By Natalia Vila.

 

With few exceptions, the Construction Contracts Act 2002 (the Act) applies to every construction contract relating to construction work carried out in New Zealand. Statutory adjudication under the Act is the most commonly used dispute resolution process in New Zealand for resolving building and construction disputes, offering a fast and relatively straightforward process for resolving disputes under construction contracts.

The Act prevents an unwilling party from delaying or avoiding the adjudication process. A claimant can secure the immediate appointment of an adjudicator without any consultation or agreement with any other party required, and every party will be bound by the outcome whether or not they choose to participate. This makes adjudication an effective and important dispute resolution tool.

Ten fast facts about construction contract disputes and adjudication

 

1. What is a construction contract?

A construction contract is a contract for carrying out construction work which has a broad definition and includes construction, alteration, repair, restoration, maintenance, extension, demolition, dismantling or removal of any building or structure.

Construction work was extended in 2015 to include design, engineering and quantity surveying, so these consultants can also access the payment protections of the Act including the right to suspend work for non-payment and also the adjudication procedures to resolve payment disputes. The flip side is that those who undertake construction work will be subject to claims for breach of contract, breach of the statutory warranties under the Building Act 2004, and breach of requirements of reasonable care and skill in relation to their work.

2. Does the contract need to be in writing?

A construction contract does not need to be in writing to be covered by the Act.

A demand for payment for work undertaken under a construction contract (known under the Act as a payment claim) does however need to be in writing and comply with the requirements of the Act to be valid[1] so as to engage the default liability payment provisions and entitlement to suspend work under the Act.

3. What types of disputes can be referred to adjudication?

Default liability claim

These are claims for technical non-compliance with the payment regime under the Act. Where a valid payment claim has been served by a payee on a payer and the payer fails to provide a payment schedule in response within the period mandated under s 22 of the Act or fails to pay the whole of the scheduled amount by the due date for payment, a determination that the payer is liable to pay the whole of the unpaid portion of the claimed or scheduled amount may be made by an adjudicator, without the claimant having to prove its entitlement to payment on the merits under the contract.

Claim on merits

Disputes about the substantive rights and obligations of the parties. Typical claims for payment and rights and obligations determinations might include:

  • contract interpretation disputes;
  • whether particular work constitutes a variation;
  • whether work is defective, creating an obligation (and/or a right) on the part of the contractor to rectify it;
  • extension of time claims including time-related cost claims or downstream liquidated damages claims;
  • whether time is at large;
  • the right to suspend or terminate a contract;
  • assignment rights;
  • issues regarding bonds;
  • entitlement to a Practical Completion Certificate or Final Completion Certificate;
  • entitlement to release of retentions;
  • ownership of plant, equipment and materials;
  • damages claims for breach of contract; and
  • contractual claims for damages for breach of requirements of reasonable care and skill in relation to design, engineering and quantity surveying consultants.

4. What if the contract has a dispute resolution clause referring to mediation or arbitration?

Any party to the contract can still refer disputes to adjudication under the Act, even if the contract provides for a different dispute resolution procedure such as mediation or arbitration. Parties cannot contract out of the Act.

5. Do the parties have to agree on who the adjudicator is?

No. This point is often misunderstood and much time (and money) wasted by parties trying to agree on an adjudicator. Any agreement before the dispute arises is unenforceable and it is often hard to reach agreement (on anything) once a dispute has crystallised. The claimant can request the appointment of an adjudicator from an Authorised Nominating Authority of their choice like the Building Disputes Tribunal[2] without needing the agreement of the other party or even to consult them about the appointment.

6. What is the scope of the adjudicator’s jurisdiction?

An adjudicator may determine whether or not any of the parties to a construction contract is liable to make a payment under the contract, whether there has been a breach of the contract (including a term implied under the Building Act 2004), any questions in dispute about the parties’ rights and obligations under that contract, any ancillary or consequential matters, and/or any additional matters that the parties might agree in writing.

An adjudicator may, in certain circumstances, approve the issue of a charging order in respect of the construction site owned by a party to the construction contract against whom a claim is made in an adjudication, or an associate of that person.

7. How long does it take?

Most disputes are resolved in less than six weeks from the time the process is started.

8. Is there a hearing?

No. The adjudication process takes place entirely on the documents which are typically exchanged/served by email. This makes the process very fast by comparison to litigation or arbitration. In exceptional cases the adjudicator may require a visit to the construction site or convene a conference to discuss or clarify matters but such interventions are extremely rare.

9. Is the adjudicator’s determination final?

The determination of the adjudicator is binding on the parties in the interim and will be binding on the parties and enforceable unless or until the dispute is finally determined by arbitration or by court proceedings, or by agreement.

10. What if the losing party fails to comply with the adjudicator’s determination?

The successful party may apply for the determination to be enforced by entry as a judgment in the District Court[3] and they are entitled to recover their actual and reasonable costs of doing so.

The person against whom enforcement is sought has only five working days to oppose judgment. The Court has no overriding discretion to refuse to enter judgment and can only refuse to do so on very narrow grounds. These are:

  • the amount payable has been paid;
  • there was in fact no construction contract;
  • a condition imposed by the adjudicator has not been met;
  • due to a change in circumstance, not caused by the respondent, it is not possible to comply with the determination; and
  • the date (if any) specified in the adjudication for compliance has not yet passed.

Statutory adjudication under the Act offers an important and effective process for parties to resolve construction disputes promptly and cost effectively. It can be very attractive from a claimant’s perspective given the inability to contract out of the Act, which means that an unwilling respondent cannot delay, avoid or obfuscate the adjudication process.

The fact that any amount determined to be paid by an adjudicator must, except in rare circumstances, be paid within two working days of receipt of the determination enables parties to move quickly to enforce a determination (and obtain charging orders over the construction site in some cases) and suspend work if such payment is not made.  All of these factors combine to provide a very prompt, efficient and cost-effective solution to resolving building and construction disputes and debt recovery.

The Adjudication Process

 

 

[1] More information about the specific requirements for a valid payment claim are available here.

[2] Section 33(4) of the Act. The Building Disputes Tribunal is an Authorised Nominating Authority under the Act.

[3] Additional information about enforcement is available here.

 

 

*Natalia Vila is the Registrar of the Building Disputes Tribunal, which is an Authorised Nominating Authority under the Construction Contracts Act. For information on resolving construction disputes, there are many helpful guides, resources and related information available on BDT’s comprehensive website at https://www.buildingdisputestribunal.co.nz/

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