Resolving disputes outside of court

Over the past several months, these legal features have discussed certain areas of the Construction Contracts Act 2002 (Act), including why the Act provides a useful aid to getting paid and when payments are due under the Act. In this article, we focus on the dispute method favoured by the Act if it all goes wrong.

Generally speaking, if a dispute arises under a contract, there are a number of ways it can be sorted without resorting to the courts. Typical options include arbitration, mediation, expert determination, early neutral evaluation or adjudication.

For the purposes of this article, we have focused on adjudication. This is a legal process in which an adjudicator reviews evidence (including relevant documents and written statements) and written legal arguments, as set forth by opposing parties. It is the method favoured by the Act, on the basis that it is intended to provide a fast and cost-effective process capable of maintaining cash flow while the dispute is resolved.

Adjudication is the method favoured by the Act, on the basis that it is intended to provide a fast and cost-effective dispute resolution process

The adjudication process

Although adjudication may be daunting to the uninitiated, the key steps under the Act are relatively straightforward and easily understood.

The key steps in an adjudication process under the Act are:

1. The claimant will serve notice on the other party (respondent).

2. Within five working days of serving the notice, the claimant should request an agreed adjudicator. If an adjudicator cannot be agreed upon, then a nominating body (as may be set out in the contract between the parties) will select an adjudicator. If a nominating body is not set out in the contract then an Authorised Nominating Authority (ANA) can be requested to select an adjudicator.

3. Once selected, the adjudicator must indicate their ability within two working days of the request that they are willing to act. The adjudicator’s acceptance must be confirmed to the claimant and the respondent.

4. The claimant then has five working days after the adjudicator’s notice of acceptance to put their dispute in writing, specifying what the dispute is over.

5. Within five working days of the claimant putting the dispute in writing, the respondent must submit a written response. If they do not file a response, the adjudication will continue anyway. The respondent may request an extension of time to file their response.

6. The adjudicator will then investigate the matter and may request further details from the parties and/or call a conference if required. The parties must cooperate with this process.

7. After the investigation is finished, the adjudicator will issue a written determination, outlining their reasons, normally within 20 days after the respondent’s response was due; that can be extended to 30 days if the parties agree.

(These steps are described in sections 28 to 49 of the Construction Contracts Act 2002).

Authorised Nominating Authorities

If your construction contract does not contain clauses relating to appointing an adjudicator, an Authorised Nominating Authority (ANA) can be used to select one for you.

In New Zealand, these include:

• Adjudicator Association of New Zealand (AANZ) (www.adjudicators.co.nz).

• Arbitrates and Mediator’s Institute of New Zealand (AMINZ) (www.aminz.org.nz).

• Building Disputes Tribunal New Zealand (BDT) (www.buildingdisputestribunal.co.nz).

• Construction Dispute Service (www.constructiondisputeserices.co.nz).

The New Zealand Institute of Quantity Surveyors Inc. has also applied to become an ANA and currently has an established list of adjudicators.

It is noted that the BDT should not be confused with New Zealand tribunals such as the Maori Land, Tenancy or ACC tribunals. The latter are tribunals created and operated by central government in a similar manner to a court. The BDT and other ANAs are non-government organisations that have been authorised under section 65 of the Construction Contracts Act 2002.

Costs vary between the different ANAs but generally include:

• An application fee (for AMINZ this is $500, while BDT has no application fee).

• Payment of the adjudicator’s fees and expenses, which are generally shared in equal proportions between the parties under section 57 of the Construction Contracts Act 2002 (unless the claim was without merit or a party acted in an improper manner). However, some ANAs may require that the applicant pay the full estimated fee as a security fee prior to the adjudicator’s notice of acceptance.

Parties pay their own costs and expenses under the Act, unless a party acts in ‘bad faith’ or maintains allegations without substantial merit.

The total cost will depend on the adjudicator and the complexity of the matter. However, adjudication is generally a more cost-effective method of dispute resolution than resorting to the courts.

Appeals

Adjudicator determinations are interim decisions and the dispute can still be pursued through the court or arbitration. However, anecdotal evidence suggests that adjudication is often the final step in many disputes.

Another key advantage of adjudication is that, unlike a court decision, an adjudication can remain confidential between the parties.

About Simpson Grierson

This article was prepared by Dave Barr, a senior associate at Simpson Grierson. Dave specialises in the Construction Contracts Act and construction-related disputes. If you have any questions relating to this article, or the Construction Contracts Act, please contact Dave on ph: (09) 977 5043 or at dave.barr@simpsongrierson.com.

The information in this article is intended as a general guide only and is not intended to be legal advice. Detailed advice should be obtained to cover a specific situation.