Traps to look out for in a building dispute

Commerical lawyer, Geoff Hardy

Everyone knows the old saying that the only winners in court cases are the lawyers.

 
That reflects the reality that the traditional system of suing in the courts (litigation) has become so drawn-out, so complex and so expensive, that it is effectively out of the reach of the common citizen.

Ironically, all that complexity came about in an attempt to achieve fairness, because lawyers and their clients were gaming the system. And despite all the safeguards it still goes on.

That is why in recent decades we have seen the emergence of “alternative” dispute-resolution methods. There are a variety of them, but the main ones in the construction context are mediation, arbitration, the Disputes Tribunals (our small claims courts), and adjudication under the Construction Contracts Act (CCA).

The cost of those ranges from low to medium, and they are generally far quicker than litigation. However, you get what you pay for, so the outcomes can be a bit hit and miss at times. If there is a lot at stake and you want the most reliable outcome, there is no substitute for litigation.

Our justice system goes to great lengths to ensure that disputes are resolved fairly and reasonably, and no-one gets  an unfair advantage.

So, for example, the judge has to be well qualified and strictly impartial. Everyone  gets plenty of time to prepare their case  and everyone has to outline it to the other side well in advance. If your ability to pay  any costs award against you is in doubt,  then you can be made to put the money  up in advance.

Complainants generally have to show that their allegations are more likely than not to be true, which is quite a high threshold. No-one is allowed to hide or destroy any documents that could be damaging to their case. No-one is allowed to ambush the other side with critical evidence that is hidden from them until the last minute. Evidence is given on oath or by affirmation so that you can be liable for perjury if you mislead or deceive. And everything is done out in the open so that justice can be seen to be done.
Sacrificing accuracy for speed.

With alternative dispute-resolution, those rules are relaxed. For example, the Disputes Tribunals are very informal, you present your own case rather than use a lawyer,  and the Referee can go with what seems fair and reasonable rather than strictly applying the law.

In mediation, you can make any outlandish allegation you want, and the mediator can only encourage the parties to reach agreement, rather than making a binding ruling. In arbitration the rules are more like litigation, but the arbitrator tends to be an expert in the relevant field, and it is all done in private. In CCA adjudication everything is done extremely quickly and the adjudicator generally doesn’t get to meet the parties. Each side simply submits written arguments and the documents that support their case, and they get one brief opportunity to respond in writing to what the other side have said.

The construction industry is unique in having CCA adjudication available to it. In very few other industries can you get disputes resolved so quickly and cost-effectively.
It was based on overseas models and it aims for “quick and dirty justice”. It is intended to get arguments sorted out on an interim basis during the course of the project so roadblocks can be overcome and progress can continue.

But CCA adjudications typically cost upwards of $10,000 because you have to pay the adjudicator, and upwards of double that if you need legal assistance. That is why it is ideally suited to big commercial projects that take several years to complete and involve millions of dollars. For a number of reasons, it doesn’t work quite so well in residential projects.

Underhand tactics

The main reason for that is there is plenty of opportunity to game the system in  CCA adjudication.

Why would some people do that? Because they are human beings, and in residential projects they feel the anxiety and the financial pain far more acutely than the professionals do in the commercial projects.

Their natural inclination is to inflict at least as much pain on the other side as they are feeling, and understandably they take every opportunity to do so. They want to win, and they are going to use everything at their disposal to achieve that.

There are a number of ways you can do so in a CCA adjudication. Claimants have the advantage because they can spend weeks preparing their case before they start the adjudication, and then the Respondents have only a week (usually extended a little by the adjudicator) to put together their defence.

A favourite trick is to file the claim just before Christmas so it spoils the other side’s holiday and leaves them unable to find any experts to assist them.

It is usually builders who initiate CCA adjudications, because they are chasing payment of their final invoices from disgruntled homeowners who have adopted the self-help remedy of taking possession of the nearly-completed building works and withholding payment to compensate for the grievances they have suffered.

In those situations the homeowners have little interest in resolving the dispute because in their minds they have already won it.

The situation is different when the Builder has been fully paid and alleged defects emerge afterwards. If the Builder feels that the allegations are baseless, or simply doesn’t want to face up to his responsibilities, then his incentive is to lie low and hope the homeowner runs out  of steam.

One thing homeowners can do to forestall the day of reckoning is to file a complaint about the Builder with the Building Disputes Board. That typically takes a year to resolve and results in a ruling about whether the Builder has done substandard work or not. Ironically that is quite a helpful process because the ruling can be used in a subsequent adjudication, by the party whom the ruling favoured the most.

Unsubstantiated allegations

What normally happens in an adjudication is that the owner hires a building consultant  to write a damning report on the standard  of the work to date. The builder has generally been banned from the site at this stage  and cannot get a credible counter report done by his own consultant. This gives the owner an unfair advantage, because these so-called expert reports carry a lot of weight with the adjudicators.

In the adjudication, there is usually no requirement to provide evidence under oath, so both parties can say what they like provided it isn’t contradicted by written evidence in the other party’s possession.

Although adjudicators have extensive powers to request documents, appoint an expert adviser, call the parties together, conduct a site inspection, make requests and issue directions, they generally don’t do so. So usually the Adjudicator doesn’t see the site or meet the parties and therefore has limited opportunity to assess who is telling the truth and who is not.

What I would like to see in all residential adjudications is for one, neutral, jointly-appointed (and jointly-paid-for) building consultant to resolve any disputes concerning defective workmanship or materials.

That expert would conduct a site visit, consult both parties, and then write a report which would be final and binding.

The report would identify what work and materials are defective, what are merely unfinished, and what are fully compliant with the plans and specification and the Building Code.

That at least would make residential CCA adjudication determinations a lot less of a lottery than they are now.

 

Geoff Hardy has 44 years’ experience as a commercial lawyer and is a partner in the Auckland firm Martelli McKegg. He guarantees personal attention to new clients at competitive rates. His phone number is (09) 379 0700, fax (09) 309 4112, and e-mail geoff@martellimckegg.co.nz. This article is not intended to be relied upon as legal advice.

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