Alaska Construction + Interiors Auckland Limited
[2020] NZHC 1056
•20 May 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000587
[2020] NZHC 1056
UNDER Judicial Review Procedure Act 2016 IN THE MATTER
of an application for Judicial Review
BETWEEN
ALASKA CONSTRUCTION +
INTERIORS AUCKLAND LIMITED
ApplicantAND
CHRISTOPHER JAMES LAHATTE
First Respondent
LOVICH FLOORS LIMITED
Second Respondent
Hearing: 1 May 2020 Appearances:
C T Patterson for the Applicant
B Rooney for the Second Respondent
Judgment:
20 May 2020
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Wednesday, 20 May 2020 at 12:30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:Hornabrook MacDonald Lawyers, Auckland, (M Hornabrook) for the Applicant Lovegroves, Auckland, (T Hibbitt) for the Second Respondent
Counsel:C T Patterson and E J Grove (Chris Patterson Barrister Ltd), Auckland B Rooney, Auckland, for the Second Respondent
ALASKA CONSTRUCTION + INTERIORS AUCKLAND LIMITED v LAHATTE & ANOR [2020] NZHC 1056 [20 May 2020]
[1] Alaska Construction + Interiors Auckland Ltd (Alaska) applies for judicial review of a determination dated 10 April 2020 by an adjudicator appointed under the Construction Contracts Act 2002 (CCA), Mr Christopher LaHatte, in favour of Lovich Floors Ltd (Lovich). A statement of claim and statement of defence have both been filed. Neither side adduced further evidence than what was before Mr LaHatte. Mr LaHatte abides the decision of the Court.
Factual background
[2] Alaska was the head contractor on construction works for an apartment complex at 33 Henderson Valley Road, Auckland. Alaska contracted some of the construction works to Lovich under a subcontract comprising Alaska’s invitation to tender, Lovich’s tender and an exchange of emails between Alaska and Lovich on 17 and 18 January 2019. The price agreed was $350,000 plus GST.
[3] The subcontracted works did not proceed smoothly. Difficulties arose over scheduling of the works, availability of work surfaces, capacity to undertake the works and quality of the works. Each party thought the other was to blame.
[4] Alaska engaged additional contractors alongside Lovich to help complete the works. They were paid by Alaska. The subcontracted works were also varied, which led to further costs by Lovich. Repairs were undertaken to bathroom ceilings and carpet tiles. That led to yet further costs.
[5] On 25 July 2019, Lovich delivered payment claim number four to Alaska (the July payment claim). It claimed for 82.65 per cent of the subcontracted works and 75 per cent of the variations, which had been itemised following the construction issue drawings. On 22 August 2019, Lovich received a payment schedule from Alaska which allowed for 80 per cent of the subcontracted work and zero per cent for the variations which had been claimed by Lovich. The schedule also included contra charges for work completed by other contractors and for some remedial work on bathroom ceilings.
[6] On 28 August 2019, Alaska sent a revised payment schedule to Lovich in which the contras were increased. The subcontracted works were completed in
September. The last payment Lovich received from Alaska had been in response to payment claim number three, which was delivered to Alaska in June. Alaska had paid nothing since then. According to the payment schedule Alaska sent to Lovich in response to the July payment claim, Lovich owed nearly $100,000 to Alaska. In total, Alaska paid $227,500 to Lovich and kept retentions of $11,416, both excluding GST.
[7] On 16 December 2019, Lovich sent a further and final payment claim in the sum of $113,443.71 to Alaska claiming 100 per cent for the subcontracted works and 100 per cent for the variations allowing deductions for the works completed by other contractors, but at Lovich’s own contract rates for that work and also allowing a contra for the remedial work to bathroom ceilings (the December payment claim).
[8] Alaska did not respond to the December payment claim by delivering a payment schedule to Lovich within the statutory timeframe or at all.
[9] On 20 January 2020, Lovich issued a notice of adjudication under s 28 of the CCA referring the dispute with Alaska to adjudication. It specified the sum of
$113,490.86 (including GST) as being owing and identified the dispute as whether Alaska was obliged to pay the $113,490.86 (or another amount) to Lovich.1
[10] On 10 February 2020, the parties agreed to the appointment of Mr LaHatte as adjudicator. On 11 February 2020, Mr LaHatte accepted appointment as adjudicator under s 35 of the CCA. The notice of acceptance directed Lovich to serve a written adjudication claim on the adjudicator within five working days. It was to set out the nature or the grounds of the dispute and be accompanied by a copy of the notice of adjudication (to the extent it was still relevant) and may be accompanied by other documents.
[11] The notice of acceptance also directed Alaska to serve a written response to the adjudication claim on the adjudicator within five working days after receiving the claim or the notice of acceptance (whichever was later). Alaska was also advised that the response may be accompanied by other documents that it considered useful.
1 It is not clear why this figure is slightly different to the figure specified in the December payment claims or the later alternative claim for breach of contract.
[12] Finally, the notice of acceptance advised Lovich that it then had five working days to serve the adjudicator with a written reply to Alaska’s written response to the adjudication claim.
[13] In accordance with the adjudicator’s directions, Lovich served an adjudication claim dated 18 February 2020, an affidavit from Mark Lovich dated 13 February 2020, and submissions dated 18 February 2020.
[14] Alaska then filed a response to Lovich’s adjudication claim on 3 March 2020 together with a draft unsworn affidavit from Simon Sheldon. Finally, again in accordance with the adjudicator’s directions, Lovich filed a reply to Alaska’s response dated 9 March 2020.
[15] Two days later, on 11 March 2020, after the adjudication had been completed save for the issuing of the determination by the adjudicator, Alaska paid the sum of
$42,833.80 for subcontract variations to Lovich. Alaska had acknowledged in its response to Lovich’s adjudication claim that it was willing to pay the full variations claimed by Lovich as at 25 July 2019.
Adjudicator’s determination
[16]At the outset, the adjudicator noted the relief sought by Lovich as:
The claimant [Lovich] seeks an order for payment of the December payment claim of $113,443.71 including GST, or alternatively a claim in breach of contract for $113,493.05, and seeks an order that the respondent [Alaska] pay the adjudicator’s costs and the claimant’s costs in the adjudication.
[17]The alternative claim for breach of contract was broken down as follows:
Contract sum $350,000.00 Add unpaid variations $43,776.14 Deduct remedial work to ceilings $6,600.00 Deduct value of uncompleted contract work $55,835.50 Sub-total $331,340.64 Deduct retentions (five per cent of $331,340.64) $16,567.03 Add retentions already deducted by Alaska $11,416.00 Deduct payments made by Alaska $227,500.00 Sub-total $98,689.61 Add GST $14,803.44 Balance owing $113,493.05
[18] After setting out Lovich’s basis for the claim and Alaska’s response, the adjudicator stated that it had not been necessary to analyse the difficulties in completing the subcontracted works because of the relatively simple point that no schedule was provided by Alaska in response to Lovich’s December payment claim.
[19] The adjudicator stated that the consequences of not providing a schedule in response to a payment claim were well known and, while the consequences may seem harsh, the purpose of the payment claim and schedule process was to ensure the continuation of cashflows in the construction industry. He therefore found that the payment claim in the sum of $113,443.71 must succeed. He did not think it necessary to decide Lovich’s alternative claim of breach of contract.
[20] On the question of costs, the adjudicator was of the view that full solicitor client costs were payable as Alaska failed to provide convincing reasons why a schedule was not provided within the statutory period. The response lacked merit because the point was unanswerable on the facts of this case.
Procedure for making and responding to payment claims
[21] The purpose of the CCA is to facilitate regular and timely payments between parties to a construction contract, to provide for the speedy resolution of disputes under
a construction contract and to provide remedies for the recovery of payments under a construction contract.2
[22] Subpart 3 of pt 2 of the CCA sets out the procedure for making and responding to payment claims. Section 20 provides:
20 Payment claims
(1)A payee may serve a payment claim on the payer for a payment,—
(a)if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or
(b)if the contract does not provide for the matter in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or
(c)if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.
A payment claim must—
(a)be in writing; and
(b)contain sufficient details to identify the construction contract to which the payment relates; and
(c)identify the construction work and the relevant period to which the payment relates; and
(d)state a claimed amount and the due date for payment; and
(e)indicate the manner in which the payee calculated the claimed amount; and
(f)state that it is made under this Act.
(3)A payment claim must be accompanied by—
(a)an outline of the process for responding to that claim; and
(b)an explanation of the consequences of—
(i)not responding to a payment claim; and
(ii)not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4)The matters referred to in subsection (3)(a) and (b) must—
(a)be in writing; and
(b)be in the prescribed form (if any).
Section 21 then provides:
Payment schedules
2 Construction Contracts Act 2002, s 3.
(1)A payer may respond to a payment claim by providing a payment schedule to the payee.
(2)A payment schedule must—
(a)be in writing; and
(b)identify the payment claim to which it relates; and
(c)state a scheduled amount.
(3)If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a)the manner in which the payer calculated the scheduled amount; and
(b)the payer’s reason or reasons for the difference between the scheduled amount and the claimed amount; and
(c)in a case where the difference is because the payer is withholding payment on any basis, the payer’s reason or reasons for withholding payment.
[24] The scheduled amount is the amount of the payment specified in a payment schedule that the payer proposes to pay to the payee in response to a payment claim.3
[25] Section 22 provides that if a payer does not provide a payment schedule to the payee within the specified time, then the payer becomes liable to pay the claimed amount on the due date for payment.
[26]Section 23 goes on to provide:
23 Consequences of not paying claimed amount where no payment schedule provided
(1)The consequences specified in subsection (2) apply if the payer—
(a)becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and
(b)fails to pay the whole, or any part, of the claimed amount on or before the due date for the payment to which the payment claim relates.
(2)The consequences are that the payee—
(a)may recover from the payer, as a debt due to the payee, in any court,—
(i)the unpaid portion of the claimed amount; and
(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and
3 Section 19.
(b)may serve notice on the payer of the payee’s intention to suspend the carrying out of construction work under the construction contract.
(3)A notice referred to in subsection (2)(b) must state—
(a)the ground or grounds on which the proposed suspension is based; and
(b)that the notice is given under this Act.
(4)In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.
Availability of judicial review
[27] Although judicial review is available to challenge an adjudicator’s determination under the CCA, the Court of Appeal has made it clear that such relief will be available only rarely. In Rees v Firth, the Court of Appeal stated:4
The courts must be vigilant to ensure that judicial review of adjudicators’ determinations does not cut across the scheme of the CCA and undermine its objectives. But this does not mean that judicial review should be limited to instances of “jurisdictional error”. In principle, any ground of judicial review may be raised, but an applicant must demonstrate that the court should intervene in the particular circumstances, and that will not be easy given the purpose and scheme of the CCA. Indeed, we consider that it will be very difficult to satisfy a court that intervention is necessary. As an example, given that an important purpose of the CCA is to provide a mechanism to enable money flows to be maintained on the basis of preliminary and non-binding assessments of the merits, it is unlikely that errors of fact by adjudicators will give rise to successful applications for judicial review. In the great majority of cases where an adjudicator’s determination is to be challenged, the appropriate course will be for the parties to submit the merits of the dispute to binding resolution through arbitration or litigation (or, of course, to go to mediation).
[28]In terms of discretion, the Court of Appeal also stated:5
This Court has said that, although public law remedies are discretionary, there must be “extremely strong reasons” to decline to grant relief where a public decision-maker is shown to have erred in the exercise of his or her powers. That approach has been criticised as being insufficiently nuanced, although the Court seems to have had in mind situations where it could be shown that there was substantial prejudice to the claimant. In any event, given the discretionary nature of public law remedies, it may be that a more nuanced approach is necessary in the generality of cases. But in the present context, a requirement to show “extremely strong reasons” to deny relief would substantially undermine the CCA’s purpose and scheme. In most – indeed, almost all – cases involving construction contracts it will be preferable for
4 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408 at [27].
5 At [48].
parties to resolve disputes over contractual rights and liabilities by mediation, arbitration or litigation, given the non-binding nature of an adjudicator’s determination on such matters, rather than by resorting to judicial review. The courts should be careful not to act so as to encourage parties to construction contracts to take judicial review proceedings rather than utilising other more appropriate alternatives.
(footnotes omitted)
Alaska’s complaint
[29] In essence, Alaska alleges that the adjudicator’s determination was incomplete in that it failed to address all of the issues that the adjudicator was asked to determine. Specifically, the adjudicator did not determine:
(a)Who was responsible for Lovich’s inability to complete the subcontracted works and the consequences in monetary terms for the payment due to Lovich; and
(b)Whether the works completed by Lovich were up to standard and, if not, the proper scale and costs of the remedial work required.
[30]As a consequence, Alaska alleges that the determination amounted to:
(a)A breach of natural justice;
(b)A failure to discharge the statutory function provided for in ss 38, 47 and 48 of the CCA; and
(c)An unreasonable exercise of statutory power.
[31]Alaska also alleges that the adjudicator awarded Lovich indemnity costs of
$43,970 without providing any reasons why he regarded that sum as reasonable.
Discussion
[32] First, Alaska claims, in essence, that the dispute was in some way unilaterally modified by Lovich. It points out that the notice of adjudication issued on 20 January 2020 did not even mention the payment claim delivered by Lovich on 16 December
2019. It was only after Mr LaHatte had accepted appointment as the adjudicator that Lovich mentioned the payment claim, for the first time, in its adjudication claim dated 18 February 2020. Lovich no longer sought to have the underlying dispute determined (but still addressed it in its submissions). Alaska says that, in its response, it still sought to have the underlying dispute determined.
[33] Alaska submits that the scheme of the CCA has the effect that the dispute for adjudication cannot simply be unilaterally varied and/or determined by the initiating party after an adjudicator has already been appointed by agreement to adjudicate that dispute. As a consequence, Alaska submits the adjudicator did err jurisdictionally by failing to determine the underlying dispute.
[34] An initial difficulty for Alaska is that the document which specifies the nature or grounds of the dispute is the adjudication claim and not the notice of adjudication. Section 36 of the CCA provides:
36 Referral of dispute to adjudicator
(1)After an adjudicator has been appointed, the claimant must, within 5 working days of receiving the adjudicator’s notice of acceptance, refer the dispute in writing (the adjudication claim) to the adjudicator.
(2)The adjudication claim—
(a)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
(b)may be accompanied by any other documents.
(3)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.
[35] The addition of the words “to the extent that it remains relevant” clearly indicates that the grounds of the dispute set out in the notice of adjudication may be superseded by the adjudication claim. The notice of adjudication may no longer have any relevance. Its role is properly seen as the document which initiates the adjudication. It may have no more significance than that. Furthermore, s 45(c) of the CCA does not require an adjudicator to consider the notice of adjudication.
[36] In any event, the underlying dispute between Lovich and Alaska was not unilaterally modified by Lovich. The payment claim delivered by Lovich to Alaska
on 16 December 2019 claimed $113,443.72. In the notice of adjudication dated 20 January 2020, Lovich set out the dispute as whether “Alaska [was] obliged to pay
$113,490.86 (or another amount) to Lovich” (emphasis added).
[37] In explanation for the failure of the notice of adjudication dated 20 January 2020 to even mention the payment claim, counsel says that at the time of the issue of the notice of adjudication, the statutory period of 20 working days within which Alaska had to respond by issuing its own payment schedule had not expired. At that time, the payment claim had no particular significance. It was only when the statutory time period expired without Alaska having issued a payment schedule that the unanswered payment claim assumed any significance. The statutory consequence of an unanswered payment claim is quite plain and straightforward.
[38] Lovich submits that another difficulty for Alaska is that it did not at any time bring its own claim against Lovich. It only sought to use the payment to other contractors and the cost of repairs as a counterclaim or a set-off to the claim by Lovich. Lovich cites s 79 of the CCA in support, which provides that in any proceedings for the recovery of a debt under ss 23, 24 or 59, the Court must not give effect to any counterclaim, set-off or cross demand raised by any party to those proceedings other than in limited circumstances. Section 79 does not apply, however, to the adjudication process. It relates only to court proceedings.
[39] Accordingly, there was no breach of natural justice. Alaska was well aware of the claim by Lovich regarding the lack of a payment schedule. The dispute had not been unilaterally modified by Lovich.
[40] Secondly, in submitting that the adjudicator failed to discharge his statutory function by failing to determine the underlying dispute, Alaska cites ss 38, 47 and 48 of the CCA. Section 38 provides that an adjudicator’s jurisdiction is limited to determining the matters referred to in ss 48, 49(1)(c) and 50(1)(c) and any other consequential or ancillary matters necessary to exercise the jurisdiction conferred by those sections. Section 47 relates only to the form of the adjudicator’s determination, which is not an issue in this proceeding.
[41]Section 48 is of crucial importance. It provides:
48 Adjudicator’s determination: substance
(1)If an amount of money under the relevant construction contract is claimed in an adjudication, the adjudicator must determine—
(a)whether or not any of the parties to the adjudication are liable, or will be liable if certain conditions are met, to make a payment under that contract; and
(b)any questions in dispute about the rights and obligations of the parties under that contract.
(2)If no amount of money under the relevant construction contract is claimed in an adjudication, the adjudicator must determine any questions in dispute about the rights and obligations of the parties under that contract.
(3)If an adjudicator determines under subsection (1)(a) that a party to the adjudication is liable, or will be liable if certain conditions are met, to make a payment, the adjudicator—
(a)must also determine—
(i)the amount payable or conditionally payable; and
(ii)the date on which that amount became or becomes payable; and
(b)may determine that the liability of a party to the adjudication to make a payment depends on certain conditions being met.
(4)Despite subsections (1) and (2), an adjudicator is not required to determine a dispute that has been withdrawn in accordance with section 39.
(5)If a dispute is settled by agreement between the parties before the adjudicator’s determination is given, the adjudicator—
(a)must terminate the adjudication proceedings; and
(b)if requested by the parties, may record the settlement in the form of a determination on agreed terms.
[42] Sections 49(1)(c) and 50(1)(c) relate only to charging orders which are also not an issue in this proceeding.
[43] The key issue is whether the adjudicator’s determination accords with his statutory function, in particular under s 48(1). As to the requirements of s 48(1), there clearly was an amount of money under a construction contract claimed in the adjudication. The adjudicator can also be considered to have determined whether any of the parties to the adjudication were liable to make a payment under that contract. Although the adjudicator was also required to determine, in terms of s 48(1)(b), any question in dispute about the rights and obligations of the parties under that contract,
the amount of money owed by Alaska to Lovich does not fall easily into the definition of the rights and obligations of the parties under the contract. The rights and obligations of the parties are quite separate from the issue of liability to make a payment under that contract, being dealt with in separate subsections and having different consequences.
[44] Alaska, in effect, submits that the adjudicator should have ignored the lack of a payment schedule and the statutory scheme that provides for a payer who fails to provide a payment schedule within the time required becoming liable to pay the claimed amount on the due date. The payment claim/payment schedule process is, however, not suspended by the adjudication process.
[45] Alaska cites Anderson v Swindells in support of its proposition that the adjudicator should have considered the underlying dispute.6 In that case, the adjudicator had made his determination on the basis that there had been an unanswered payment claim. His determination was overturned in the High Court on review. The Judge on review noted:7
Nowhere in the notices of adjudication, submissions of the parties, evidence and documents presented to the adjudicator did either party address the issue of McDowall’s compliance with the requirements of s 20 of the Act. Similarly, nowhere did either party refer to or identify the issue of whether the applicants had or were required to satisfy the requirements of s 21 of the Act, or the consequences of their failure to provide a payment schedule.
…
Rather the dispute related to whether or not McDowall was entitled to recover any more money at all under the contract following the delays that had occurred, and having regard to the various building defects and overcharging that was alleged to have occurred.
[46] By contrast, in the present case, the failure to provide a payment schedule was central to Lovich’s claim, as apparent in its adjudication claim of 18 February 2019.
[47] Thirdly, as for costs, the adjudicator awarded full solicitor client costs to Lovich. Counsel for Lovich notes that Alaska did not challenge costs in any way,
6 Anderson v Swindells [2018] NZHC 1803, [2018] NZAR 1375.
7 At [60]–[61].
either as to entitlement or quantum. Lovich’s costs were unopposed and unchallenged until the judicial review application was filed by Alaska.
[48] The adjudicator did give reasons. He held that there was no bad faith on the part of Alaska in not responding to the payment claim; it was an oversight. However, because Alaska had failed to provide convincing reasons why a schedule was not provided within the statutory period, he held that full solicitor current costs were appropriate.
[49] In its written submissions, Alaska did not refer to the issue of the costs. It was only in response to the reply of counsel for Lovich that Alaska’s counsel queried the time claimed by Lovich’s counsel for an 11-page written response to the adjudicator. Without more, Alaska has not persuaded me on judicial review that the award and amount of costs is somehow flawed.
[50] Accordingly, the adjudicator did not fail to discharge his statutory functions. Nor did he unreasonably exercise his statutory power.
[51] Alaska’s unexplained failure to provide a payment schedule disadvantaged it, but it is not without a process to assert its substantial claim that it owes Lovich somewhat less than the sum of $113,443.71. It can issue its own notice of adjudication or take ordinary substantive proceedings.
Result
[52] Alaska’s claim for judicial review of Mr LaHatte’s determination is dismissed. If costs cannot be agreed, memoranda of no more than three pages are to be filed within 10 working days of this decision.
Woolford J
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