks!
Statutory adjudication was designed to be a quick way of dealing with payment disputes within the construction sector to allow cash flow ("as the life blood of the building industry") to be preserved. One of the key features of adjudication under the Act is its short timeframe1. An adjudicator is agreed or appointed in a matter of days. Once the dispute is referred to the adjudicator, he/she must reach a decision within 28 days (or such longer period as agreed by the parties) or 42 days (with the consent of the referring party). The Code of Practice governing the Conduct of Adjudicators (the "Code") requires the adjudicator to use reasonable endeavours to process the dispute in the shortest time and at the lowest cost.
What else does the Act say about how to conduct adjudications? Firstly, the adjudicator has to act impartially. Secondly, the adjudicator has to comply with the Code2. Thirdly, the adjudicator may take the initiative in ascertaining the facts and the law relating to the dispute.
What does the Code say? The section titled 'Procedures and Decision' starts by putting procedural fairness front and centre:
The Adjudicator in any payment dispute ... shall be impartial, independent and only adjudicate where satisfied that no actual conflict of interest exists. He/she shall observe the principles of procedural fairness, which shall include giving each party a reasonable opportunity to put their case and to respond to the other party's case.
The Code continues by setting out practical actions the adjudicator might take to assist evidence gathering and analysis (such as requesting documents, using specialist knowledge, appointing assessors, etc.). These actions also include inviting written submissions/representations and evidence from the parties if appropriate; meeting jointly with the parties to enable further investigation; holding a teleconference with the parties; and holding "an oral hearing, where appropriate".
The Adjudicator "shall ensure that the procedure adopted is commensurate with the nature and value of the payment dispute and he/she shall be mindful of whether or not an oral hearing is required having regard to matters such as to whether or not there is a conflict of fact or other relevant matter that requires such a hearing".
How do the principles of natural justice fit with this model?
To date, we have no examples of Irish courts reviewing the constitutionality of procedures applied to adjudication under the Act. There is, however, guidance from the UK courts3, although it is important to remember that, while there are many similarities in natural justice in Ireland and the UK, a key difference is that in Ireland, it's grounded in constitutional law whereas, in the UK, it arises from common law. This means that, in Ireland, the legislator cannot create a statutory procedure that seeks to exclude fair procedure and the courts must interpret statutes compatibly with fair procedure.
What does this mean in practical terms? Taking oral hearings as an example: it could be argued before a UK court that, given the tight adjudication timeframe in the legislation, Parliament could not have intended oral hearings to be a feature of adjudication. In Ireland, any such debate would have a different starting point, namely a presumption that an oral hearing should happen, unless the adjudicator can reach an informed and fair decision without it. This aspect of our legal framework may mean a greater propensity in Ireland towards the consideration of oral hearings in statutory adjudication.
What have the UK courts said about natural justice in the context of adjudication? In Cantillon Ltd v Urvasco Ltd4 the court reviewed the first 10 years of case law on the subject. It considered that the statutory scheme provided a means of meeting the legitimate cash flow requirements of contractors and sub-contractors, and the purpose was not to be "thwarted by an overly sensitive concern for procedural niceties". The key guidance emerging from the decision was that:
- Any breach of the rules of natural justice must be more than peripheral; they must be material breaches.
- Breaches are material if the adjudicator has failed to bring to the attention of the parties a point they ought to have been given the opportunity to comment on if it is one which is either decisive or of considerable potential importance to the outcome of the dispute and is not peripheral or irrelevant.
- Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant involves a question of degree.
- It is not for the adjudicator to decide the dispute on a basis not argued by either party without giving parties an opportunity to comment or provide evidence. On the other hand, if either party argues a point and the other party does not come back on the point, that's not a breach of the rules.
So what does this mean for adjudication in Ireland?
Based on fundamental principles the adjudicator must ensure the appropriate and proportionate application of fair procedure. Relevant factors are the purpose of the Act, the limited timeframe for adjudication, and the fact that, if the parties think the outcome is wrong, they can ultimately go to court or arbitrate.
What about the question of holding an oral hearing? Whether meetings with the adjudicator form part of the process can depend on a number of things, including the nature of the dispute, the submissions of the parties and the extent to which there are conflicts in the evidence put forward by the parties. For example, a dispute about what was said at a meeting, particularly where there is no written record, may need to be tested if what was said is material to the outcome of the dispute.
The Irish courts have looked at statutory decision-making processes in other sectors. For example, several cases consider instances when the Financial Ombudsman did not grant an oral hearing in a statutory process where he had the power to deal with complaints in an informal and expeditious manner5. The courts have indicated reluctance to impose an adversarial court-style model onto an adjudicatory scheme intended by statute to be expeditious. However, they have found that oral hearings were necessary if, for example, the circumstances of the case required them to resolve conflicts of fact central to dealing with the complaint.
Many adjudications under the Act have already been conducted on the basis of documentary evidence and written submissions only, and where meetings do take place, they are unlikely to consist of formal evidence or cross-examination of that evidence (although this may happen). Ultimately, each adjudicator has discretion to develop the procedure by which they can meet the requirements for issuing a decision in the short time frame allowed, whilst allowing the parties the opportunity to present their respective positions.
An observation made by Mr Justice Clarke shortly after the introduction of the Act rings true: the effectiveness of the Act may turn out to be as much about trust as about its precise legal consequences: "parties must ultimately get to trust the process as being both fair and delivering as good a resolution as they are likely to get in any other way"6.
Practical points to consider?
This article has considered broad legal principles – so what are some practical takeaways?
- Parties to a construction contract should always aim to keep a good paper trail so that, if a dispute arises, they have good documentary evidence. This may reduce the need for hearings which may help to minimise time and cost.
- Parties should ensure that the other party is copied in to any communications with the adjudicator and that the material on which they wish to rely is shared with the other party. Failure to do so may inadvertently breach fair procedures.
- If a party thinks an oral hearing is needed to properly advance their case, they should explain clearly to the adjudicator and the other party at an early stage why they think this is the case. The party also needs to be clear about why the adjudicator needs to determine that particular point in order to resolve the dispute.
- Any meetings or hearings need to be capable of being dealt with within the statutory time limits for adjudication or such longer periods as are agreed by the parties.
1. Section 6 of the Act.
2. The Code of Practice is available here.
3. As we noted previously, UK statutory adjudication is provided in Housing Grants, Construction and Regeneration Act 1996 and, though there are many similarities with our Act, the UK act provides for referral of not just "payment disputes", but "disputes" more generally.
4.  EWHC 282 (TCC)
5. For example, Lyons v Financial Services Ombudsman  IEHC 454, O'Neill v Financial Services Ombudsman  IEHC 285.
6. Mr Justice Clarke's lecture is available here.
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.