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?