ADJUDICATION PROCESS (DevB Technical Circular (Works) No. XX/2021
In this section you will find a recommended adjudication process under DevB TC(W) No. XX/2021 from serving a notice of adjudication to the adjudication decision.
STEP 1: NOTICE
NOTICE OF ADJUDICATION
The first and most important step in the proceeding is service by the claimant of the notice of adjudication. Adjudication is initiated by a claimant serving written notice of the claimant’s intention to refer a dispute to adjudication on the other party or parties to the construction contract, and the owner of the construction site if a determination of an owner’s liability is sought under section 30(a) of the Construction Contracts Act (the Act) and approval of a charging order is sought under section 30(b) of the Act.
The requirements for a notice of adjudication are set out in section 28(2) of the Act. The requirements are mandatory. There is very little discretion regarding compliance with section 28(2) afforded the adjudicator under section 64, in the event of a failure on the part of the claimant to include the required information.
The notice of adjudication must state:
the date of the notice;
the nature and a brief description of the dispute and of the parties involved;
details of where and when the dispute arose;
the relief or remedy that is sought;
whether approval for the issue of a charging order under section 29 is being sought;
whether a determination of the owner’s liability under section 30(a) and an approval for the issue of a charging order under section 30(b) are being sought;
details sufficient to identify the construction contract to which the dispute relates including: the names and addresses of the parties to the contract and, if available, the addresses that the parties have specified for service of the notices.
A notice of adjudication must also set out prominently, in the prescribed form, a statement of the respondent’s rights and obligations in the adjudication and a brief explanation of the process.
Great care should be taken with the preparation of the notice of adjudication because it is from this document that the adjudicator derives his or her jurisdiction in relation to the nature and scope of the dispute that may be determined. In short, if the notice does not include a matter or matters subsequently raised in an adjudication claim, there is simply no jurisdiction for an adjudicator to determine those matters unless the parties agree.
If the claimant wishes to seek approval for the issue of a charging order in respect of the construction site and/or a determination that an owner who is not the respondent is jointly and severally liable to make a payment to the claimant, the claimant must record that in the notice of adjudication and the notice must be served on the owner and every other party.
Notwithstanding the requirement for strict compliance with section 28(2), it is not necessary for a claimant to establish the full details of the quantum of a claim before referring that dispute to adjudication. The relief or remedy sought may be couched in the form of a question, ie what sum is due? or made in the amount of [$amount] or such other sum as the adjudicator may determine. It should be noted that an adjudicator could not determine an amount payable in excess of any stated amount claimed and any determination so made would be invalid for want of jurisdiction and unenforceable. Therefore, a claimant should be careful not to limit the adjudicator’s jurisdiction in a claim brought on the merits under the contract by fixing the amount claimed in any particular sum.
Notice of adjudication in respect of construction contracts entered into or renewed from 1 December 2015
For construction contracts entered into or renewed from 1 December 2015, every notice of adjudication served on a respondent must set out prominently a statement of the respondent’s rights and obligations in the adjudication and a brief explanation of the adjudication process. Please note: the form is different to the form required to be provided to residential occupiers under contracts entered into before 1 December 2015.
Notice of adjudication in respect of construction contracts entered into before 1 December 2015
For construction contracts entered into before 1 December 2015, a notice of adjudication served on a respondent who is a residential occupier as defined in section 5 of the Act must, in addition to the matters set out in section 28(2), set out prominently a statement of the residential occupier’s rights and obligations in the adjudication and a brief explanation of the adjudication process (s62). These matters must be set out in the prescribed form (Form 2) which may be found in Schedule 1 of the Construction Contracts Regulations 2003. It is important to be aware that under section 62(3) of the Act, a notice of adjudication served on a residential occupier that fails to comply with the requirements in section 62(1) (ie fails to set out prominently a statement of the residential occupier’s rights and obligations in the adjudication and a brief explanation of the process), has no effect and, in order to initiate an adjudication, a claimant would need to serve a new notice that complies with these additional requirements.
To make it easy for parties and their advisers, BDT has developed a template for a valid notice of adjudication that can easily be downloaded and completed by a claimant. It is worth noting that many disputes are settled without any intervention whatsoever on the part of BDT simply by service of a notice of adjudication. Service of a notice of adjudication sends a very strong signal to the respondent that the claimant is serious about recovery of money payable under the contract, or damages for breach of contract, or the determination of the parties’ rights and obligations, and unless the matter is resolved immediately, the claimant can and will secure the appointment of an adjudicator which will cost both parties significant time and money, win, lose or draw. Service of the notice of adjudication costs a claimant absolutely nothing and is much more effective in bringing about early resolution of the dispute than a letter, which, if the claimant is lucky, may generate a response, but no money!
STEP 2: APPOINTMENT
APPOINTING THE ADJUDICATOR
BDT is an Authorised Nominating Authority (ANA) authorised by the Minister of Building and Housing to appoint adjudicators.
There is no requirement under the Act for the claimant (the party referring a dispute to adjudication) to seek the agreement of the respondent (the party against whom a claim is made in an adjudication) to the selection of the adjudicator.
The claimant does not require the agreement of the respondent to apply to BDT for the appointment of an adjudicator. Under s33(1)(d) of the Act, the claimant may request an ANA chosen by the claimant to select a person to act as adjudicator. Because of its unique position and extensive experience, BDT will almost certainly be better placed than most parties or their advisers to know who is the most appropriate available person to act as adjudicator in any particular dispute and, since 2008, parties and their advisers have consistently entrusted BDT to perform that function.
Parties are of course welcome to agree on one of BDT’s adjudicators if they wish, and subject to availability and there being no conflict of interest, BDT will appoint the person selected by the parties. The application form for the appointment of an adjudicator has provision for the parties to advise BDT of any such agreement.
However, the claimant can secure the immediate appointment of an adjudicator simply by applying to BDT in its capacity as an ANA, without any discussion or consultation with any other party to the adjudication, on the 2nd working day after the notice of adjudication was served and on any further day up to and including the 5th working day after service of the notice simply by completing the online application form.
Where approval for the issue of a charging order over the construction site is sought, the appointment of the adjudicator must be made by an ANA (s38A).
An important and significant feature of BDT’s ANA and adjudication service is that, if a dispute arises under a construction contract, a claimant may secure the appointment of a BDT adjudicator within 24 hours of making an application and the respondent cannot delay, avoid or avert the adjudication process and will be bound to accept the appointment and will be bound by the outcome of the adjudication whether or not the respondent participates in the process.
A person requested to act as an adjudicator must, within two working days of the request being made, indicate whether he or she is willing to act in that capacity.
A person is appointed as an adjudicator to determine the dispute on serving a notice of acceptance that confirms the person meets the eligibility criteria for adjudicators under section 34 of the Act.
Under its fully administered adjudication service, BDT will serve a notice of willingness to act on the parties on receipt of a properly completed application form and confirmation from the person requested to act that he or she meets the eligibility criteria for adjudicators, is willing and available to act in that capacity, and has no conflict of interest. BDT will serve a notice of acceptance immediately upon receipt of payment of the prescribed security for the adjudicator’s fees and expenses. The notice of acceptance will often accompany the notice of willingness to act where payment in full of the prescribed security is made at or before the time of filing the application for appointment thus streamlining and speeding up the appointment process.
The Tribunal has developed a simple online application form that may be accessed and completed through our website. The Tribunal does not charge an application fee for the nomination of Adjudicators.
STEP 3: CLAIM
THE ADJUDICATION CLAIM
The service of the notice of acceptance by the adjudicator sets in train a process whereby the parties present their respective cases and evidence to the adjudicator in an extremely short period of time by comparison with conventional dispute resolution processes.
The claimant must refer the dispute in writing (the adjudication claim) to the adjudicator within five working days of receiving the adjudicator’s notice of acceptance (s36(1)). There is no provision in the Act that allows the adjudicator to extend that period and, accordingly, any failure on the part of the claimant will simply bring the proceedings to an abrupt end. Such failure is not of itself fatal for the claimant, but if the claimant subsequently decides to refer the dispute to adjudication, it will require a fresh notice of adjudication to be served and a new application for appointment of an adjudicator to be made.
The claimant must serve a copy of the adjudication claim and any accompanying documents on every other party to the adjudication either before or immediately after they are served on the adjudicator.
The adjudication claim must specify the nature or the grounds of the dispute and, to the extent that it remains relevant, be accompanied by a copy of the notice of adjudication and may be accompanied by any other documents (s36(2)).
The adjudication claim must be consistent with the notice of adjudication because the notice of adjudication fixes the adjudicator’s jurisdiction in relation to the nature and scope of the dispute that he or she may determine. If any new or different matters are raised in the claim, there is simply no jurisdiction for the adjudicator to deal with those matters unless the parties agree to extend the adjudicator’s jurisdiction, which agreement, experience tells us, is unlikely.
The Act does not prescribe any particular form for the adjudication claim and a claimant is not limited to the arguments, contentions and evidence put forward by it before the dispute crystallised, when submitting its adjudication claim.
A claim will typically take the form of a simple narrative but in every case the claim should be clear, concise, cogent, and accurate. We often say that the best approach to drafting the claim is to draft it as if you were telling your story to a neighbour over the fence or a reasonably intelligent teenager – it does not need to be drafted using ‘legalese’ and repeating a point over and over again does not make it any more convincing or compelling. Clarity and cogency are key!
The claimant should spell out in a logical and sequential manner, the relevant chronological background to the claim, identify in precise terms the disputed issues that have arisen, the claimant’s case and the reasons for the dispute in relation to those matters, and the factual and legal basis upon which the claimant believes it is entitled to a determination in its favour.
It is important that the claimant includes with its claim, all relevant evidence, documents, authorities, and other material that it seeks to rely on in support of its claim. Once again we often say to parties that the adjudicator does not need to know what you had for breakfast or what the other party has done to someone else – it’s really not relevant to your case and by including screeds of irrelevant material you risk the critical material being overlooked.
STEP 4: RESPONSE
RESPONDING TO THE ADJUDICATION CLAIM
A respondent and any owner who is a party to the adjudication proceedings may serve on the adjudicator a written response to the adjudication claim within five working days after receiving the claim or the adjudicator’s notice of acceptance (whichever is the later), or within any further time that the parties to the adjudication agree, or within any further time that the adjudicator allows if the adjudicator considers that, in the circumstances, the additional time is reasonably required to allow the respondent to complete the written response (s37).
A respondent or owner must serve any response on the claimant and every other party to the adjudication either before, or immediately after serving the response on the adjudicator.
Time limits for actions by the parties and the adjudicator under the Act are short and strict. Compliance with the time limit for serving a response is absolutely critical because, under section 46(1)(b) of the Act, in making a determination an adjudicator is prohibited from taking into account any response unless it was served in time.
The presumption is against an extension of time being granted by an adjudicator. The time limit of five working days for serving a response to an adjudication claim is deliberately short (this on the basis that the respondent should know why it has refused to pay or grant whatever is being sought by the claimant and simply needs to submit its case) and a respondent would need to advance a compelling argument in support of any application for an extension of time.
If a respondent or owner wishes to seek an extension of time to the period within which to serve a response to the adjudication claim, the application for an extension of time must be made before the expiry of the default five working day period within which a respondent or owner is entitled to serve a response to the claim. Out of an abundance of caution, an application to extend time should be made to the adjudicator, with a copy to every other party, at the earliest possible time after receipt of the claim.
The courts have made it clear that it is open to a respondent to raise any ground in its response which would amount in law or in fact to an arguable defence of the claim whether propounded before the adjudication or not.
As with the adjudication claim, the written response may be accompanied by any other documents, evidence, authorities and other material that the respondent wishes to rely upon in support of its response to the claim.
The adjudication response is not an opportunity for the respondent to make a counterclaim. A respondent may claim set-off or abatement in the written response to the extent of extinguishing the adjudication claim, but if the respondent believes it is entitled to be paid any money by the claimant, then the respondent must file its own adjudication claim to recover those monies.
Set-off is an independent cross claim that the respondent is entitled to bring which cancels out the claimant’s claim in whole or in part. A set-off may arise as a result of an express contractual entitlement (ie liquidated damages for delay) or as a result of the common law right to equitable set-off where the subject cross claim is so closely connected with the claimant’s claim that it would be manifestly unjust to allow the claimant’s claim for payment without taking into account the cross-claim.
Abatement on the other hand is a reduction from the amount claimed resulting from breach of contract which reduces the value of the work carried out for defective or incomplete work.
BDT will always endeavour to appoint the same adjudicator to deal with claims between the same parties under the same contract.
If two or more adjudication proceedings are pending, an adjudicator may, with the written consent of all of the parties to those adjudication proceedings, consolidate the proceedings and determine the adjudication claims at the same time.
Inevitably what happens in practice is that the parties agree that claim and counterclaim should be determined concurrently and that the submissions and evidence in respect of each adjudication may be read together for the purposes of both. It should be stressed however, that even in those circumstances where some procedural creativity is often required, strict compliance with the time limits in sections 36 and 37 of the Act is essential.
STEP 5: REPLY
RIGHT OF REPLY BY THE CLAIMANT
For adjudications in respect of construction contracts entered into before 1 December 2015
A claimant who receives a response that contains new or different grounds for opposing the claim and/or new or different evidence to that previously used or referred to by the respondent, should immediately apply to the adjudicator seeking approval to file further submissions under s42(1)(b) and stating the grounds upon which the application is based.
If the adjudicator grants approval to the claimant to file further submissions under this provision of the Act, the adjudicator must also grant the respondent the right to file further submissions in reply.
Parties will usually be given a short period of one to three days each to file further submissions, but obviously the period of time will depend on the issues and the circumstances of the case.
For adjudications in respect of construction contracts entered into or renewed from 1 December 2015
The claimant is entitled to serve a written reply to the respondent’s response to the adjudication claim within five working days of receipt of the response. There is no power under the Act for the adjudicator to extend this time period.
The claimant must serve a copy of the reply and any accompanying documents on every other party to the adjudication either before, or immediately after they are served on the adjudicator.
STEP 6: DETERMINATION
THE ADJUDICATOR’S DETERMINATION
An adjudicator’s decision on the disputed matters is called a determination.
An adjudicator must determine whether or not any of the parties to a construction contract are liable (or will be liable if certain conditions are met) to make a payment under that contract and any questions in dispute about the rights and obligations of the parties under that contract.
An adjudicator must determine the dispute within 20 working days after the time for service of the response, although this time may be extended by the adjudicator to 30 days or such other time as the parties may agree (s46(2)).
The adjudicator’s determination is binding on the parties unless or until the dispute is finally determined by arbitration or by court proceedings or resolved by agreement or mediation after the dispute is determined by the adjudicator.
If a party against whom an adjudicator’s determination is made fails to comply with the adjudicator’s determination, the party in whose favour the determination is made may recover from the party that is liable, in any court, the unpaid amount and actual and reasonable costs of recovery awarded by that court, suspend the construction work, or apply for the determination to be enforced by entry as a judgment in a District Court.
An adjudicator may, in certain circumstances, approve the issue of a charging order in respect of the construction site owned by a party to the construction contract against whom a claim is made in an adjudication or an associate of that person.
Adjudicator’s duties, powers, and procedural obligations in relation to determining a dispute are broad ranging and are set out in sections 41-50 of the Act. While it is beyond doubt that an adjudicator is under a duty to comply with the principles of natural justice and to abide by procedural fairness, that duty is tempered/qualified due to the procedural constraints inherent in the tight time limits that the Act imposes on the parties and the adjudicator, and the provisional nature of an adjudicator’s determination.
Unlike other conventional court or tribunal processes, there is no power for the adjudicator to administer an oath or convene a face to face hearing for the purpose of making oral submissions and taking and testing evidence.
In almost every case, the determination will be made solely on the documents submitted by the parties in the claim, and the response, the reply and the rejoinder, if any.
While adjudicators have the powers to convene conferences and carry out inspections of construction work or other things to which the dispute relates, in practice these powers are seldom ever used (adjudicator have used these powers in less than 0.4% of all cases to date) or in fact required.
If a conference is convened by the adjudicator, it will be for the express purpose of allowing the adjudicator to clarify matters that may have arisen out of the claim and the response. It will be for the adjudicator to put questions of clarification to the parties (not to allow the parties or their representatives to engage in any form of examination) although in doing so, obviously the principles of fairness and natural justice must be applied and upheld.
The parties may be represented at adjudication proceedings/conferences subject to the adjudicator’s power to direct the number of representatives present at a conference to allow for the efficient conduct of proceedings (s67).
In determining a dispute, an adjudicator must only take into account the matters referred to in section 45(a) to (f) of the Act and may take into account any matters that the adjudicator reasonably considers relevant (s45(g)).
The earliest that an adjudicator may make a determination is the end of the period within which the respondent may serve a written response to an adjudication claim referred to in section 37(1), namely five working days after receipt of the adjudication claim, or any further time allowed by the adjudicator or agreed by the parties. The adjudicator must not have regard to a response unless it was served on the adjudicator within that period (s46(1)).
The adjudicator’s determination must be in writing and contain the reasons for the determination (unless the parties agree in writing that reasons may be dispensed with) in the prescribed form, namely Form 3, Sch.1 to the Regulations (s47(1)) and it must be dated.
Within two working days after the date on which a copy of the adjudicator’s determination is given to the parties, an adjudicator may, on his or her own initiative, correct in the determination any errors in computation or any clerical or typographical errors of a similar nature (s47(3)).
The provision is akin to the ‘slip rule’ enabling courts and arbitrators to correct errors in judgments and awards as a result of a slip or accidental omission. It is clear that the provision may only be used where there is a clerical or arithmetical error viz. a mechanical error, and may not be used to vary the determination in a substantive way, even if the error is plain on the face of the determination.
In practice, it will be a party that seeks correction of a purported ‘error’ by making a formal application to the adjudicator, copied to every other party, rather than the adjudicator acting strictly on his or her own initiative. Arguably the exercise of ‘initiative’ arises from receipt of the request for correction alerting the adjudicator to a possible error.
There is no power to extend the time for making a correction. Therefore, a party receiving an adjudicator’s determination must promptly check for any errors and request the adjudicator to make a correction as soon as possible so as to allow the adjudicator time to consider the application, review the determination and make any correction required within the two day window.
In a monetary claim, an adjudicator must determine whether or not any of the parties are liable, or will be liable if certain conditions are met, to make a payment under the contract (s48(1)(a)) and any questions in dispute about the rights and obligations of the parties under that contract (s48(1)(b)). If an adjudicator determines that a party to the adjudication is liable, or will be liable if certain conditions are met, to make payment, the adjudicator must also determine the amount conditionally payable and the date upon which that amount becomes payable and may determine that the liability to make payment is dependent on certain conditions being met (s48(3)).
Under section 59 of the Act, payment of any amount determined by the adjudicator to be paid to a party must be paid within two working days after the date on which a copy of the adjudicator’s determination is given to the parties, unless the adjudicator determines a later date for payment.
In non-monetary claims, an adjudicator must determine the rights and obligations of the parties under the contract.
Scrutiny of Adjudicator’s Determination
The Building Disputes Tribunal is committed to delivering consistent, certain and professional adjudication services of the highest possible standard.
Unless a party takes objection, each determination by an adjudicator is subject to ‘scrutiny’ by one of the Tribunal’s Principal Adjudicators before being given to the parties. Scrutiny of adjudicators’ determinations is a unique and key element of the Tribunal’s adjudication service ensuring that all determinations are of the highest possible standard and are thus less susceptible to correction or challenge in the courts.
This process provides the Tribunal with an effective quality assurance regime, reduces the likelihood of errors requiring correction by adjudicators within the statutory period of two working days after the determination is given to the parties, and provides parties with an additional layer of protection that would not otherwise be available since an adjudicator’s determination regarding payment of money under a construction contract is prima facie binding and enforceable.
Scrutiny of a determination is directed to identifying any errors in computation, clerical or typographical errors, or any errors of a similar nature, and any errors as to form. The Tribunal may also draw the adjudicator’s attention to any points of substance or any internal inconsistencies in the determination without affecting the adjudicator’s independence and autonomy in rendering the determination.
This unique quality assurance mechanism makes the Building Disputes Tribunal’s adjudication service New Zealand’s most reliable adjudication system. There is no additional cost to the parties for this service.