BuildLaw: In Brief 03.11.2009

There have been two judgments released by the Court in the last week.  One considers the enforcement of an Adjudicator's determination and the other, judicial review of an Adjudicator's determination.  These cases are summarised below and the full judgments can be read at our website.

Enforcing decisions given by adjudicators under the Construction Contracts Act has gained more “teeth” with the decision of Justice Mallon in Gill Construction Company Ltd v Ross Butler.

Mr Butler applied for an order that Gill Construction be put into liquidation as it failed to satisfy a statutory demand issued following the failure of Gill Construction to pay the amount of $24,456.00 as determined for payment by an adjudicator from the Building Disputes Tribunal within the statutory period of 2 working days.

Gill opposed the application on the basis that there was a dispute as to whether the amount is in fact owing (i.e. the adjudicator got it wrong); that Butler must first obtain a judgment in the District Court to enforce the determination and that, at that time, it would dispute the debt via a counterclaim; that it was solvent and that, if Butler was to advertise, Gill would suffer embarrassment which is an improper use of liquidation proceedings.

Butler maintained that liquidation proceedings are a legitimate means to enforce an adjudicator’s determination and there are no exceptional reasons to stay the proceedings.

Justice Mallon reviewed the CCA and statutory demand regime.  He referred to the recent decision in Laywood v Holmes Construction where the Court described the CCA as a “pay now, argue later” regime and as giving rise to a temporary debt.

The Court rejected the submission of Gill Construction that Butler must first obtain a judgment in the District Court and said that Mr Butler is permitted to use the statutory demand procedure instead or, in advance of enforcement methods.

In response to the submission that Gill Construction has a counterclaim, Justice Mallon held that asserting a counterclaim is not a basis for preventing a liquidation application from proceeding to a hearing.  Further, the Court was not persuaded that paying the money into a trust account was sufficient as Mr Butler is entitled to his money now.

While the Court understood the concerns by Gill Construction that advertising the proceedings could cause embarrassment to the company, it noted that Gill Construction could prevent that embarrassment by paying the amount due to Butler.

In the end, the Court held that Mr Butler is entitled to the amount owing and gave Gill Construction 24 hours to pay the amount owed to Mr Butler to avoid the embarrassment if it so chooses.  If it does not pay, Butler can proceed to advertise and a hearing will follow.

Canam Construction (1995) Ltd v LaHatte & Yun Corporation Ltd

Following a nomination by AMINZ to act as an adjudicator, Mr LaHatte issued a determination under the CCA resolving a dispute between Canam Construction and Yun Corporation as to what amount, if any, Yun remained entitled to under a painting subcontract at the University of Auckland.  Mr LaHatte awarded Yun a total of $345,395.01.  Even though the Adjudicator ruled against Yun in 2 aspects of the claim, Canam filed an application to have the whole of the determination set aside.

The basis of the application by Canam was that the claim was wholly invalid because the Adjudicator was only entitled to resolve a dispute arising under a construction contract and that he had no jurisdiction to consider the claim in quantum meruit.  Further Canam said that, as the Adjudicator failed to give reasons for his decision, there was an error of law and a breach of natural justice; that when the adjudicator made allowances beyond the schedule of quantities he departed from the position agreed; that the Adjudicator did not resolve whether the remedial works had been capped at $35,000; that there was an arithmetical error; that the Adjudicator exceeded his jurisdiction in awarding Yun costs as he accepted Canam had not acted in bad faith and that there was no jurisdiction to impose interest after his determination.

The Judge reviewed the purpose and provisions of the Act and agreed with earlier decisions that an Adjudicator’s determination is subject to review.  The Court then considered the issue of whether the Adjudicator was entitled to make a determination under quantum meruit and Justice Keane held that the Act only concerns rights and liabilities arising under construction contracts.  However, in this case, there was an express reference in Canam’s letter of acceptance to Yun possibly being entitled to have its claim assessed on a quantum meruit basis and the decision was therefore not fatal on this ground.

In relation to the alleged failure to give reasons, the Court accepted that reasons are required by an Adjudicator and that those reasons must be sufficient to answer in fairness the arguments for and against a claim and render his or her decision intelligible and free from unreasonableness.  In this matter, the Court held that the reasons given were intelligible enough and the determination was not so devoid of reasons as to amount to no decision at all. Interestingly, the Judge agreed in part with Canam that the decision is not explicit enough and noted that, if there was an appeal by way of rehearing, he might well have found the determination of Mr LaHatte less than cogent.

The submission by Canam that the Adjudicator had failed to resolve an issue squarely before him was considered and rejected on the basis that, whilst there was no express reference to the $35,000 cap issue, any breach was notional and there was no prejudice to Canam in the failure.

Canam further alleged that Mr LaHatte exceeded his jurisdiction by attempting to impose interest after he had made his determination and had ceased to have jurisdiction.  This was conceded by Yun and was not considered by the Court.

Finally, the Court accepted Canam’s submission in relation to costs and held that there was no basis for s56 to be invoked and that the Adjudicator was essentially making an award of damages which was beyond his jurisdiction.

The overall result was that the Adjudicator did not err in law, act unreasonably, or in breach of natural justice except as to the award of costs and interest after the event.  Accordingly the Court only quashed those 2 aspects of the determination.

 

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