BuildLaw, Issue 18

Welcome to the September 2013 Issue of BuildLaw. In this issue we bring you a wide range of contributions written by leading construction lawyers, academics and prominent dispute resolution professionals from various jurisdictions around the world.

See below an outline of the articles in this latest edition and click here to download BuildLaw, Issue 18.

 
Editorial Adjudication Unplugged
John Green's comments on articles in this issue and developments in the industry since our last issue including:
  • debunking the myths, mysteries and misconceptions about adjudication;
  • highlighting the danger of using letters of intent, carrying out the works, and then not resolving key terms;
  • procurement procedures that have led to 300 schools and 800 buildings nationwide affected by leaky building issues with a remedial cost of at least $1.5 billion causing Building and Construction Minister Maurice Williamson to say:
"The ministry went for least-price whips. They nickelled and dimed every bid, got the pencil as sharp as they could and then even took a bit of a margin off that, if they could. A few years later, the whole lot's turned to absolute crap and if you have to pull the whole lot down then it's not what you'd call the best deal."
  • bondsman's obligations and the circumstances in which a bondsman may be discharged from its obligation owing to the conduct of the underlying parties to the building contract;
  • severability, or not, of adjudicators’ determinations in different jurisdictions; and
  • who owns the subcontractor’s equipment – a straightforward answer?

Pages 1-16
 
The recent round of submissions to the Select Committee in relation to the Construction Contracts Amendment Bill further demonstrates that there is a general lack of knowledge and a lack of understanding of the workings of adjudication under the Construction Contracts Act 2002.
 
That is not altogether surprising however given the relatively small number of adjudications undertaken each year.
 
Well it’s time that those myths, mysteries and misconceptions were unceremoniously debunked.
 
BDT collects and analyses extensive statistics in relation to each adjudication undertaken by its adjudicators. The statistics have remained reasonably constant over the past five years and plainly speak for themselves about the efficacy of adjudication.

Pages 17-32
 
Letters of Intent, Professional Negligence and Standard Terms Is a Previous Adjudicator’s Decision Binding?
Andrew Jones of SNR Denton discusses the recent case of The Trustees of Ampleforth Abbey Trust v. Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC) which illustrates the limited protection offered by letters of intent and that parties using them should ensure the building contract is executed as soon as possible. The case demonstrates that the continued use of letters of intent is a poor substitute for a carefully negotiated and comprehensive construction contract and losing focus on finalising the building contract once work has started could be a costly mistake should issues arise on the project.

After reading this article, Project Managers in particular will be acutely aware of the importance of ensuring that the building contract is put in place. For the first time, the Court has found a Project Manager liable for professional negligence for failing to take sufficient steps to have a building contract executed.

Pages 32-35
 
In the first UK case on natural justice in 2013, Arcadis v May & Baker [2013] EWHC 87 TCC, Mr Justice Akenhead had no hesitation in saying in that that there was nothing improper nor contrary to the rules of natural justice for a decision in one adjudication to be placed before a second adjudicator for consideration in a subsequent adjudication, or for the second adjudicator to have regard to any previous decision which the adjudicator found to be germane and persuasive on the basis that the courts look at previous decisions all the time.
 
In an article titled ‘Is a previous adjudicator’s decision binding?’ Madeleine Young from MacRoberts LLP’s Glasgow office discusses the Arcadis case which highlights among other things, the UK Courts’ reluctance to encourage dissatisfied losing parties in adjudications to scrabble around and comb through the reasons to find some argument, however tenuous, on which to present a challenge under the label of ‘excess of jurisdiction’ or ‘breach of natural justice’ to resist payment.

Pages 35-37
 
ECI: What is it, Why use it and Where is it going Supreme Court Denies Leave in Tender Case – Refuses to Rewrite History
The enormous scale and complexity of the Canterbury rebuild was always going to make procurement a key challenge, however the construction team at Simpson Grierson say the market is already embracing alternative contracting models to deliver large and complex projects.
 
In the article ‘ECI: what is it, why use it and where is it going’ the team at SG explain that one such model is ECI – ‘Early Contractor Involvement’ and, because of the benefits associated with this approach including greater certainty and control over outcomes, they say ECI is being increasingly adopted on major projects in New Zealand.

Pages 38-41
 
In the article ‘Supreme Court denies leave in tender case – refuses to rewrite history’ Thomas G Heintzman QC discusses the recent decision of the Supreme Court of Canada in Trevor Nicholas Construction Co. Ltd. v. Canada. The Court refused leave to appeal and in doing so, it has upheld the decisions of the Federal Court Trial Division and Federal Court of Appeal which declined to permit a bidder to rely on after-the-fact information to overturn an invitation to tender. 
 
The decision brings to an end 23 years of disputes and litigation over tenders. There have been 20 reported decisions in the two actions brought by Trevor Nicholas over these tenders. This is a remarkable amount of unsuccessful litigation.

Pages 42-45
 
Guarantees or On-Demand Bonds Lost in Space: Consequential Loss and Loss of Profit
In the article titled ‘Guarantees or On-Demand Bonds’ Nicholas Gould of Fenwick Elliot discusses the recent UK Court of Appeal decision in Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2012] EWCA Civ 1629. The case provides important guidance on how to distinguish an on-demand bond from a guarantee, the difficulties in drafting those documents and the implications of failing to get the drafting right.
 
Labeling a document a guarantee as was the case in Wuhan will not of itself be conclusive. As Longmore LJ stated, “while everything in the end must depend on the words actually used by the parties, there is nevertheless a presumption that, if certain elements are present in the document, the document will be construed one way or the other”. 
 
Many of the issues in this case resulted from inconsistencies in the drafting. The document was found to be an on-demand bond rather than a guarantee, despite the document containing six ‘pointers’ in favour of  a guarantee and only four in favour of it being an on-demand bond.
 
It is therefore the content and commercial context of the document, not its title, which is of paramount importance. Once again the case highlights the need for clear and consistent drafting to avoid arguments.

Pages 45-49
 
Construction and engineering contracts often contain provisions excluding or limiting liability for “consequential loss”, including “loss of profit”. 
 
Is all loss of profit a consequential loss?  In this article Fritha Wheeler-Ozanne of CMS Cameron McKenna’s London office discusses the recent TCC case ADS Aerospace Limited v EMS Global Tracking Limited [2012] EWHC 1012 (Ch) which sheds light on this important issue.

Pages 49-51

 
Adjudicator’s Partial Mistake Voids Entire BCIPA Adjudication Decision Construction Projects:  
Security and Ownership of Materials and Equipment
Rocco Russo from Cooper Grace Ward’s Brisbane office discusses the recent Supreme Court of Queensland decision in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Ors [2012] QSC 373 in which Her Honour Justice Ann Lyons declared the entire adjudication decision to be void.
 
Justice Lyons rejected Warren Brothers' contention that the adjudicator had made a simple error that could be corrected under either section 28 of the Building and Construction Industry Payments Act 2004 (Qld) (the BCIPA) (correction of a clerical mistake) or under the 'slip rule' in Rule 388 of the Supreme Court Rules 1999 (Qld).
 
The court held that the error was not in the nature of an accidental slip but rather required the adjudicator to accept a complete change in reasoning. Justice Lyons accepted that the adjudicator had failed to consider the complete submissions of either party in relation to the item in issue 'in deciding the adjudication application', as required by section 26(2) of the BCIPA. This jurisdictional failure, together with the extent of the failure, the nature, gravity and effect of the error made by the adjudicator grounded Justice Lyon's decision to find that the adjudication decision was void. In the course of the decision, Justice Lyons noted that there was no mechanism available to sever that part of the decision that was infected with jurisdictional error and suggested this aspect of the BCIPA is ripe for legislative reform.

Pages 52-54
 
Karen Overend discusses the recent High Court decision in McCloy v Manukau Institute of Technology [2013] NZHC 936 which confirmed that the step-in rights clause in a construction contract can create a security interest in plant and equipment. These clauses grant the principal rights to complete the works, sometimes using the contractor’s equipment and materials and then sell the equipment to recover outstanding monies where, for example, the contractor has become insolvent.
 
The case is a salutary lesson however, that while it may appear beneficial to include in construction contracts clauses of that create security interests in the nature of rights to seize goods and equipment upon default, such rights will compete with other rights in those assets and they will rank behind prior-registered security interests granted to parties such as banks and financiers. 

Pages 55-59
BINGHAMS CORNER
Article 1: “Pihl v Ramboll – Commercial Expectations from Adjudication”
 

PACK UP YOUR TROUBLES IN YOUR OLD KIT BAG
 

In ‘Pihl v Ramboll – Commercial Expectations from Adjudication’ Tony Bingham highlights the difficulties faced by adjudicators as parties have come to expect judge like quality of reasoning in short timeframes.
 
Do you see what’s happening he says? We are demanding of adjudication, in short time, high quality and accurate decisions so that disputes do not come round again to be fought in litigation, because that’s too expensive and too time consuming. Adjudicators are supposed to provide a shallow scrape at a low cost. But that’s not what is happening. The demand is for adjudicators with qualifications and skills of a very high order. In other words, down here in the trenches we are looking for the right answer in one hell of a short time with a kit bag full of short cuts. So be it.

Pages 59-61

Article 2: “West v Ian Finlay & Associates – Is the Architect liable?”
 

WRAP THEM UP IN COTTON WOOL
 

When things went awry with the West’s riverside home, and the builder was already insolvent, they sued the architect. Why? He should have taken better care of them.
 
In ‘West v Ian Finlay & Associates – Is the Architect liable?’ Tony Bingham concludes that this case provides a superb set of guidance notes for every architect. Design liability, liability to watch, take care to explain, and to mollycoddle.
 
He says “Get every architect, every trainee architect, and every partner to come to the RIBA in Portland Place and go chapter and verse through this case to learn the lessons. Then and only then, will your professional negligence insurance outfit renew your yearly policy. And this is the reason; it’s because what this architect did or did not do is, in truth ever so ordinary. And if the court, the RIBA, and the teachers of architects think it’s below par, do something about it.”

Pages 61-63
 
LETTERS TO THE EDITOR
It was pleasing to see the response to the article ‘WE CAN’T FIX THE PAST – CAN WE FIX THE FUTURE? SECURITY OF PAYMENT – RETENTIONS’ in Buildlaw Issue 17 and we are delighted to publish several of the responses in this issue

Pages 64-72
 
BOUQUETS AND ACKNOWLEDGMENTS
We are delighted to welcome Andrew Skelton to our panels. Andrew is a well known and highly regarded New Zealand construction lawyer and his involvement with BDT only serves to strengthen and enhance the already high standard and quality of the dispute resolution services we provide. For more information on our panels click here. If you have any questions regarding any of our panelists or how our panels, or appointment procedures operate please contact us on + 64 (09) 486 7143 or at registrar@buildingdisputestribunal.co.nz

The winners of Standards New Zealand annual Meritorious Service Awards were announced at Parliament a few weeks ago. The 17-strong Standards NZ committee which is in the final stages of reviewing NZS 3910:2003 Conditions of Contract for Building and Civil Engineering Construction, was named Committee of the Year by Standards NZ. We are delighted to announce that the Committee’s chairman, BDT adjudicator and arbitrator, Sherwyn Williams, was also singled out to receive one of four Standards NZ Meritorious Service Awards for his role.
 

An Authorised Nominating Authority
under section 65 of the Construction Contracts Act 2002