New Zealand: Building industry dispute provisions – could they be better?

Not happy with the dispute resolution procedures in the Construction Contracts Act 2002? Now's your chance to do something about them.

The Department of Building and Housing has released a discussion document exploring a range of issues with the adjudication provisions in the Act and is calling for submissions by Thursday, 16 December.

This Brief Counsel summarises the five key reform proposals.

Enforcement of adjudication orders

Currently adjudication orders relating to payments can be enforced by applying for a charging order to the District Court or by having the Court enter the order as a judgment. But if the order relates to the rights and obligations of the parties to a construction contract, it cannot be enforced. The dispute must be re-heard in the Court and the Court only has to "have regard to" the order – a two step process which may become expensive and time-consuming.

Proposed solutions are to:

  • provide for orders relating to rights and obligations under the Act to be enforced as if they were orders of the District Court or High Court, or
  • allow them to be enforced in the same way as payment disputes.

The current distinction is generally consistent with the Act's focus on promoting cash flow ("pay now, argue later") rather than being a "quick and dirty" forum for construction disputes across the board. But in our view, the proposal warrants serious consideration.

The "rights and obligations" provisions are seldom used, despite there being many clauses in construction contracts and related disputes which are not necessarily directly related to payment obligations (for example in relation to termination rights, interpretation issues, defects liability and extensions of time). Also, in practice, there is often a crossover between the two areas – and this can be a source of significant confusion.

Appeal rights

Decisions from the Tenancy Tribunal, Motor Vehicles Tribunal and Weathertight Homes Tribunal can be appealed in the District Court on matters of both substance and procedure. By contrast, adjudication orders under the Act can generally be challenged only by judicial review in the High Court and then only on matters of process.

The paper suggests that the right to appeal a decision is a matter of natural justice and that appeals should:

  • be allowed if a party thinks the decision is wrong (i.e. on points of law or fact) or thinks that the process was unfair, and
  • be heard in the District Court in the first instance rather than the High Court.

The appeal proposals may be controversial. The adjudication process is meant to be speedy and binding, but it is not necessarily final. It does not replace the right to pursue a more thorough investigation of the underlying dispute via the courts or arbitration. If appeal rights are introduced, the parties could incur more time and cost in resolving disputes. There is also a risk that some parties may use the appeal right to play for time.

Others will argue that cash tends to be king, the stakes can be high and we need to allow appeals to ensure that at least the more obviously flawed adjudication determinations are corrected.

Confidentiality of orders

If appeals are allowed, confidentiality may be lost. The paper notes that the Tenancy, Motor Vehicles and Weathertight Homes Tribunals all publish their decisions on their websites and suggests that there is some value in transparency. It asks for industry reaction to the idea and whether, if orders are no longer confidential, they should be actively published and searchable or only obtainable on request.

Application of the Act to residential construction contracts

Commercial and residential construction contracts are now treated slightly differently under the Act. For example: the default progress payment provisions do not apply to the residential sector; the enforcement options for an adjudication order are more limited, and contractors cannot suspend work or obtain a charging order over the site as a remedy to unreasonable non-payment.

Also residential consumers are particularly disadvantaged by the fact that adjudication orders relating to contract rights and obligations (as opposed to payment) are not enforceable. This is because the residential consumer is much more likely to raise a contractual dispute than a dispute about payments.

The paper asks whether the Act should treat both sectors the same.

Enabling residential consumers to use the adjudication process under the Act would benefit both parties to the contract, allowing disputes to be determined quickly and in a more cost-effective manner than through the courts.

Related goods and services

Construction work as defined in the Act excludes related goods and services (e.g. materials and equipment, design or architectural work, engineering work and quantity surveying). The effect is to exclude the contractors supplying these services from the payment protections in the Act and to exclude the customer from the Act's adjudication processes.

Any extension of the jurisdiction of the Act, however, would be limited to claims in contract. Claims in tort would remain outside the Act.

Next steps

The discussion document is available here.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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