Barrister Polly Pope discusses options to consider where construction adjudication goes wrong, including dealing with solvency concerns, overturning the decision, and legal options to resist enforcement.
Adjudication under the Construction Contracts Act 2002 provides a mechanism by which entitlements to payment of disputed amounts under construction contracts can be determined and enforced promptly.
Typically, determinations are payable within just two working days of the determination being provided to the parties. The successful party has a suite of tools at its disposal to enforce the determination, including registering the determination as a judgment, suspending work, and issuing a statutory demand.
Adjudication is therefore binding, but it is not necessarily final: A losing party has the right to start again, and take the dispute to court or (if there is an arbitration clause) arbitration for a full hearing. But in the meantime a losing party is required to make payment, so will need to very quickly get to grips with its obligations and its options.
Preparing for the worst
Where a party is facing a significant monetary claim in an adjudication, planning for what would happen if the adjudication is lost should begin as early as possible:
- Realistic advice from counsel identifying the risks of losing the adjudication is required.
- If the claim raises a substantial risk of serious loss to creditors, or gives rise to doubt as to whether obligations incurred will be able to be honoured, directors must squarely address the future of the company. Directors will need to consider (amongst other things) whether funding is available, whether and how the company can responsibly continue trading, and whether there are formal restructuring or insolvency processes that should be followed.
Overturning the decision
Where a party wishes to challenge a determination, the primary means is starting arbitration or (if there is no arbitration clause in the construction contract) High Court proceedings to consider the dispute afresh.
Doing this alone does not mean that the party is excused from paying the amount ordered under the adjudication in the meantime. It can however still be an important part of seeking to resist enforcement where there are grounds to do.
Resisting enforcement
It is unusual, but not impossible, to have the facts to mount a successful legal challenge from needing to “pay now”. Shundi Customs Limited v Green [2024] NZHC 3345 illustrates that a potential means to prevent enforcement is to commence judicial review proceedings and seek an interim order excusing payment. To obtain an order, a payer would need to show there is a serious question to be tried in the underlying challenge to the decision, and that they would suffer irretrievable prejudice if the payment of the adjudication is enforced. The court would also have regard to any prejudice that the payee would suffer if they do not receive payment.
Notably, voluntary administration under the Companies Act 1993 can provide breathing space to a company, in the form of a statutory moratorium against enforcement. With sufficient creditor support, it may be possible to achieve a restructuring that allows for the company’s position to be held whilst the underlying dispute is resolved in arbitration. Specialist legal and restructuring advice is required to achieve such an outcome.
Polly acts for parties in construction, insolvency, financial, and commercial disputes in the courts, arbitration and adjudication. She is an experienced commercial arbitrator and construction adjudicator. For specialist advice on these issues, get in touch with Polly.
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