Determination under the Construction Contracts Act 2002 – Judicial Review

Alaska Construction + Interiors Auckland Limited v Christopher James Lahatte [2020] NZHC 1056

In this month’s article, I review the recent High Court decision in which Justice Woolford was asked to consider an application for judicial review of a decision made by an adjudicator under the Construction Contracts Act 2002.

Facts

Alaska Construction + Interiors Auckland Ltd was the head contractor in the building of an apartment complex at Henderson Valley Road in Auckland. Alaska subcontracted Lovich Floors Ltd to carry out some of the construction works for $350,000.00, however, works did not proceed smoothly, additional subcontractors were engaged, and other factors led to further costs for Lovich.

On 25 July 2019, Lovich issued payment claim number 4 in which it claimed for 82.65% of the subcontracted works and 75% of the variations. However, the subsequent payment schedule issued by Alaska allowed only for 80% of the subcontracted works and 0% of the variations. The payment schedule also contained contra charges for works completed by other contractors.

The payment schedule was amended, yet Alaska had not paid Lovich since June, and according to the payment schedule issued by Alaska, Lovich owed them nearly $100,000.00.

In December 2019, Lovich sent a further and final payment claim for $113,443.71 to which Alaska did not respond within the required statutory timeframe.

In January 2020, Lovich issued a notice of adjudication under the Construction Contracts Act 2002 specifying the amount owed by Alaska as $113,490.86. Subsequently Christopher LaHatte was appointed as an adjudicator under section 35 of the Act and following his directions an adjudication claim was served by Lovich on Alaska.

Shortly after the adjudication had been completed save for the issuing of the determination, Alaska paid Lovich $42,833.80.

The central issue that arose on judicial review was Mr. LaHatte’s finding that it had not been necessary to analyse the difficulties in completing the subcontracted works by Alaska because no payment schedule was provided by Alaska in response to Lovich’s December payment claim.

LaHatte stated that the consequences of not providing a payment claim were well known, and although harsh, serves the purpose of continuing cashflows in the construction industry. It was on this basis that he found the payment claim of $113,443.71 must succeed and did not think it was necessary to decide Lovich’s alternative claim of breach of contract.

Procedure for making and responding to payment claims

Alongside the purpose of the Act stated by LaHatte, the Act is also to facilitate timely dispute resolution and remedies for the recovery of payments under a construction contract. Subpart 3 of part 2 of the Act sets out the procedure for making and responding to payment claims, as well as the consequences of not following these.

Although judicial review is available to challenge an adjudicators decision under the Act, the Court of Appeal has made it clear that such a relief will be available only rarely.

Alaska alleged that Lahatte’s determination was incomplete because of failing to determine who was responsible for Lovich’s inability to complete the works, and whether the works completed by Lovich were up to standard, and what the costs of remedial work could be. As a consequence of this, Alaska claimed that the determination amounted to a natural breach of justice, a failure to discharge the statutory function provided by the Act, and an unreasonable exercise of statutory power.

The Court disagreed and ruled that the underlying dispute was not unilaterally modified by Lovich, and that it was only when the statutory time period expired without Alaska having issued a payment schedule that the payment claim assumed any significance.

With regard to the adjudicator failing to determine the underlying dispute, it was determined that although the adjudicator is required to determine in accordance with section 48 any question in dispute about the rights and obligations of the parties to the contract, the amount of money owing by Alaska to Lovich was separate to this question.

The Court rejected Alaska’s claim regarding the payment schedule (that it ought to have been ignored by the adjudicator), stating the payment claim/payment schedule process is not suspended by the adjudication process.

Although Alaska’s claim for judicial review of LaHatte’s decision was dismissed, Justice Woolford did suggest that Lovich could bring its own notice of adjudication to assert its claim that it owes Lovich somewhat less than the sum of $113,442.71.

Furthermore, in a separate judgment on costs, the Court ruled that judicial review proceedings are not proceedings to recover a debt, and thus the actual costs of Lovich Flooring were not recoverable, just scale costs.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.