By Richard Pidgeon
In the Invercargill High Court, in Northlake Investments Limited v Civil Construction Limited [2023] NZHC 2715, a developer and contractor battled in substantive proceedings following an adjudication under the Construction Contracts Act 2002 (the Act). The key issue was whether an adjudicator’s determination on a disputed payment claim was not binding because the contractor had not complied with the contractual procedures for referral to adjudication, or whether the Act overrode those contractual procedures.
Background
The contracts
Northlake Investments Limited (Northlake) contracted with Civil Construction Limited (Civil) to undertake earthworks for its Wānaka development. Two contracts were in question. Both contracts included New Zealand Standard Conditions of Contract for Building and Civil Engineering Construction (NZS 3910:2013).
Payment claims under the contracts
NZS 3910:2013 sets out a process for the making of progress payments to a contractor during the course of building work. The process is based on a system of payment claims and payment schedules and is an adaptation of the payment regime contained in the Act.
Under the contracts, Civil could submit payment claims for work each month. The engineer would issue a provisional payment schedule which Northlake could notify to the engineer as to amendments or deductions. If there were no notifications the provisional payment schedule would become final.
Clause 13 of NZS 3910:2013 deals with dispute resolution. The major relevant part is:
13.1.1
No decision, valuation, or certificate of the Engineer shall be questioned or challenged more than 3 Months after it has been given or more than 1 Month after the date on which any relevant Adjudicator’s Determination is given to the parties, whichever is the later, unless notice has been given to the Engineer within that time. Every decision, valuation, or certificate of the Engineer shall be final and binding if neither party has referred it to the Engineer under 13.2.1 or to Adjudication within 3 Months after it has been given, unless notice has been given to the Engineer within that time. This subclause 13.1.1 shall not apply to a Progress Payment Schedule.
The disputed payment claims
The engineer under both the contracts disallowed two of Civil’s payment claims. The two payment claims involved were the Covid Claim and the Stage 12 Claim.
The Covid Claim arose when works were suspended in 2020 due to the New Zealand-wide COVID-19 lockdown. The Stage 12 Claim was for Civil’s preparatory work, after the engineer advised Civil that a section of the Wānaka development would not be proceeding.
The adjudication
Civil referred the matter to adjudication under the Act. Northlake participated, with representation.
The adjudicator determined the matter in Civil’s favour. At adjudication the Covid Claim amounted to $471,267 (plus GST). The adjudicator determined the Stage 12 Claim to be $17,718 (plus GST) with interest of $3,284. Northlake paid $591,040 without prejudice to its rights.
High Court proceedings
Northlake then instituted the High Court proceedings to recover the sum paid through summary judgment. Civil responded with a defendant’s summary judgment and strike-out application.
- Northlake’s argument
Northlake’s case was that Civil had failed to challenge the engineer’s decisions on the payment claims by referring the disputes to the engineer or to adjudication within the 3 month timeframe set out under the contracts. The decisions of the engineer were therefore final and binding and beyond challenge, and the adjudicator’s determination was of no effect.
- Civil’s argument
Civil argued that the engineer’s decisions never became final and binding because Civil was never required to dispute them (and it did dispute them, in any event). It was entitled to go to adjudication, and Northlake had lost the right to recover the sums by virtue of the terms of the contract.
Civil maintained Northlake’s arguments amounted to an attempt to contract out of the Act, which was expressly prohibited by section 12 of the Act.
Neither party’s summary judgment applications worked, but Northlake’s substantive claim for ‘money had and received’ was struck out with time given for Northlake to amend its underlying claim.
The High Court’s decision
Was the adjudicator’s determination binding?
Associate Judge Paulsen focused on whether, notwithstanding the engineer’s decisions disallowing the claims, Civil was entitled to go to adjudication under the Act.
The five issues the Judge determined were:
- Was Civil required to dispute the engineer’s decisions under the dispute resolution procedures of NZS 3910:2013?
The Judge found Civil did not have to do this. The basis of his finding was different for each of the Stage 12 and Covid Claims:
- For the Stage 12 Claim the engineer failed to issue a payment schedule. The engineer anticipated Civil would invoice Northlake directly for the sum. Northlake became liable under sections 22 and 23 of the Act and could not contract out.
- The Covid Claim was dealt with in an orthodox fashion; namely, the claim was issued then the engineer responded with a provisional payment schedule disallowing the claim. Civil referred the dispute arising from the payment schedule disallowing its payment claim to adjudication. This reflected Northlake’s own submissions on the point.[1]
- If Civil was required to dispute the engineer’s decisions, did it do so in the manner required?
A matter of interpretation arose regarding clause 13 of NZS 3910:2013. The Judge stated: I am not satisfied that I am in a position to finally determine the interpretation issue that arises because there is relevant material I do not have before me.[2]
The Judge was faced with two plausible competing interpretations of clause 13.1.1, but:[3]
That all said, and despite Mr Cash’s very able submissions, I am not attracted to Civil’s position on this issue. To my mind, the intention of cl 13.1.1 is that an engineer’s decision, valuation or certificate shall become binding after three months unless it has been referred to the engineer for review under cl 13.2.1 or to adjudication. The second sentence of cl 13.1.1 appears to have been added to ensure that, once raised, disputes are promptly resolved and to set time limits within which that is to occur. Importantly, and consistent with this, upon the raising of a dispute either party has the right to make a referral to the engineer or to adjudication. I do not believe that it was intended that a party can give notice of a dispute within three months of an engineer’s decision and then do nothing at all to advance it to a resolution.
The Court’s position on this matter lent weight to enable Northlake time to amend its pleadings and for Civil’s applications to be only partially successful.
- Was the adjudicator’s determination binding?
The Judge was satisfied the adjudicator’s determination was binding on both parties.
Northlake had argued that an interim adjudication was subordinate to the parties’ final and binding agreement via the engineer. But the Judge found this position offended section 12 of the Act and rendered Civil’s rights at adjudication illusory. The crux of his reasoning was that the Act provides a framework which cannot be contracted out of:[4]
…the clear legislative intention is that parties to construction contracts have the right to refer disputes or differences for speedy resolution by way of adjudication, which will be binding and enforceable subject only to later substantive and final determination of the dispute by way of some other dispute resolution procedure.
The Judge also disagreed with Northlake’s alternative argument that as Civil had not disputed the engineer’s decisions disallowing the payment claim within the contractually provided time, the statutory process must yield. The Judge held that the absence of a substantive decision raised a fundamental obstacle to Northlake’s claim as presently framed.[5]
- Did Northlake have a claim for ‘money had and received’?
Northlake sought this restitutionary remedy on the basis Civil was unjustly enriched. The problem the Judge found with this argument was that unjust enrichment is not a cause of action in its own right.[6] Further, the Judge disagreed with the underlying premise that the engineer’s decisions were final and binding and the adjudicator’s determination was of no effect. In Northlake’s favour, the Judge noted:[7]
The position might well be different if Northlake had the disputes that were determined by the adjudicator on an interim basis substantively and finally determined in its favour in other proceedings, but it has not yet taken that course.
- Can the adjudicator’s determination now be challenged by Northlake?
Civil maintained that until a court or tribunal ruled substantively against the adjudicator’s determination, this was enough to found a defendant’s summary judgment or strike-out. This focused on the money had and received cause of action – and succeeded on strike-out. The Judge ruled this was on the basis Northlake could amend its claim, and should have time to do so.
Conclusion
Through adjudications, the Act provides for an expedient means to keep cashflow moving. Contractual arrangements may not contravene section 12 of the Act which prohibits contracting out.
The central premise of the cause of action in money had and received is not recognised in New Zealand. It will not be granted in summary judgment proceedings, and not at all.
The Judge recognised some merit in Northlake’s overall substantive claim. Northlake has the opportunity to repair its statement of claim and pursue the substantive proceeding.
[1] Northlake Investments Limited v Civil Construction Limited [2023] NZHC 2715 at [45].
[2] Above n 1, at [64].
[3] Above n 1, at [66].
[4] Above n 1, at [82].
[5] Above n 1, at [94].
[6] Above n 1, at [98]–[101], citing Martin v Pont [1993] 3 NZLR 25 at [30]; and Sean McAnally “Money had and received: We’re sorry, will you have us back?” (2023) NZLJ 258.
[7] Above n 1, at [102].