Introduction

15.1 New Zealand has had a system of contractor’s liens over the employer’s land for many years, from an Act introduced in 1892 to the Workers’ Protection and Contractors’ Lien Act 1939. The Construction Contracts Act 2002² (amended in a very minor and irrelevant respect by the Construction Contracts Amendment Act 2003 [Appendix 18] and, more significantly, by the Construction Contracts Amendment Act 2015) invests adjudicators with the power to make charging orders but only on commercial, rather than domestic premises. Besides this obvious difference from the British measures, it has been argued that the New Zealand régime, by removing “pre-contract” and “procedural” hazards, achieves a significantly more level playing field for claimants.³ This legislation has been categorised as part of the “traditional process” type of statutory adjudication, along with that of the United Kingdom and the Australian West Coast Model.4 It is said that adjudication claims have become more technically complex and increasingly involve legal questions, as well as it being relatively common for adjudications to involve several parties (up to three or four). There is also reported to be a movement towards final account disputes and away from interim disputes as the construction project progresses, as well as claims relating to the personal liability of individual directors in residual funding of contracts.⁵

15.2 Under this Act, although there is provision for a payment schedule as under the East Coast Model, any party to a construction contract has the right to refer a dispute to adjudication, and may exercise that right even though the dispute is the subject of proceedings between the same parties in a court or tribunal. The adjudication process must be completed within 20 working days, or up to 30, at the request of the adjudicator.

The “leaky building” epidemic: New Zealand Weathertight Homes Resolution Services Acts 2002 and 2006

15.3 One of the more interesting developments is that of a statutory adjudication system in relation to defects in domestic premises under the Weathertight Homes Resolution Services Acts 2002 and 2006 in New Zealand. The 2006 Act repealed and replaced the 2002 Act and provides a mechanism for any person who considers that their dwelling house is a leaky building to bring a claim; have it, and the nature of the particular problem, assessed and evaluated; and be provided with an assessor’s report.

15.4 It also provides for compulsory adjudication and sets up a mechanism whereby dwelling house owners with eligible claims can apply to have them adjudicated by a Weathertight Homes Tribunal, whose powers and procedures are flexible and whose determinations, subject to appeal, are binding and enforceable. The 2006 Act was amended by the Weathertight Homes Resolution Services (Remedies) Amendment Act 2007, confirming the Tribunal’s power to award general damages, suggesting that the previous Acts had not been entirely successful.⁶

Adjudication under the Construction Contracts Act 2002

15.5 The Construction Contracts Act 2002 attempts to provide a speedy mechanism by which a person providing construction services can obtain payment and ensure some cash flow before final resolution of all issues between the parties.⁷

15.6 In the George Developments case, the Court of Appeal stressed how definitive these purposes are. They inform every aspect of the Act. The Act is not to be read narrowly. That would “undercut Parliament’s intent that cash flow be maintained”.8 The priority the Act gives to prompt payment and secure cash flow (the court said in Salem Limited v Top End Homes Limited⁹) obliges one disputing liability to “pay first and argue later”, echoing the approach adopted in the United Kingdom.

15.7 The procedure for making and responding to payment claims is strict.¹⁰ However, it was held in George Developments that small defects in a payment claim will not invalidate it.¹¹ This was confirmed in SOL Trustees Limited v Giles Civil Limited¹² where it was held that technical quibbles should not be allowed to vitiate a payment claim or payment schedule that otherwise substantially complies with the requirements of the Act.

15.8 The court in Loveridge Limited v Watts and Hughes Construction Limited¹³ held that defects in an initial payment claim cannot be cured by serving subsequent payment claims, or unnecessary confusion would result. A later case clarified that the Act does not prevent a contractor from resubmitting prior progress claims by repeating them in subsequent claims, or prevent a payer from reiterating the same response in each subsequent payment schedule.¹⁴

15.9 Any party to a construction contract has the right to refer a dispute to adjudication and may exercise that right even though the dispute is the subject of proceedings between the same parties in a court or tribunal.¹⁵ The procedure generally calls for a notice of adjudication to be served on the respondents, with the claim to follow within five working days of receipt of the adjudicator’s notice of acceptance.¹⁶ The court in Spark It Up Limited v Dimac Contractors Limited¹⁷ held that, as is the case with payment claims and payment schedules, technical quibbles will not invalidate an adjudication notice. Under the Amendment Act 2015 a respondent has five days from the date of receipt of the adjudicator’s acceptance or the claimant’s claim (whichever is the later) to serve its response, with provision for extra time if the claim has been served with “undue haste”.¹⁸ Unlike the United Kingdom and elsewhere where there is no entitlement to reply as of right, under the amended Act a claimant is specifically entitled to serve a reply within five days of receipt of a response.¹⁹ It remains to be seen whether this will have the effect of prolonging the procedure overall. A respondent may claim set-off or abatement in the written response to the extent of defending the claim, but if the respondent believes it is entitled to be paid any money by the claimant, then the respondent must file its own adjudication claim to recover those monies.²⁰

15.10 There are strict constraints on the matters which the adjudicator may consider.²¹ They must determine a dispute no later than 30 working days after receipt of the respondent’s response.22 The party entitled to payment may recover the amount as a debt due in any court,²³ serve a notice of intention to suspend the carrying out of construction work, and apply for the adjudicator’s determination to be enforced by entry as a judgement in the District Court.²⁴ The judgment may be enforced by execution in accordance with the District Courts Rules.²⁵

15.11 An adjudicator is exercising a statutory power of decision when performing their functions under the Act, and the adjudicator’s decisions are thus subject to judicial review. Instead of any absolute exclusion of grounds that might be pleaded in applications for judicial review of decisions under the Act, the court’s approach must be context-dependent. All the traditional grounds of judicial review are available to applicants, but given the scheme of the Act, a low-intensity approach to review is appropriate, which means it will be harder for applicants to prove that such grounds justify intervention by the court.²⁶ In at least two instances breaches of natural justice have founded a right of review.²⁷ The remedy the Act itself envisages is ordinary civil proceedings. Review is a remedy that ought to be invoked only in the clearest of cases. The purpose of the Act is definitive.²⁸ The Court of Appeal has deprecated any interpretation that could frustrate the Act’s purpose; any that is “technocratic”, or “formalistic”.²⁹

15.12 The Amendment Act 2015 has removed any distinction between residential and commercial construction contracts with a view to extending the coverage of the Act to reflect increased residential construction activity in New Zealand.³⁰ Furthermore, from 1 September 2016, design, engineering and quantity surveying work is included under the scope of the Act, giving parties who carry out this type of work full access to the Act’s dispute resolution and default payment régimes.

15.13 The general position on the enforcement of decisions under the Construction Contracts Act 2002 has been helpfully summarised in Kariiti Limited v Donovan Drainage and Earthmoving Limited.³¹ Prior to the Construction Contracts Amendment Act 2015, only decisions in relation to payment of an amount of money were enforceable; decisions in relation to “rights and obligations” were not.³² That is no longer the case.³³

15.14 Under section 79 of the Construction Contracts Act 2002 as amended, there are restrictions on counterclaims, set-offs and cross-demands that can be raised in proceedings for recovery of debts under sections 23, 24 and 59. Again, matters that a payer might wish to raise by way of counterclaim, set off or cross-demand can be subject of other dispute resolution procedures under section 26(1) and, if resolved in favour of the payer, may result in recovery of sums paid under sections 23, 24 and 59. Payers have sometimes asserted that, if they pay under section 23, 24 and 59, the payee is unlikely to pay them back, even though they have good arguments to show that the payee will have been overpaid. At times, they have applied to the court for interim relief.34 In Concrete Structures (NZ) Limited v Palmer (see fn 28b) Courtney J gave the justification for providing interim relief at [17]: