Engineer

Dispute Resolution of Construction Disputes

On Monday, 13 November 2017, AMINZ ran a one day seminar on resolving disputes in the construction industry.

The day was chaired by Derek Firth, and presentations were made by Stuart Robertson, from Kensington Swan in Auckland, on the role of the Engineer; Janine Stewart, from Minster Ellison Rudd Watts in Auckland, on adjudication under the Construction Contracts Act 2002; Michael Weatherall, from Simpson Grierson in Auckland, on the use of disputes boards; and I rounded out the day on the use of arbitration.

The panel discussion discussed each process and issues arising from all perspectives, including acting for owners, acting for contractors and acting as adjudicator/arbitrator, and provided valuable information on the topic.  The papers will be loaded on the AMINZ website shortly.  In the interim, my paper is attached:

Arbitration of Construction Disputes

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Bonds Revisited

Two recent cases in the High Court, Richina Pacific v AAI (formerly Vero Insurance) & Samson [2017] NZHC 1686 and Custom Street Hotel v Plus Construction [2016] NZHC 3049 shine the light on the use of bonds in New Zealand.

The first, Richina v Vero, concerned a development in Parnell.  The work had been practically complete, apart from a car stacker (which was being problematic), when Mainzeal Property and Construction went into receivership.  The project manager issued a practical completion certificate on the basis that the car stacker was outstanding work, and the property owner, Samson, made demand under the bond.  There were two difficulties with the demand – first, that the bond was (yet again) unclear as to whether or not it was on-demand or conditional; and the second, whether or not the bond had been released by the issue of the practical completion certificate.

The High Court held that the bond was clearly not on-demand and, in more difficult to follow reasoning, that as the contract did not provide for sectional completion, the practical completion certificate had not, in fact, been issued.

A clear lesson can be learned from the case is that if a bond is to be on-demand, then it must clearly be stated as such.  Interestingly, Justice Hinton accepted the UK position, outlined in IIG Capital LLC v Van Der Merwe [2008] EWCA Civ 542 and in Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd [2010] EWHC 2443 (Ch), that a bond will be presumed to be conditional, unless there is clear wording to the contrary.

In the second case, Custom Street Hotel  v Plus Construction, Plus had procured a bond in favour of Custom Street Hotel clearly in on-demand form; payment was expressly to be made “on demand without proof or condition.”  However due to the substantial amount secured by the bond (25% of the contract price), any such demand had to be accompanied by a certificate from the Engineer that the contractor was in default and the amount claimed properly due under the contract.  In the ordinary course, following the decision of Justice Ramsay in AES-3C Martiza East EOOD v Credit Agricole Corporate and Investment Bank [2011] EWHC 123 (TCC) and the seminal decision of Lord Denning MR in Edward Owen v Barclay’s Bank [1978] QB 159 (CA), if a demand appears to be correct on its face, under an on-demand bond the amount demanded must be paid up without further investigation.

The position in the Custom Street Hotel case, however was significantly different in that Plus Construction did not try to prevent the bond issuer, ANZ, from paying on the demand; it injuncted the Engineer from issuing his certificate and Custom Street Hotel from making demand, following the approach taken in Simon Carves v Ensus [2011] EWHC 657 (TCC).  The injunctive proceedings were settled in favour of arbitration, at which Plus Construction prevailed.  Custom Street Hotel appealed to the High Court (with leave), and Justice Gilbert concurred with the arbitrator that there was no basis for demand under the bond.  The matter was heard by the Court of Appeal (Kós P with Harrison & Clifford JJ) in October, and its decision is awaited with interest.

Attached is a paper delivered to the New Zealand Institute of Quantity Surveyors in Wellington and Auckland in September of this year.

Bonds (NZIQS)

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Related Services under the Construction Contracts Act 2002

The definition of construction work under section 6 of the Construction Contracts Act 2002 has, with effect from 1 September 2016, been extended to include related services, which are defined in the new subsection (1A) as including:

(1A)   construction work includes –

(a)    design or engineering work carried out in New Zealand in respect of work of the kind referred to in subsection (1)(a) to (d) and (f):

(b)    quantity surveying work carried out in New Zealand in respect of work of the kind referred to in subsection (1)(a) to (g)

For architects, engineers and quantity surveyors, the protections for progress payments under the Act now apply.  Similarly, the provisions relating to adjudicating disputes under their appointment agreements also apply.

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Judge orders mediation over wastewater plant dispute

After years of odour and insect problems with the Whanganui District Council’s wastewater treatment plant at Airport Road, the District Council has finally taken the step to sue the facility’s designers MWH Global.  The estimated cost of replacing the plant is reported to be $38 million, which is a significant burden for the people of Whanganui, and a potentially significant liability for MWH Global.

The relationships and responsibilities of contractors and consultants in infrastructure development can be complex, and liability for design and performance failures hard to pin; hence the truism that it is never a good idea to sue your consultants.  In a triumph of pragmatism over the thorny issues of liability in negligence, Justice Denis Clifford has ordered the parties to mediation.

If ever there was a case of a sensible suggestion, this must surely be it.  We can only hope for the sake of the people of Whanganui that both parties recognise the opportunity for what it is, and reach a realistic agreement to resolve the issue.

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Securing Positive Project Outcomes using NEC3

The NEC3 suite of contracts is growing in use in New Zealand.  The contracts were used with apparent success for the development of the stadium and other facilities for the London Olympics in 2012, and it is the preferred form of contract by the Office of Government Commerce for all public private partnerships in the UK.

In NZ, the engineering and construction contract was used for the development of the Northland Events Centre for the Rugby World Cup in 2011.  At $16.5 million, the development was more modest that some others, but it was on time, within budget, and effective.

This paper was prepared for the NEC Users’ Group Australasia conference in Christchurch on 27 August 2013.

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Time is up for the independent role of the Engineer?

Since the time of Thomas Telford and Isambard Kingdom Brunel (both Fellows of the Royal Society), and latterly the engineers from NASA who opened up space exploration, engineers have earned a place on a pedestal in public opinion.  It is hardly surprising, therefore, that they enjoy considerable professional esteem.

It is this esteem, and their undoubted professional skills, which resulted in the development of the special role of the Engineer in civil contracting.  The ambitious civil engineering and infrastructure development for which both Telford (roads, bridges and aqueducts) and Brunel (his railway bridges, tunnels and SS Great Britain) were justifiably famous carried with them significant risks – technological and financial risks, and inevitably the disputes which flowed from each of them.

Technological risks were matters for which engineers could provide design solutions. Financial risks needed to be balanced between the parties.  Disputes were another issue altogether. Ultimately, the challenge was to maintain the momentum of the project, while giving a workable decision on disputes until the whole substantive issue could be dealt with in court, or later in arbitration.

This paper was prepared for an AMINZ breakfast on 11 May 2010, then it grew a bit.

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