Many mediators believe that the most serious challenge facing commercial mediation is poor public and professional awareness of the mediation process. This is a major obstacle to the potential users of mediation attempting to resolve commercial disputes using the mediation process.
Financial and time constraints are also commonly identified as other challenges in dispute resolution.
This article explores who uses mediation and the benefits of mediation.
Users of mediation
The users are the most important people in mediation, and everything revolves around them. Mediation helps the users to resolve disputes. The mediator’s aim is to empower the users and their representatives’ aim is to advocate for them.
The greatest demand for commercial mediation comes from the building/construction, insurance and property disputes, as well as contract disputes in general.
Benefits of mediation
The parties involved in commercial disputes often choose mediation because of its benefits compared to litigation, including:
low costs;
speed and efficiency;
certainty and control of outcome;
confidentiality;
flexibility;
preservation of relationships;
ability to get advice about alternatives, risks, and consequences.
Mediation is also generally much cheaper than other third-party alternatives.
The users to mediation may have different priorities depending on the specific area. At Norling Law, we can assist users achieve their priorities throughout the mediation process. We can assist users both as mediators and representatives.
Many parties are happy with using mediation as a dispute resolution process because of its benefits (outlined above). Accordingly, mediation should be included as an advised option for resolving disputes more regularly. All lawyers have a positive obligation under r 13.4 of the Conduct and Client Care Rules to keep the client advised of alternatives to litigation that are reasonably available to enable the client to make informed decisions regarding the resolution of the dispute.
How can you find out more?
At Norling Law, we are passionate about solving commercial disputes and legal issues.
Norling Law offers professional, independent, and impartial mediation services to users in a dispute. Norling Law supports mediation as an efficient way of solving legal issues. Especially if the parties to the dispute want a negotiated outcome that remains private and confidential and that puts a prompt end to the costs of having the dispute ongoing.
As mediators and representatives, we assist the users to a mediation achieve their priorities throughout the mediation process and enable them to make informed decisions regarding the resolution of the disputes they are involved in.
Our mediator, Wendy Alexander, regularly assists with the facilitation of settlements through mediation.
At Norling Law, we receive a large number of commercial disputes. Commercial disputes can be extremely stressful and can often be suitable for mediation. The parties may have been negotiating directly to reach a solution that would meet the interests of both parties. However, the parties often find it difficult to reach agreement.
Using mediation is an option that could potentially resolve commercial problems quickly and efficiently. Mediation is a low-cost option to consider before deciding on whether to litigate. Traditional mediation is usually a more expensive process as it involves the users meeting physically and there are resulting costs involved with travel and booking a neutral meeting room (or rooms). Sometimes traditional mediation might not be available at all for urgent matters.
Wendy can effectively assist users of mediation with her extensive experience as a commercial mediator. Wendy completed training at Program on Negotiation at Harvard Law School, USA and the Arbitrators and Mediators Institute of New Zealand (AMINZ). Wendy is also an Associate Member of AMINZ. This training complements the skills she already has in negotiation and dispute resolution.
If Wendy’s expertise can be of assistance, the first step is to send us the details of the situation here.
So, you or your client have been served with a statutory demand.
What does it mean? What are the consequences? What must you do and by when? These are all questions that need to be answered within a short timeframe.
Issuance of a statutory demand is the first step in the process to commence liquidation proceedings against a company. This is not the only available path to commence liquidation proceedings against a company, however, this is the most used one.
As such, if a statutory demand has been served on a company, it should not be ignored as there could be serious consequences if it is not addressed.
Usually, a statutory demand can be set aside if there is a substantial dispute as to whether the debt is owing, or there appears to be a counterclaim or a setoff. The methods of setting aside a statutory demand are discussed in our previous article.
Unlike a usual statutory demand, the Supreme Court in Laywood v Holmes Construction Wellington Ltd [2009] NZSC 44 held that in certain circumstances, a statutory demand for a debt under the Construction Contracts Act 2022 (the CCA) might not be able to be set aside even if a company has a substantial dispute, counterclaim, or setoff. This is due to the “pay now, argue later” regime under the CCA.
This has recently been affirmed by the Court of Appeal in Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480.
Background to Demasol Ltd v South Pacific Industrial Ltd
South Pacific Industrial Ltd (SPI) was the head contractor for demolition works. Demasol Ltd (Demasol) specialised in asbestos removal and was the subcontractor to demolish a large bin tank containing asbestos.
Demasol served two payment claims which contained charges for additional works due to variations to the contract. SPI did not dispute the payment claims by issuing payment schedules as required by the CCA, nor did it pay the amounts sought in the payment claims. Consequently, Demasol served a statutory demand on SPI.
SPI applied to set aside the statutory demand. The High Court set aside the statutory demand under s 290(4)(a) of the Companies Act 1993 because it was reasonably arguable that the second payment claim was not valid due to the charged variations being disputed. Demasol appealed to the Court of Appeal.
Payment claims under the CCA
The Court of Appeal noted that the objective of the CCA is to secure timely cashflow to contractors and subcontractors in the construction industry. The CCA does not shut the payer out from disputing the amount claimed but it requires the payer to pay first and argue later.
If a payer does not respond to a payment claim by serving a payment schedule under s 21 of the CCA, then the contractor is entitled to recover the amount as a debt due under s 23.
If a payer had issued a payment schedule and the dispute has not been resolved, then there may be a substantial dispute and s 290(4)(a) of the Companies Act 1993 may be invoked to set aside a statutory demand.
Whether the statutory demand should be set aside
Demasol made its payment claims under the CCA and complied with the statutory requirements under s 20.
SPI then became liable to pay the claimed amounts under s 22 as it failed to provide a payment schedule or pay the amounts claimed within 20 working days.
All the issues SPI belatedly disputed should have been covered in a payment schedule (which SPI failed to do). As a result, Demasol became entitled to recover the debt from SPI under s 23.
The Court of Appeal held that the payment claims served by Demasol on SPI were valid payment claims under the CCA. There was no substantial dispute as to whether SPI was liable to pay the amounts claimed. Accordingly, Demasol was entitled to enforce its statutory demand.
Therefore, the Court of Appeal held that the High Court erred in setting aside the statutory demand under s 290(4)(a) of the Companies Act 1993 as doing so would be contrary to the CCA and undermine its purposes. SPI was not shut out from the CCA’s adjudication processes or other proceedings. It simply had to pay now and argue later.
Outcome
SPI’s application to set aside the statutory demand was dismissed but the time for complying with the statutory demand was extended.
Our view
This recent Court of Appeal case reinforces the “pay now, argue later” regime under the CCA. It is a good reminder to all in the construction industry to respond promptly to payment claims pursuant to the process prescribed in the CCA.
The timeframes in the CCA are strict and failing to comply has irreversible consequences and can result in the payment claim being enforced in the Courts as a debt which will likely result in increased costs for the payer. It might be too late to dispute the debt once the contractor takes enforcement steps in reliance on s 23(2)(a) of the CCA.
Conclusion
If you have been served with a payment claim under the CCA or a statutory demand, or require legal assistance, we invite you to contact our specialists for a no obligation discussion. Our lawyers at Norling Law can assist you as part of our no obligation legal consultation.
To book a free 30-minute consultation, please click the button below:
How a construction project is designed and constructed is known as the “delivery method”. The delivery method is one of the most important decisions for every owner looking to commence a construction project.
There is no “one size fits all” solution.
Owners and contractors should have a clear understanding of the delivery methods best suited for their project. The delivery method can have a direct impact on cost, time to complete, quality and risk allocation.
There are three traditional delivery methods:
Construction only;
Design and construct; and
Project management.
For each situation, there will be advantages and disadvantages in the use of any specific delivery method.
Construct only
This delivery method is where the owner engages the contractor on a construction only basis whereby the contractor is only responsible for building the project based on the designs provided from a building consultant. This delivery method is common for small-scale domestic, commercial and infrastructure projects. This delivery method works well where the contractor is unable to offer value to the owner in the design process, particularly where the design is not complex.
This delivery method is considered to be low risk to the contractor as the design consultant retains liability for the design that the contractor uses. However, the disadvantage is that the owner does not gain any design input from the contractor which may, in turn, increase the time taken for the whole project and diminish potential cost savings. If there are errors in the design, the contractor may be entitled to an extension and may charge additions as variations.
Design and construct
This delivery method is where the owner engages a consultant to prepare a preliminary design, then engages a contractor to complete the design and construct the project. This method carries risk for the contractor and is often used for large-scale domestic buildings, large commercial buildings, and infrastructure work.
The owner would usually engage a design consultant first. The design consultant would carry out the design to completion of the preliminary design phase and would assist the owner in determining the project requirements. Then, the owner would engage a contractor who undertakes to meet the owner’s project requirements by completing the design and constructing the building. This creates a single point of accountability for design and constructing with the contractor. This allows the contractor to make cost savings to the project, and for it to be expedited. However, the owner has less control over the design and the contract sum may be higher to reflect increased contractor risks.
Project management
This delivery method occurs where the owner engages a project manager to control, manage and coordinate the project. The project manager’s scope of work tends to be oversight of the design and construction of the project from start to finish.
The owner also chooses and engages the consultants and the contractors. The owner is not required to engage a head contractor. The owner may engage several contractors, similar to subcontractors for various parts of the project. By engaging each party individually, the owner retains control of the project, but communicates with all parties via the project manager. The owner in this case tends to be experienced in the construction industry.
This delivery method enables faster completion of the project and provides the owner with more flexibility and control. However, this approach can be costly due to the requirement to managing the multiple contractors. The owner also takes on a higher risk of cost fluctuations.
Which delivery method should you choose?
The delivery method chosen for a particular project will depend on the owner’s objectives. This includes considerations of the following factors:
Timing – Where speed is required, the project management delivery method is more suitable compared to construct only, and design and construct.
Cost – Greater cost certainty can be obtained under construct only, and design and construct, where the owner is able to ask for fixed price contracts. Owners should also consider the risks of exceeding those costs.
Control over design – Design and construct contracts give more control over the design to the contractor as compared to construction and project management.
Experience of the owner – An inexperienced owner should tend towards construct only or design and construct as these methods offer greater time and price certainty.
Complexity – Some delivery methods are probably only value for money if the project is complex.
Risk assessment – The owner should assign risk to the parties that are in the best position to control those risks.
Summary
Selecting the right delivery method can be a daunting prospect, with a lot at stake. Our lawyers at Norling Law have the expertise to advise on the terms of your construction contract. To book a free 30-minute consultation please click this link https://norlinglaw.co.nz/consultation-brent/.
The recent decision of Bassett 43 Limited (In Receivership) v Montgomerie [2022] NZCA 483 from the Court of Appeal reinforces the powers the Receiverships Act 1993 (the Act) instills in appointed receivers of failing companies. In that case, Damien Grant (the Receiver) as receiver of Basset 43 Limited (In Receivership) (Bassett) was successful in his argument that Andrew Montgomerie (Mr Montgomerie), the director of Bassett, was obligated to provide the Receiver with all the books, records, and documents of Bassett in his possession or control. This Court of Appeal’s decision has overturned the decision of the High Court which wrongly held that the Court had no jurisdiction to grant the orders sought by the Receiver because Mr Montgomerie was an adjudicated bankrupt at the time of the Receiver’s application.
Receivership – a brief explanation
Receiverships typically commence when a secured creditor appoints a receiver to a company. This can be caused by the company failing to pay owing funds to the secured creditor or through other event of default committed by the company.The Court also has powers to appoint a receiver, although this is less common in practice.
A receiver’s role is to take control of the assets in receivership and to generate cash either by profitable trading and/or by selling some or all of the assets and distributing the proceeds to the appointing creditor.
Receiver’s powers can usually be located in the security agreement between the company and secured creditor, however, s 14(2) of the Act also sets out the powers of a receiver. Such powers include powers to inspect, at any reasonable time, books or documents which relate to the property in receivership, and that are in the possession or under control of the grantor. In order to fulfil their position as a receiver, it is imperative a receiver exercises their powers to inspect all the relevant company documents.
The Receivership of Bassett
Bassett was incorporated in 2017 as a company specialising in the building of residential flats, home units, and apartments. The sole director of the company was Mr Montgomerie. During its trading period, Bassett had plans to build a hotel on Hobson Street in Auckland. In anticipation of this project, Bassett borrowed $21 million from FE Investments Limited (in Receivership and in Liquidation) (FE). This hotel was never built.
On 6 April 2020, the Receiver was appointed by First Light Capital Limited as per the powers within a security agreement dated 22 November 2017. The Receiver then began his investigation into where the $21 million from FE had been used, as it had not been used to build a hotel as anticipated.
The Receiver, on a number of occasions, requested Mr Montgomerie, as director of Bassett, to provide him with information of the property and affairs of Bassett. Section 12(1) of the Act provides that every director of the grantor must “make available to the receiver all books, documents and information relating to the property in receivership in the grantor possession or under the grantor’s control.”
These requests were subsequently ignored, and the Receiver relied on ss 12(2) and 14 of the Act, making an application to the High Court for an order that Mr Montgomerie was to produce books, records, and documents of Bassett.
The High Court decision
The argument of Mr Montgomerie in response to the Receiver’s application to the High Court was that before the Receiver had made the application under s 12(2) of the Act, Mr Montgomerie was adjudicated bankrupt. Upon the commencement of bankruptcy, an individual may not carry-on business as a director of a company. As such, Mr Montgomerie argued as he was no longer director of Bassett, he had no obligation to provide the documents requested by the Receiver as s 12(2) applied only to the acting directors.
The High Court agreed with Mr Montgomerie, holding that the s 12(2) application was outside of their jurisdiction as Mr Montgomerie was no longer a director of Bassett at the time of the Receiver’s application. The judge also dismissed an argument raised under s 34 of the Act, that this section provides for receivers to obtain directions from the High Court in order to perform their functions properly.
This decision caused a grey area. How could a receiver be expected to carry out their receivership of a company, acting in the best interests of their appointer, if there is a loophole where the director of a company in receivership can adjudicate themselves bankrupt and be excused of any obligation to disclose documents?
The Court of Appeal decision
The Receiver did not accept the decision of the High Court and appealed to the Court of Appeal. Mr Botterill, on behalf of the Receiver, argued that ss 12 and 14 of the Act give the Receiver powers to obtain any relevant documents that relate to the property in receivership. Mr Botterill also argued that s 34 should be read broadly, in order to allow the Court to make orders against Mr Montgomerie.
Goddard J of the Court of Appeal rightly stated “the term “director” includes both current and former directors. If it did not include former directors, that would undermine the purpose of s 12 and of the Receiverships Act more generally.” The Court of Appeal heavily investigated the context and purpose of ss 12 and 14 of the Act.
The Court referred to the nature of small businesses in New Zealand, emphasising the commonality of directors holding all company records and having their home addresses listed as the company’s address for service. The Court held that it would “frustrate the purpose of s 12 of the Receiverships Act if the term “director” did not extend to former directors.” Goddard J further emphasised the grey area the High Court decision created, stating that purely because a former director of the company in question enters bankruptcy, this does not negate the requirement for receivers to gain access to information on the company they have been appointed to. Due to the nature of small businesses in New Zealand, a receiver will not be well-versed in the affairs of a company without having access to all the relevant documents and property.
The Court referred to arguments made by counsel for Mr Montgomerie that this decision would impose obligations on all former directors even if they held office many years ago. Goddard J simply reminded counsel that all relevant documents should have been passed to the current director.
Mr Montgomerie also argued that he did not have any relevant documents to provide and as such, no orders should be made. The Court did not agree with his assertion, emphasising his duty as a director to keep proper records of Bassett.The Court made an order requiring Mr Montgomerie to “provide to the Receiver all books, records, and documents of Bassett 43 Ltd in his possession or control.” The court also awarded costs to the Receiver.
Takeaways from the case
This case emphasises the Court’s unwillingness to allow business owners to use insolvency procedures as an escape from duties. The decision has overturned the controversial decision of the High Court and reinforces the fact that every director, whether former or current, holds obligations and duties to the company and its creditors.
This decision also highlights the importance of understanding the intended purpose of each statute in New Zealand. In this case, the purpose of the Act shows that all receivers have duties to their appointers and if they are prohibited from conducting their receivership in the proper way, this will undermine the purpose of receivership and deduct from its usefulness.
Essential terms of a residential building contract
From 1 January 2015, it has become mandatory to have a written contract for all residential building work that costs $30,000.00 (including GST) or more (however, this rule does not apply to sub-contracts between a main contractor and a subcontractor).
Regardless of whether the construction work costs more or less than $30,000.00, you should always have a written building contract.
In an industry where disagreements are common, a written contract helps to protect your client, and more importantly, yourself, if disputes arise. In this article, we discuss the important terms that should be addressed in any residential building contract.
The Parties – who are you contracting with?
It is easy to assume that the people you are dealing with are the parties to the contract. This is not always the case. It is possible that the property/business could be owned by a company or, more commonly, by trustees of a trust.
For the contractor, failure to identify the correct party could mean that you are contracting with a party who may not be able to meet the financial costs of the project. Before entering a contract, the contractor should always ascertain who the owner of the property/business is and whether that person has the ability to pay for the project. Failure to do so could mean that the contractor would be providing its services for free.
Contract Price
In the context of residential building work, generally, there are two main ways for the contractor to charge:
Fixed price; or
Cost-plus margin.
Each has its own advantages and disadvantages.
A fixed price basis is an agreement to perform work at a set price. That price includes all costs and profit.
A cost-plus margin basis means that the price of construction is the cost, plus a margin for profit. The cost includes the cost of materials and labour along with indirect costs known as “overhead”.
For the contractor, cost-plus margin allows the contractor to be reimbursed for all costs and ensures a profit. Under a fixed price contract, the contractor must ensure that the cost of construction is less than the price quoted, or it may not make a profit.
For the homeowner, cost-plus margin allows flexibility and control over costs of the project in that the project can be suspended if there are insufficient funds to continue. However, there is also uncertainty of the final cost. A fixed price contract provides certainty but binds the homeowner contractually to pay for the entire amount in the contract.
Provisional sums
The contractor should consider whether there are any elements of the works that are not yet defined in sufficient detail to price in a contract. If so, the parties could agree that these elements are provisional sums. The contract should provide expressly how it is to be dealt with. A common clause provides for the provisional sum to be omitted and an appropriate valuation of the work carried out to be substituted for it.
As provisional sums are replaced by valuations of work performed as the project progresses, the contract sum may increase or decrease. The clause should also address the potential costs and extensions of time that might be claimed to avoid potential disputes.
Scope of work
The scope of work sets out the work that the contractor has been engaged to provide. You should always be as precise as possible when defining what is included within the scope of work. Failing to do so may mean that work can be implied to be included within the scope of work if it is incidentally required, potentially at your expense.
For example, if a plan shows that the contractor is to install a door and the specifications do not specifically refer to any hinges on those doors, supplying the hinges are part of the scope as it is necessary for the completion of that work.
Failure to define what is included within the scope of work is a common area of dispute. Accordingly, it is always advisable to include and refer to all plans and specifications. Precisely defining the scope of work will not only prevent disputes on what is included within the scope of work, but also disputes as to whether a variation is in fact a claimable variation.
Insurance
There are risks for the homeowner and contractor in any construction project.
The law does not require the homeowner and/or contractor to insure unless the party expressly undertakes that obligation.
Insurance may not be necessary if the parties are willing to accept certain risks. However, it is strongly recommended that a homeowner obtain Contract Works insurance before undertaking any major home renovations or building a new house.
Variations
All building contracts should have a variations clause. The clause should set out:
What can be varied;
The process to be followed; and
How the variation is to be valued.
It is important for contractors to take note of the process required under the contract, or disputes are likely to arise. The process could include documenting the variation and submitting it to the homeowner or the homeowner’s agent, or the process could be a verbal instruction with no requirement for it to be documented.
In respect of the latter, this creates risk to the contractor in that the variation could be disputed and the contractor will have to prove that consent was given. As a general rule, if the contract does not require variations to be documented, contractors should document all variations to avoid disputes.
Practical Completion
Given that practical completion is a common trigger for payment, contractors should be aware of the conditions to achieve practical completion. Under some contracts, it is insufficient to complete construction of the building to claim practical completion. It is common for clauses to require a certificate to be provided to the architect together with all necessary documentation and warranties for practical completion to occur. We recommend understanding the requirements for practical completion and carefully following any procedure outlined in the building contract.
Dispute Resolution
It is common for contracts to stipulate how disputes are to be determined. These provisions may be limited to contractual disputes or to cover all disputes. Aside from the contract, it is possible for the parties to agree on a particular means of resolving the dispute when it arises.
In addition, the Construction Contracts Act 2002 (CCA) also provides that the parties have a right to refer the dispute to adjudication, despite the procedure outlined in the building contract.
The purpose of the CCA is to reform the law relating to building contracts and, in particular:
To facilitate regular and timely payments between the parties to a building contract; and
To provide for the speedy resolution of disputes arising under a building contract; and
To provide remedies for the recovery of payments under a building contract.
Accordingly, where the parties to a building contract are looking for timely payments and a speedy resolution to a dispute, adjudication is a preferred dispute resolution procedure.
While adjudication is a relatively quick process, it is important to note that it only provides the party with interim relief. While an adjudication determination is binding in the interim, and any amount awarded is due and payable within 2 working days of the determination, a final determination of the matter can be made if the matter is referred to arbitration or the Courts. However, it is common for disputes to be resolved through adjudication as it is often uneconomic to pursue the dispute further due to the costs involved.
Summary
The contract will have to be adjusted for each individual project to meet the project specifications.
There are various standard forms available to the parties. However, it would be unwise to simply sign a contract without carefully considering its specific terms and conditions.
If you have found yourself in a dispute over the terms of a contract, our lawyers at Norling Law can review your contract and discuss potential strategies to resolve the matter quickly. To book a free 30-minute consultation please click this link https://norlinglaw.co.nz/consultation-br
