Construction adjudication predictions

2018 Litigation Forecast

2017 was an active year in the construction and building litigation space. In light of recent legislative amendments and decisions from the courts, we think 2018 is likely to see an increase in the number of parties referring disputes to adjudication under the Construction Contracts Act 2002 (CCA) instead of taking formal court action. There have also been some interesting judgments relating to class actions in the defective building space, indicating that 2018 may see these types of proceedings on the rise.

Adjudications under the CCA to assume greater prominence

The CCA allows any party to a “construction contract” to refer any dispute arising under that contract to adjudication – a “quick-fire” construction and building dispute resolution process decided “on the papers”. Adjudication is not intended to be final – its purpose is to provide a temporary solution to encourage cash flow, pending the final determination of the dispute by way of litigation or the process set by the contract. The entire process can be completed in a matter of 25 working days but usually takes 6 to 12 weeks.

On 1 December 2015, the Construction Contracts Amendment Act 2015 (Amendment Act) came into force, introducing a number of changes to adjudication. Some changes were significant in that they expanded:

  1. The availability of the adjudication process to parties not directly involved in the physical construction of a project. Parties to consultancy agreements for design, engineering and quantity surveying work entered into or renewed after 1 September 2016 can now refer any disputes arising under those agreements to adjudication; and
  2. The types of disputes determined by an adjudicator that are able to be enforced in Court. Adjudicators’ determinations on the rights and obligations of parties under both residential and commercial construction contracts are now able to be enforced as Court judgments, not only determinations relating to payment.

Adjudication is likely to assume more prominence in 2018, and is set to become the dominant dispute forum for all parties involved in construction projects.

Ultimately, these changes fundamentally altered the adjudication regime from one directed at simply securing timely payment and encouraging cash flow to one directed at all rights and obligations in construction contracts. The changes increase the significance and reach of adjudication determinations, leaving parties to re-litigate in Court under the contractual process in the face of an adverse determination. However, in reality, the time and cost involved in re-litigating the dispute means that parties often do not have the appetite and / or resources to follow it through to this stage.

Because of this, adjudication is likely to assume more prominence in 2018 and is set to become the dominant dispute forum for all parties involved in construction projects in respect of all types of disputes, no matter their complexity. This is not without concern – contractual claims in the construction space often involve technical legal and evidential arguments (in the case of consultants for example, most standard form contracts have a negligence performance standard). An adjudicator (who may not necessarily have a significant legal or expert background) deciding these claims does so within tight timeframes and without the benefit of hearing and testing the evidence through cross-examination. In such circumstances, adjudication determinations are ripe for error meaning that the number of judicial reviews of adjudication determinations in the High Court may increase in 2018. However, parties should be wary to take such action in the absence of strong grounds – the High Court is becoming increasingly unwilling to interfere with adjudication determinations, encouraging parties to re-litigate the dispute instead (see for example the recent decision of Body Corporate 200012 v Keene [2017] NZHC 2953).

Class actions here to stay

The development of representative or “class actions” in New Zealand continued in 2017, particularly in the construction space. The Court of Appeal in Cridge v Studorp [2017] NZCA 376 upheld the right of home owners to pursue claims for allegedly defective cladding against cladding manufacturer, James Hardie New Zealand Limited (James Hardie) as a class. The Court of Appeal upheld the High Court ruling that:

  1. The plaintiffs in a leaky home matter could bring three different proceedings against James Hardie as one representative action;
  2. Issues of duty and breach were sufficiently common to be decided in one proceeding; and
  3. The Fair Trading Act 1986 issue of whether particular statements made in the James Hardie technical brochures were misleading or deceptive could also be determined on a representative basis (issues of causation and loss would need to be determined individually).

The Court disagreed that class actions are limited to cases where there is one single event or single source of the damage and held that it is required to take a “liberal and flexible approach” in determining if there is a common interest between class action claimants.

The Court of Appeal’s approach is consistent with the claimant-friendly and permissive approach that we have recently seen from the Supreme Court in Carter Holt Harvey Limited v Ministry of Education which enabled claims to be brought by homeowners against manufacturers notwithstanding technical limitation arguments.

In light of the fresh product issues facing the construction industry (such as steel), our view is that class actions are likely to remain prominent in construction litigation and 2018 may see a growth in the number of these proceedings.

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