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24.09.15 | Resolving Construction Disputes| 2436205_2
RESOLVING CONSTRUCTION DISPUTES
CCH Building and Construction Conference, 2015
Nick Gillies
24 September 2015
NZ’s Construction Sector – circa 2015
• Sustained period of high demand
• Concerns about scale and capacity
• Fragmented, risk averse and lacking competition
• Widening of tort law
• Already prone to disputation
A recipe for increased disputes?
Presentation Outline
1. Common causes and features of construction disputes
2. Dispute resolution options
3. Dispute resolution clauses
4. Current and future trends
PART ONE:
COMMON CAUSES AND FEATURES
OF CONSTRUCTION DISPUTES
Construction Disputes: Common Causes
• Inadequate scoping
• Incomplete or defective design
• Inappropriate delivery methods
• Poor contracts / administration
• Inequitable risk allocation
• Unrealistic time and cost objectives
These factors lead to…
• Uncertainty
• Added commercial pressure
• Increased variations and claim events
• Adversarial behaviour
→ All of these factors fuel conflict, which can
escalate into a dispute.
Construction Disputes: Common Features
• Questions of fact rather than law
• Interaction of multiple issues
• Technical matters, often requiring experts
• Large number of individual claim items
• Document heavy
• Multiple parties
Construction Disputes: Types of claims
Payment claims
• Non-payment of agreed sums
• Disputes over additional money – eg measured works, variations, delay & disruption, etc
• Contra charges
Defect claims
• Design / construction problems
Preventing Construction Disputes
Get things right from the beginning
Have appropriate signed written contracts
Follow the contract
Issue compliant payment claims / schedules
Have clear and accurate project records
Implement an early warning system
Address issues promptly
What to do when a dispute arises?
Seek professional advice at an early stage
Have an overall strategy
Clearly communicate your position
Comply with the contract
Play with a straight bat
Preserve and organise project documents
Identify potential witnesses
PART TWO:
DISPUTE RESOLUTION OPTIONS
FOR CONSTRUCTION DISPUTES
Dispute Resolution Options
1. Determinative
,Expert Determination and Early Neutral Evaluation
2. Consensual
and Facilitation
3. Hybrid
Conciliation, Med-Arb, Dispute Boards and Advisors
Mediation
Litigation, Arbitration, Adjudication
Final Forum: Arbitration
Arbitration is the traditional method for resolving construction disputes.
Regulated by the Arbitration Act 1996
• Full vs Expedited
• Domestic vs International
Final Forum: Litigation
• Disputes Tribunal: Up to $15,000
• District Court: $15,000 to $200,000
• High Court: Above $200,000
More appropriate for smaller value claims where the cost of an arbitrator would be disproportionate.
Overseas judicial specialisation – eg Technology and Construction Court (England & Wales)
Final Forum: SICC Hybrid
Singapore International Commercial Court
Combines litigation and arbitration features
Parties can submit
Enforceability questions
Minimal direct application in NZ, though we may see
some features make their way into domestic arbitration.
Adjudication
• Fast track process for resolving disputes under “construction contracts” (CCA 2002)
• Statutory right – cannot contract out
• Determination within 5-7 weeks
• Heard on the papers without an oral hearing
• May or may not involve lawyers
• Parties bear their own costs, but the losing party usually pays the adjudicator’s fees
Adjudication (Cont’d)
• Determinations may be re-heard by arbitration or litigation
• Right of adjudication to be extended:
Remove residential/commercial distinction
Remove payment/rights & obligations distinction
Speed up enforcement via Courts
Include design, engineering & quantity surveying
Expert Determination
• Created by contract – not subject to regulation
• Suits technical issues that do not involve complicated issues of fact/law (eg valuation)
• Usually final and binding with limited appeal rights
• Speedier and cheaper than arbitration
• Largely been displaced by adjudication, but still has a role to play
Mediation / Conciliation
• Structured settlement negotiation process
• Voluntary, confidential and without prejudice
• Mediator/conciliator acts as independent facilitator
• A popular cost-effective means of achieving
commercial resolution, but not a panacea
• Conciliation includes a non-binding view on the
merits if no resolution at the end of the process
Dispute Boards
• High-value, complex projects
• Dispute Review Board (US model) vs Dispute
Adjudication Board (FIDIC model)
• Board of independent persons charged with “keeping a
weather eye” on a project
• Dispute avoidance as much as resolution
• Effective but expensive (circa 0.25% of construction
costs (DRBF))
Dispute Resolution Advisors
• Lower value, less complex projects
• Neutral third person, akin to a “mini-DRB”
• Regularly visits site and meets with the parties
• Gives non-binding advisory opinions
• Worth the investment?
• Particularly suited to Canterbury?
PART THREE:
DISPUTE RESOLUTION CLAUSES
FOR CONSTRUCTION CONTRACTS
Negotiation Mediation (or similar)
Litigation / Arbitration
Multi-Tiered Dispute Resolution Clauses
“… these clauses risk pushing people through the doors of the mediation room too soon … before the dispute is
mature, before the rough edges have been rubbed off”
Pre-Action Protocol in lieu
• Exchange letters of claim / response
• Meet on a without prejudice basis
• Non-compliance may result in cost sanctions
• Limited exceptions for urgent relief, summary judgment or undisputed money claims
• Helps narrow the issues and sometimes avoid formal proceedings, but can front-load costs
• Less onerous than multi-tiered clauses
Back-to-back clauses
• Different but related agreements should specify the same forum
• Otherwise it can result in multiple proceedings in different forum addressing the same or closely related issues, which makes recovery more difficult
• Affects defendants as much as plaintiffs
PART FOUR:
CONSTRUCTION DISPUTE RESOLUTION TRENDS
Current and Future Trends
Canterbury
• Earthquake List
• “First” and “second” generation earthquake claims
• Plus an increase in traditional payment / defect claims
Pre-contract challenges
• Defective tender / procurement processes
• A new weapon?
Current and Future Trends (Cont’d)
Negligence
Further widening of tort law in NZ (eg CHH v MoE)?
Adjudication
Increased adjudication following changes to CCA 2002
Dispute Boards / Advisors
Growing support and use of these – hopefully.
Conclusion
• Construction is inherently dispute-prone and claims
are likely to rise from the current boom
• Disputes are best avoided: robust procurement and
completed contracts are two important protections
• Early identification and engagement often prevents
issues escalating into disputes
• When disputes do arise, understand the resolution
options available and be pro-active/commercial
Questions?