18.06.2018

Body Corporate 200012 v Keene [2017] NZHC 2953

The Keene case is significant as it showcases the perils of seeking judicial review from the Courts as a means of overturning adjudication determinations in the CCA context. In Keene the High Court rejected an application for judicial review of two determinations.

Facts

The plaintiff (BC12) and the third defendant (Naylor Love) had disputes relating to their construction contract, for remediation of leaky building defects in an 83 residential unit complex.

Disputes arose over variation claims, and BC12 and Naylor Love entered into two adjudications.  In the first adjudication the adjudicator, Mr Keene QC, upheld various claims by Naylor Love totalling $3,246,215.26.  BC12 disputed the bulk of this amount.  In the second adjudication, a different adjudicator, Mr Cardena, upheld five separate claims by Naylor Love, relying in two of these on Mr Keene’s earlier finding.

Naylor Love successfully applied to enter Mr Keene’s determination as a District Court judgement and intended to do same with Mr Carden’s determination.  To avoid paying, BC12 applied for judicial review of the two adjudications.

First adjudication

BC12’s grounds for review in relation to the first adjudication centred around four claims, referred to as EOT3, P&G thickening, rate escalation, and Hope Construction.

With the EOT3 claim, Naylor Love had sought an extension of time and prolongation costs.  The dispute was referred to the Engineer, who issued a decision awarding an extension of time and prolongation costs on 10 September 2015.  However, Naylor Love served its adjudication notice on 9 August 2016, seeking a further extension of time and further prolongation costs.  BC12 contended there was no dispute capable of being referred to adjudication under the CCA because Naylor Love had not referred the matter to mediation, arbitration, or adjudication within the specified contractual timeframe.  BC12 argued this meant that the engineer’s decision was binding on the parties and the adjudicator had no jurisdiction to consider the EOT3 claim.

With the P&G thickening and Hope Construction claims, BC12 contended that the adjudicator had decided claims that were not referred to him.  BC12 also argued that there was a failure on the adjudicator’s part to apply the principles of natural justice in 1) deciding a claim over which he did not have jurisdiction and 2) not giving BC12 prior notice it was facing such a claim and an opportunity to be heard.

With the rate escalation claim, BC12 argued the adjudicator did not have jurisdiction to make the award as the special conditions of the contract precluded a claim for rate escalation.

Second adjudication

As for the second adjudication, BC12 argued that the second adjudicator made a fundamental error of law in finding he was bound by the first adjudication as the principle of res judicata does not apply to a determination under the CCA.

High Court

The High Court rejected the application for judicial review.

The Court first discussed the proper approach to applications for judicial review, noting that it is not an appeal against the challenged decision.  Judicial review is primarily concerned with examining the decision making process and not the substance of the decision.  Although the Courts retain a broad discretion to judicially review the determination of an adjudicator, where matters in dispute can be resolved in another forum the Court will be sparing in the exercise of its jurisdiction.  The Court cited the Court of Appeal’s decision in Rees v Firth [2011] NZCA 668 with approval.  It further noted that bringing a judicial review application to avoid the ‘pay now, argue later’ policy of the CCA clearly cuts across the CCA’s scheme, and that it would require a genuine excess of jurisdiction by the adjudicator, a serious breach of natural justice, or some apparent and significant error of law for intervention to be warranted.

First adjudication

Applying these principles to the facts, the Court held in relation to the EOT3 claim that the adjudicator did have statutory jurisdiction to determine the dispute under the CCA as there was a dispute within the meaning of s 5 of the CCA (“a dispute or difference that arises under a construction contract”).  The Engineer’s decision did not change that.  The issue was whether in light of the contract’s terms the adjudicator should have exercised that statutory jurisdiction, which is a matter of contractual interpretation.  Challenging the correctness of an adjudicator’s decision is a matter for appeal rather than judicial review.  Although a decision will be reviewable if it is based on a material or significant error of law, this was not true of the present case.

As to the P&G thickening and Hope Construction claims, these matters did not go to jurisdiction but to contractual interpretation.  The adjudicator made his determination on the substance of the dispute and there was no breach of natural justice.

Similarly, the rate escalation claim involved a matter of contractual interpretation, not jurisdiction.

Second adjudication

The Court found that the adjudicator did not make a fundamental error of law in concluding that he was bound by the earlier adjudicator’s findings.   Sections 58(3) and 61(2) of the CCA[1] had the effect of stating that a determination would not bind the court or arbitrator, but had no relevance to a subsequent adjudication on the same issues.  The purpose of s 68 of the CCA (the confidentiality provision) is to keep information confidential to the parties.  Section 68 does not prohibit a party putting before an adjudicator a determination by another adjudicator involving the same parties and related issues.  Indeed, this is necessary, because res judicata applies.

Comments

This case highlights that whilst the courts can judicially review adjudicator’s determinations, they will exercise that jurisdiction sparingly.  A decision will only be reviewed if there has been a genuine excess of jurisdiction by the adjudicator, a serious breach of natural justice, or some apparent and significant error of law.  Attempts to use judicial review to circumvent an adjudication determination in the CCA context are unlikely to succeed.

[1] Repealed by ss 41(2) and 44 of Construction Contracts Amendment Act 2015, but the construction contract was entered into before 1 Dec 2015, so the amendments did not apply.

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