Much of the criticism of adjudication, here and overseas, has been the quality of determinations, and those who deliver them being poorly selected. Much of that criticism is probably justified.
When the possibility of adjudication is raised, there is often a sharp intake of breath from counsel, followed by a nervous look. Their past experience has been variable, with surprising decisions by adjudicators, and there is a sense of a lack of control. Perhaps this also reflects the focus on “speedy” rather than “resolution”, with claimants taking advantage of the ability to get an adjudicator appointed, and the process underway, with no input from the respondent. Gaming the system, in other words.
The biggest advantage of private dispute resolution over civil litigation in court is party autonomy; in the context of adjudication, the freedom to select your decision maker. It is the most important decision to make in adjudication. The criticism of adjudication reflects a lack of focus on the proposed adjudicator more than anything else.
It is baffling that claimants and their lawyers surrender the most important decision they have to make, selecting their adjudicator, to a third party nominating authority with little knowledge of the details of the dispute and an at best opaque process for selecting and appointing their adjudicator.
In this instalment, I set out the options for securing the appointment of an adjudicator.
The Act provides for adjudicator eligibility (section 34), however no minimum qualifications have ever been prescribed.
· be appointed by an authorised nominating authority, AND
· have the prescribed qualifications and experience
No person who is a party to a construction contract may act as an adjudicator in respect of that contract, and similarly must not act if there is a conflict of interest (section 34).
In all other respects, as with arbitration, the parties are free to agree any person to adjudicate their dispute. This gives the parties considerable latitude to agree on the person with the best technical, legal or other construction expertise to determine the dispute.
This is not a freedom to be relinquished lightly.
Appointment by agreement
The pool of experienced adjudicators is relatively small, and most practitioners expert in construction disputes will be aware of the relative strengths of each of them. Without doubt, the best approach is for counsel to engage, either in person or, in these covid constrained times, on the phone, and discuss the options for appointment.
This has two distinct advantages – (1) it ensures that the dispute is determined by a person with acknowledged and relevant expertise; and (2) it increases the potential for a durable determination of the dispute. In the context that an adjudicator’s determination may be binding, but is not final, it is hard to see any disadvantage to either party ensuring that the best adjudicator possible is appointed.
In determining potential candidates for adjudication, it is permissible to contact them directly to ascertain their availability, any potential conflicts of interest and whether or not the candidate possesses the necessary experience and expertise. That, of course, must not go so far as to discuss the particular matters in dispute.
Once an adjudicator has been agreed, then the adjudicator must confirm, on a continuing basis, that he or she has no conflicts of interest (section 34), and would normally confirm that he or she has the requisite expertise and is available.
Assessing conflicts of interest can be a difficult and lonely exercise. The first, and obvious issues are:
· is the person a party to the construction contract
· is one of the parties a client or recent former client
· does the person have an interest in the outcome, over and above determining the dispute put before them
· is there any other reason for the perception that the person might not be independent and impartial in determining the dispute
While most potential appointees may fully understand whether or not they have an actual conflict of interest, determining perceived conflicts can be more problematic. Perceived conflicts may fall into categories such as repeat appointments, or close relationships (especially with financial gain) with one of the party’s legal advisors. Joint membership of organisations, or barristers’ chambers, generally will not trigger a conflict of interest.
Some conflicts can be waived by agreement (section 35(3)), but as a general rule any potential, perceived conflict of interest should be disclosed. This can, of course, be difficult to ascertain from the information provided at the first approach.
The adjudicator must, within 2 working days of being approached, indicate his or her ability and willingness to act (section 35(1)).
Once agreed, and conflicts checked and confirmed, the adjudicator will typically provide their standard terms of appointment, which will include provision for payment, and security for that payment. In practical terms, most adjudicators will accept an undertaking from the parties’ lawyers to pay their costs on production of invoices, without deduction. In practical terms, for most lawyers, they will require their clients to deposit funds into their trust accounts to cover such undertakings.
On appointment, the adjudicator must serve a notice of acceptance (section 35(2)). This can, in practice, be some time after the adjudicator is agreed, for example while security for the adjudicator’s fees are finalised. The notice of acceptance must be in Form 2A, set out in Schedule 1 to the Construction Contracts Regulations 2003 (section 35A).
Appointment by an authorised nominating authority
In the alternative, the adjudicator can be appointed by an authorised nominating authority (section 33(1)(d)). The time within which such an application can be made is no earlier than 2 working days, and no later than 5 working days, after service of the notice of adjudication.
Currently, there are five authorised nominating authorities in New Zealand:
Each has different panel membership, and different nominating criteria, largely depending on the ownership structure of each organisation.
Most authorised nominating authorities have a standard application form for the appointment of adjudicators, providing for:
· the names and contact details of the parties
· details of legal advisors, if any
· date and description of the construction contract
· brief description of the dispute
· summary of the relief sought
· a copy of the notice of adjudication
· whether or not a charging order is sought
· any preference for the adjudicator
The nominating authority, whether through a registrar, chief executive or appointments officer, will then nominate a person to be appointed.
The appointment process itself can be somewhat opaque, with the nominating authority having the sole authority to make the appointment. The sole recourse, if the claimant is unhappy with the appointment, is to either not proceed with the adjudication, by not lodging a claim, or to withdraw the claim (section 39); neither of which is ideal.
In cases where the adjudicator must be nominated by an authorised nominating authority (where a charging order is sought), it remains open to the party seeking a nomination to identify the adjudicator agreed by the parties. There would be no reason for a nominating authority to refuse such an appointment, when another nominating authority would most likely accede to the parties’ preference.
If the adjudicator’s determination is to be durable, and to have the best chance of acceptance by both parties (which has to be an ideal), then there is considerable advantage to defining and limiting the dispute, as discussed in the second instalment of this series, and selecting an adjudicator with the expertise, experience and time to determine the dispute.
It is a needless waste of the parties’ power to select their adjudicator, to simply proceed directly to an authorised nominating authority. That option remains open if a suitable adjudicator cannot be determined, and no candidate for appointment is disqualified from appointment if that person has not been agreed by the other party.
There has been a tendency, particularly in the early days of adjudication, for the claimant to “steal a march” on the respondent by preparing the claim, witness statements and notice of adjudication in advance; serve the notice and apply to a nominating authority for the appointment of an adjudicator on the same day; and to then serve the claim documents immediately on the appointment of an adjudicator. This can, of course, be achieved without any involvement of the respondent.
The net effect of such an approach is that a respondent can be deluged with documentation (notice of adjudication, notice of acceptance of appointment and claim, and related documentation) within 3 working days, truncating the standard period in the Act from what could reasonably have been 11 working days.
While there may be transitory advantages in ambushing a respondent in this way, it will generally be short lived. While there is no possibility of extending the 5 working day time period for submission of the claim (section 36), other than by agreement, the time allowed for the respondent to consider and respond can, and typically will be, extended by the adjudicator (section 37). Furthermore, if a respondent feels that the adjudicator has been poorly appointed, come to an unacceptable conclusion, or it has been ambushed by the misuse of the procedure, it can always proceed to have the dispute reconsidered either in arbitration or in court. That option is always available.
Adjudication is expressly provided for the “speedy resolution of disputes”; not for gaming short term advantage through procedural gain. To make the most of adjudication, and to increase the likelihood of actual resolution, experience to date has shown that properly defining and limiting the issues in dispute and appointing the most appropriate adjudicator by agreement is the best option.
Next week I will cover drafting the claim, response and related documentation.