27 BuildLaw | Jun 2017
The Court was also called upon to decide whether the transfer of an apartment was an insolvent transaction. In the circumstances, it decided it was not.
Our comments
While it remains to be seen whether the liquidators will appeal, this decision will come as a relief to many involved in the construction sector. Builders can take confidence that payments made under a direct agreement like the one in this case will not be clawed back from them by liquidators.
References:
[1] Sanson v Ebert Construction Limited [2015] NZHC 2402.
[2] Ebert Construction Limited v Sanson & Anor [2017] NZCA 239.
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Payments made under direct agreement not voidable...
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Decision
O'Farrell J noted that the 1996 act and the scheme do not impose any restrictions on the referring party's entitlement to withdraw unilaterally a claim referred to adjudication or to commence a further adjudication in respect of the same, or substantially the same, dispute. The adjudicator in the first adjudication did not reach a decision and therefore the adjudicator in the second adjudication would have jurisdiction to determine the dispute referred.
O'Farrell J went on to confirm that the court has the power to grant an injunction to restrain the second adjudication 'if it is established that it is unreasonable and oppressive'. Such power, O'Farrell J stated, will be exercised where the adjudicator does not have jurisdiction (such as where the dispute has already been decided in an earlier adjudication), where the referring party has failed to comply with the adjudication agreement (such as failures to pay awards or costs from earlier adjudications), or where the further adjudication is vexatious (such as serial adjudications in respect of the same claim).
On the facts it was clear that Skanska's withdrawal of the claim was unreasonable. The unavailability of counsel was, according to the judge, 'rarely a good excuse for failing to meet an agreed timetable, especially where the party in default is the referring party who controls the timing and scope of the reference'. However, O'Farrell J explained that 'unreasonable behaviour by one party will not automatically deprive it of the right to adjudicate the dispute in question in a subsequent reference. The court will not intervene unless the further reference is both unreasonable and oppressive'. On the facts of the present case, the substance of the claims remained the same and therefore Jacobs was entitled to rely in large part on its prepared response. Although there was new material, including new quantum expert evidence, the inconvenience and additional costs suffered by Jacobs as a result of the second adjudication was not, according to O'Farrell J, so severe or exceptional so as to warrant intervention by the courts by way of injunctive relief.
O'Farrell J also held that Jacobs was entitled to any wasted or additional costs caused by Skanska's failure to comply with the agreement regarding the timeframes and procedure of the adjudication. It was common ground that, in the absence of agreement giving the adjudicator jurisdiction to award costs, a party's costs of adjudication proceedings are not recoverable. However, O'Farrell J argued that in this case, the parties entered into an ad hoe agreement under which the procedure and timetable to resolve the referred dispute in the first adjudication were agreed and fixed. That went beyond mere agreement as to the timetable to be directed by the adjudicator in respect of an existing contractual or statutory adjudication and imposed new enforceable obligations on the parties. Further, Skanska's failure to serve its reply or continue with the first adjudication constituted a breach of the ad hoc agreement, entitling Jacob to some (but not all) of its wasted or additional costs as damages.
O'Farrell J argued in the alternative regarding the wasted costs order by referring to the existence of an implied term in the ad hoe agreement which provided:'... if one party changed its mind and decided to ignore the agreement, it would pay the wasted costs of the other party. Such a term was both reasonable and necessary. They were commercial parties with the benefit of legal representation and they were aware of the substantial resources and funds required to participate in an adjudication of this nature. If each party had been asked whether they would expect the other party to pay any wasted costs in such circumstances, they would have replied "of course". Although the ad hoe agreement did not prohibit Skanska from withdrawing part or all of its claim, and starting a fresh adjudication in respect of the same or substantially the same claim, it did impose responsibility on Skanska for the costs wasted or incurred by its failure to adhere to the agreed procedure and timetable.'
Jacobs reaffirms the basic principle that the adjudication scheme does not impose restrictions on a referring party's entitlement to unilaterally withdraw from one adjudication and to refer the same matter to a subsequent adjudication. Further, the case makes clear that the courts will only intervene and grant an injunction against the referring party refraining it from commencing a subsequent adjudication in circumstances where the high threshold of 'unreasonable and oppressive conduct' can be demonstrated. Finally, Jacobs sends out a clear warning that the courts will not hesitate to penalise a party by way of a wasted costs order where that party has failed to discharge its agreed procedural obligations in the adjudication scheme.
31 BuildLaw | Dec 2017
"...the courts will only intervene and grant an injunction against the referring party refraining it from commencing a subsequent adjudication in circumstances where the high threshold of 'unreasonable and oppressive conduct' can be demonstrated."