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Construction and Projects Disputes Update

Home Insights Construction and Projects Disputes Update

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Contributed by: Vicki McCall, Robert Clarke, Elisha Kemp, Andrew McLeod, India Townsend and Tom Ashley

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Published on: April 16, 2015

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Points of interest

  • Proposed amendments to expand the scope of the Construction Contracts Act 2002 continue to wind through Parliament, including a proposal to enable adjudicators to make binding decisions on parties’ rights and obligations under construction contracts.
  • Suppliers of building materials are in the spotlight as potential claimants have been sought for a class action-style proceeding against manufacturers and suppliers of allegedly defective cladding.
  • The High Court struck out an application to join the Building Industry Authority to a leaky building claim.

NEW CASES

Alternative dispute resolution – Expert determination set aside for failure to question witnesses

An expert determination may be reviewed by the courts in very limited circumstances, including if the expert has departed from their mandate in a material way. In the recent Waterfront Properties case, the Court of Appeal held that an expert, who failed to question available witnesses when the expert was unable to resolve critical conflicts in the evidence without such questioning, had materially departed from his mandate. This was especially so where the expert expressly stated he had not been able to resolve the conflict, yet still produced a determination. On this basis, the Court set aside the expert determination. The court reiterated that this was “most unusual and unlikely to be repeated”, and that there are limited grounds for challenging a determination when a contract dictates it shall be “final and binding.”

Waterfront Properties (2009) Limited v Lighter Quay Residents’ Society Inc [2015] NZCA 62

High Court strikes out leaky building claims against the Crown

The High Court struck out an application to join the BIA as a co-defendant to a leaky building proceeding in which the Auckland Council alleged the BIA owed various duties to it in the approval of building certifiers and maintenance of a register of approved certifiers. The Court, pointing to a line of previous authority on the point, held that the imposition of privately enforceable duties in negligence would be inconsistent with the light-handed regulatory regime under which the BIA was set up, and that the BIA did not, therefore, owe any such duties to private owners or to councils.

Body Corporate 346930 & Anor v Argon Construction Ltd & Anor [2015] NZHC 129.

Supreme Court provides helpful decision for those extending credit

In a much anticipated judgment, the Supreme Court held that, in voidable transaction cases brought by liquidators, value may be given prior to payment by a debtor company in order to satisfy the good faith defence. This decision brings welcome certainty for sub-contractors providing services on credit with no security. A copy of our Insolvency Update dealing with the case can be found here

Allied Concrete Ltd v Meltzer & Ors [2015] NZSC 7.   


LEGISLATION

Construction Contracts Amendment Bill

Proposed amendments to the Construction Contracts Act

The Construction Contracts Amendment Bill was introduced on 29 January 2013 and has undergone its first and second reading in Parliament.1  A third reading of the Bill is expected this year. 

Key changes under the current version of the Bill are:

  • The distinction between commercial and residential construction contracts will be removed, as will the definition of “residential occupier”.
  • The scope of the Construction Contracts Act will be extended to include design and engineering works.
  • Adjudicators will be able to make binding decisions about parties’ rights and obligations under construction contracts. Such determinations will be enforceable as judgments. 


The proposed amendments may make it possible to have two contradictory judgments about parties’ rights and obligations under a construction contract. The CCA enables parties to start civil proceedings before, during or after an adjudication. Currently, if the adjudication finishes first, the court is required to “have regard to” the adjudicator’s (currently non-binding) determination as to the parties’ rights and obligations. The Bill removes this requirement, opening up the possibility of a court making a decision about parties’ rights and obligations that contradicts a determination.

Weathertight Homes Resolution Services Amendment Bill

The Weathertight Homes Resolution Services Amendment Bill was introduced on 23 February 2015 to amend the Weathertight Homes Resolution Services Act 2006. 

Key changes under the current version of the Bill are:

  • The criteria for participation in the Financial Assistance Package will be clarified to remove the current inconsistency between the Act and the eligibility criteria published in the Gazette on 28 July 2011.
  • Following the decision of the Supreme Court in Osborne v Auckland Council, claims that were once ineligible on the basis of the previous understanding of the meaning of “built” will be eligible for adjudication.
  • The definition of “qualifying claimant” will be widened to include all claimants actively progressing claims, including those who are not yet at the “notice to proceed” stage.


The Bill reiterates the requirement that, in order for a claimant to qualify for a contribution from the Crown under the Financial Assistance Package, the participating territorial authority must consent to the contribution. Any proceedings brought against the territorial authority must also be discontinued entirely.


IN THE NEWS

Class action launched over defective cladding

Expressions of interest have been sought from owners of leaky buildings (including commercial, governmental and residential buildings) to initiate a class action-style product liability claim against plaster and polystyrene cladding manufacturers. The claim would be brought as a “representative action” under New Zealand law. The potential claims have reached $100 million, the “trigger figure” for international litigation funders to consider taking the case.

The claim is notable as it will seek remedies under the Consumer Guarantees Act 1993 (CGA), following the strike out decision in Minister of Education v Carter Holt Harvey Ltd. In that case, the High Court held that, the Ministry was a “vulnerable party” and that vulnerability weighed in favour of finding that CHH owed the Ministry a duty of care in the design, manufacture and supply of cladding systems, and that, because the supply and manufacture of cladding does not relate to “building work”, the ten year long-stop limitation period in the Building Act did not apply. The Court refused to strike out the proceeding on these bases. We anticipate the class action-style claim may argue (in part) that therefore an owner with a building of any age can join the claim.

CHH has since appealed the High Court’s decision.

“Quake Outcasts” entitled to reconsideration of Government offers to purchase their properties

Christchurch “Quake Outcasts” have won in their bid to have the Minister for Canterbury Earthquake Recovery and the Chief Executive of CERA reconsider their decisions regarding the offers that were made by the Government to purchase the Outcasts’ red-zoned properties. The Supreme Court considered the Crown’s decisions regarding the red zoning (and non-red zoning) of particular areas and the quantum of purchase offers made to owners of properties located in the red zones.

The Court held that the Crown’s decisions should have been made under the Canterbury Earthquake Recovery Act 2011, as the Act was intended to be the sole vehicle for major earthquake recovery measures. The Act provides safeguards in relation to the use of specific powers as well as rights of consultation in relation to the Recovery Strategy and Recovery Plans. Further, the Court held that the insurance status of properties in the red zone should not have been treated as determinative of the level of offer that the Crown made to individuals property owners. For example, some uninsured properties in the red-zone had fared well and those properties had been harmed more by being “red-zoned” than by the earthquake. The insurance status of a property should therefore have been only one of a number of relevant factors in the Crown’s decisions about how much to offer owners. Additionally, decisions on offers should have been made with the aim of to achieving the purpose of the Act, namely, to assist with the recovery of red zoned communities.

Quake Outcasts v Minister for Canterbury Earthquake Recovery [2015] NZSC 27

FOOTNOTES
  1. Further revisions were agreed to by Cabinet on 11 August 2014 and on 11 March 2015 Parliament released a further Supplementary Order Paper with further amendments to the Bill.

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This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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