Construction dispute fast-track a potential trap for design professionals
/The Construction Contracts Act 2002 (CCA) was meant to ensure money was paid, quickly and efficiently, to parties to a construction contract. But, because of recent amendment, it now represents a potential trap for design professionals to fall into.
The dispute resolution regime
The dispute resolution regime under the CCA is an adjudication process and is aimed at resolving the dispute within a short timeframe. The parties may seek adjudication determinations in relation to both payment disputes and any dispute in relation to their “rights and obligations” under the contract.
The regime follows a tight timeframe:
First, one party serves a “notice of adjudication” on the other party which outlines the matters in dispute.
An adjudicator is appointed within 2-5 working days.
The claimant then has 5 working days to serve an “adjudication claim” specifying the grounds of the dispute. This may be accompanied by any other supporting documents.
The respondent then has 5 working days to provide a response, including any other evidence and supporting documents. An extension may only be granted by agreement between the parties or if the adjudicator allows it.
If the claimant wishes to reply to the response, it must do so within 5 working days.
The adjudicator may permit the respondent to file and serve a rejoinder to the reply within 2 working days.
Neither party may file any further documentation after the time has lapsed, unless otherwise requested by the adjudicator.
The adjudicator must issue its determination within 20 working days of the due date of the respondent’s first response (see point 4). The adjudicator may extend this to 30 working days if it considers that further time is reasonably required, or the timeframe may be extended by agreement.
Expansion of the regime
From 1 September 2016, the regime was expanded to cover disputes arising from design, engineering, and quantity surveying work. This means that adjudication can now be sought to determine questions regarding a professional’s exercise of due care and skill, or whether he/she has breached any other terms under the contract.
These claims are often more complicated than a standard payment dispute or claim for defective workmanship as they can involve complex factual scenarios, the involvement of expert witnesses, and legal analysis of the express and implied contract terms. Further, disputes against professionals will involve professional indemnity insurance, which will complicate providing a response as it can pose issues with seeking instructions within tight timeframes.
Comment (Rachel Anderson, Senior Associate)
The CCA gives the claimant an unfair advantage against a design professional. Examples of where the regime places the power in the claimant’s hands include:
The claimant may prepare their entire claim before serving their notice of adjudication, including obtaining expert evidence and complex legal advice. Upon notification, the respondent is essentially forced to ‘drop everything’ and prepare a substantiated response to the claim within an extremely tight timeframe.
While the CCA gives the option for the parties to agree on an adjudicator, there is no express obligation on the claimant to do so. Upon serving their notice of adjudication, the claimant may immediately request the nominating body to appoint an adjudicator.
The claimant can further reduce the timeframes by serving their claim as soon as the notice of appointment is served. This effectively could provide the respondent with a maximum time of around 8 days from notification to being required to file a full response. Although the notice of adjudication must include every issue in dispute (additional disputes cannot be added at a later stage and may not be considered by the adjudicator), these notices often provide only a bare outline of the claim. The respondent may not fully understand the claim, making it more difficult to prepare a proper response before the adjudication claim is served.
The timeframes for both parties are strict, but these affect the respondent more than the claimant. If the claimant fails to serve a compliant notice of adjudication, their notice will have no effect and they may simply serve a new notice of adjudication and start the process again. However, if the respondent fails to provide a response before the 5-day deadline, the adjudicator is required to issue a determination regardless. This raises serious natural justice issues.
Finally, the respondent may be liable for costs that are both unknown and significant. Not only must the respondent pay for his/her own defence costs but the parties are jointly and severally liable to pay the adjudicator’s fees and expenses. In practice, parties are often expected to each provide a 50% contribution as security at the commencement of the process (though this is not mandatory). There are only limited circumstances where a respondent may dispute his/her liability to pay the adjudicator’s costs. Likewise, even if a party is successful, the default position is that defence costs lie where they fall. An adjudicator may only determine that costs are met by the other party where there has been bad faith on the part of the other party, or that the allegations raised or objections made by that other party were without substantial merit.
It is clear that the process favours claimants over respondents and that as a result of the tight timeframes and conditions within the CCA regarding costs, the defence costs for professionals that are drawn into an adjudication process can be considerable.
Rachel Anderson, Senior Associate
