9.05.2018

Enforcement of Damages in Adjudication

Does a significant factual dispute preclude summary judgement?

Clark v Central Lakes Homes Limited [2016] NZHC 1694

Introduction

This decision highlights the arbitral distinction in the enforceability of the sums due and rights/obligations under construction contracts, prior to the recent CCA amendments.  In this case, the builder was entitled to enforce an adjudication award of damages only because of a specific contractual right to do so.

Background

The appellant, Clark, contracted Central Lakes Homes Ltd (CLH) to build a residential dwelling on his property in Queenstown.  During construction the relationship between the parties broke down and the construction contract came to an end.  Clark said the contract was terminated mutually, while CLH maintained that Clark had instructed CLH to cease work and refused access to the property.  Clark engaged an alternative builder to complete the works.

The contract stated that the owner will be in breach if he took possession of the building site before completion without the builder’s consent.  In particular, if the owner did not vacate within two working days, the builder would be entitled to terminate the contract immediately, and recover all sums due and owing, together with any damages, costs, expenses, or loss of profit arising out of the determination of the contract.

The dispute was referred to adjudication.  The Adjudicator determined that Clark was liable to pay CLH $62,782.66 for losses and interest under s 48(1)(a) of the Construction Contracts Act 2002 (the Act).

CLH then sought to enforce the adjudicator’s determination in the District Court by applying for summary judgment.  It relied on s 59(2)(a) of the Act, which deems an amount, determined by adjudication (and awarded under s 48(1)(a)) recoverable from the other party as a “debt due”.  The District Court granted CLH’s application for summary judgment, which Clark appealed on the following grounds:

(a)   the determination was made under s 48(1)(b) and therefore cannot be enforced under section 59 by way of summary judgment;
(b)   there are significant factual disputes between the parties, which required determination at a defended hearing, and the matter is therefore not suitable for summary judgment; and
(c)   even if Clark has no defence, the Court in an exercise of its residual discretion should not enter the summary judgment against him.

Was the Adjudicator’s determination validly made under s 48(1)(a)?

At the time this dispute arose, the Act treated differently payments owing under a contract (s48(1)(a)) and rights and obligations of the parties under a contract.  Only determinations made under s 48(1)(a) were able to be enforced (s48(1)(b).  For contracts entered on or after 1 December 2015, that distinction has now been abolished (under the Construction Contracts Act 2015).  However, as this contract was made prior to December 2015, the distinction applied and was the main basis for Clark seeking to overturn summary judgment.

The Court held that the adjudicator’s determination was validly made under s 48(1)(a).

The contract in this case provided the builder with an express right of termination, which, if exercised, caused the owner to be liable for various sums.  These included sums due and owed under the contract, damages, costs, expenses and loss of profit.  Given the express right to such sums, the damages awarded by the adjudicator came within s48(1)(a), meaning the determination was enforceable.

Had there been no contractual right to damages, or other payment, it is likely the determination would have fallen under s48(1)(b) and not been enforceable.

Does a significant factual dispute preclude summary judgment?

There was a significant factual dispute between the parties arising from the events that preceded CLH’s purported termination of the contract.  The Court acknowledged that summary judgment will not normally be appropriate if the case turns on a disputed fact.  Nonetheless, an adjudicator’s determination under s 48(1)(a) is binding and will continue to have full effect unless and until it is set aside by judicial review or, another proceeding is overturned.  This follows the ‘pay now argue later’ philosophy of the Act.

Summary judgment of a sum awarded in adjudication under s48(1)(a) may be opposed only where a legitimate jurisdictional question arises (applying Van der Wal Builders and Contractors v Walker HC Auckland  CIV-2010-004-000083, 26 August 2011 which was distinguishable from the present case).  There was no suggestion here that the Adjudicator had been acting outside their jurisdiction.

Residual discretion

This was not an instance in which the Court’s residual discretion to avoid injustice by not upholding an entry of summary judgment was allowed.  The residual discretion is limited and will only be used in exceptional cases.

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