The recent Auckland High Court decision of Braysse & Maren Tayler v Christoper Lahatte and Northspan Construction Ltd (CIV-2007-404-6843) illustrates the importance of adjudicators adhering to the duties and obligations prescribed for them in the Construction Contracts Act (CCA) when determining claims under the Act.
In this instance, Justice Stevens had to consider, under judicial review, whether the adjudicator breached his prescribed duties and obligations when determining the original dispute between Mr Tayler and Northspan.
The dispute under the CCA stemmed from a building contract entered into by Mr Tayler and Northspan in May 2006. Northspan was contracted to construct a farm shed on Mr Tayler’s property.
Not long after Northspan began construction of the shed, Mr Tayler noted various defects in the building work. However, Northspan proceeded to render four invoices to Mr Tayler in respect of the work it said it had already completed.
These four invoices went unpaid due to the alleged defects and, in May 2007, Mr Tayler sought to cancel the contract with Northspan through his solicitor. This action was disputed, and a request for an adjudication was lodged by Northspan under s 35 of the CCA.
From the outset there was a huge discrepancy between the parties as to how much money would be required to remedy the defects and complete the work contracted for. Mr Tayler submitted a figure of $65,000 whereas Northspan suggested that a mere $4500 would be sufficient.
The first respondent in this matter was the appointed adjudicator.
The adjudicator, Mr Lahatte, analysed the circumstances regarding the formation of the contract, and the work carried out by Northspan. Although the parties had initially agreed to appoint an engineer in order to get an independent expert’s report, Northspan later reneged on this agreement.
Mr Lahatte, despite saying “I cannot hold myself out as an expert on construction or quality issues”, held that it was unnecessary to appoint an expert, and conducted his own site visit to the shed.
After carrying out this visit, he concluded he would proceed towards a determination on the basis that he would give whatever weight he considered appropriate to the respective estimates given by the parties.
The adjudicator determined that only a minor amount of work was required to reach the completion of the contract, despite the claimant’s evidence, and an engineer’s report submitted by the claimant in support, showing the contrary.
He further determined that Mr Tayler’s “estimate of the building frame and the roof at $40,000 must be a considerable exaggeration.”
In finding in favour of Northspan, the adjudicator determined that Mr Tayler was liable to pay Northspan three of the four invoices issued to him, plus GST and interest — a total sum of $34,536.46.
The adjudicator further directed that a charging order be issued in Northspan’s favour over Mr Tayler’s property for that amount. Mr Lahatte determined that “clearly the shed is not completed, but if the respondents do not have to pay the final payment, this should leave ample to complete the shed”. That final payment was worth $8000.
Before the adjudicator’s determination could be enforced by Northspan, Mr Tayler applied for a judicial review. Justice Stevens opined that, provided an applicant can demonstrate to the court that it should intervene on the basis of “a breach of natural justice or fairness, procedural errors or other errors usually associated with administrative review”, then judicial review may be appropriate.
Justice Stevens looked first at the statutory provisions that apply to adjudicators. In particular, under s 41 of the CCA, the mandatory duties of an adjudicator are that they must act independently, impartially, in a timely manner, avoid incurring unnecessary expense, comply with the principles of natural justice and disclose any conflict of interest to the parties of an adjudication.
Whilst carrying out these duties, by s 45 an adjudicator must only consider the provisions of the CCA, the provisions of the construction contract to which the dispute relates, the adjudication claim, submissions and responses, any expert reports, the results of any inspection carried out by the adjudicator and any other matters considered to be relevant.
Applying these provisions, the judge determined that the adjudicator had breached the principles of natural justice or fairness in making his decision. In particular, with such a discrepancy in evidence existing between Mr Tayler and Northspan, it would have been eminently suitable for the adjudicator to have instructed an expert as is contemplated in the CCA.
Not only had the adjudicator carried out the site visit himself after stating he was not an expert on quality or construction issues, he also ignored the affidavit evidence of an engineer engaged by Mr Tayler.
The engineer’s evidence was that “I would state for the record that this is the worst construction of this type of building that I have seen in my 25 years’ consulting . . . The building currently is not in a serviceable state nor will it perform adequately under high seismic or wind loadings. The building, furthermore, fails to meet the requirements in terms of weathertightness durability as required . . .”
By the adjudicator failing to appoint an expert himself or to instruct the parties to appoint an independent expert, Justice Stevens cast considerable doubt on the adjudicator’s assessment of the evidence.
Had an expert been engaged, then it would have established that the repair costs were, in fact, well in excess of the $8000 allowed by the adjudicator in his determination. The adjudicator’s lay assessment that $8000 would be sufficient to allow the defects to be repaired was a breach of natural justice to Mr Tayler, and it led the adjudicator into procedural and other errors.
Finding in favour of Mr Tayler, Justice Stevens set aside Mr Lahatte’s determination.
This decision shows that there will be times that an adjudicator’s decision falls so far outside the scope of the Act that it warrants the intervention of the court. It certainly shows that adjudicators are not infallible, and a judicial review of their determination will be appropriate where they have breached the principles of natural justice or fairness in adjudicating disputes.