NZ Adjudication: If it’s Not Broken, Don’t Fix it

Tuesday, January 19th, 2016
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Following in the UK’s footsteps, New Zealand introduced the Construction Contracts Act in 2004, bringing adjudication into the realm of alternative dispute resolution as a statutory right for the first time.

Although little evidence of its efficacy (or otherwise) exists here, in the UK it is a frequently used tool, often as a consequence of it being mandated by the NEC form of contract which is now ubiquitous across there.

As a process, it has several advantages:

  • It is quick
  • It is designed to render a decision with 28 days (UK) and 35 days (NZ) unless an alternative period of time is agreed by the parties
  • It is binding until completion, but can then be appealed to whatever tribunal may be specified

The rules are sufficiently restrictive to ensure ‘reasonable’ justice is done whilst being flexible enough to enable the timescales to be achieved.

A quick look at some of the published cases in the UK reveals that the majority of disputes that adjudication is called upon to resolve are about monetary payments, usually related to certification and/or set-off. Notably, the courts are quick to enforce appealed adjudication decisions, validating determinations that might be correct even for the wrong reasons (notwithstanding patent bias or lack of jurisdiction).

It is, as the drafters intended, being used robustly and without the procedural correctness of either arbitration or court action.

Typically, though, the ‘if it’s not broken, don’t fix it’ mentality has been cast aside and in the both the UK and NZ, the ambit of adjudication has been broadened. Wrongly, in my view, it now includes disputes clients may have with consultants or as the act says, ‘related services, design, engineering, and quantity surveying work.’

I feel there are several good reasons why this should not be the case. The prime one is that disputes between those providing professional services and their clients tend to be of a more serious nature than simply money (not to belittle monetary disputes). They are, by virtue of the relationship, more akin to tortious actions with the core issue frequently being one of negligence, or similar issues (i.e. disputes about what was done and how, rather than the cost of it.)

Consultants’ appointments are generally not subject to schedules of quantities, definition by reference to drawings and/or specifications or based upon critical path timelines. Although bound by dates and times, they are also rarely subject to liquidated damages.

This is a comparatively complex area of liability; it hinges on settled case law, quantification of damages, reliability, foreseeability, remoteness and of course, contractual terms and conditions. No doubt there will be the occasional dispute that is purely about payment, but that is likely to be the exception rather than the rule. Attempting to undertake a ‘quick and dirty’ assessment of what are by their nature more complex issues in the timescale proposed is a difficult exercise.

Typically, an award by an adjudicator generally requires the client to make a payment that it otherwise disputed. A similar decision in respect of a dispute with say, an architect, is likely to require first the decision and then an exercise in pursuing the professional indemnity insurance provider, either by the client or by the insured. I can see no evidence of the act envisioning such a process and why would it when it was never written with that purpose in mind.

As a recent change to the law this is yet to be tested in NZ and it may be subject to change when it is, but for now we are stuck with the uncertainty.

I see the extension of the adjudication provisions of the act unnecessary and a hindrance to the client-consultant relationship. There is ample judicial process to enable prosecution of such actions should the need arise.

I am in favour of anything that aids the management of what is a complex and at times, confrontational process. In this instance, however, it wasn’t broken. So why was it fixed?

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