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/.
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
Construction law is a specialised area of law which comprises an amalgamation of contract and tort law within a statutory and regulatory framework. It covers a wide range of legal issues with its own jurisprudence and terminology.
A construction contract is a cornerstone of any construction project. Like any other contract, a contract is enforceable if, there is an offer to perform an act in exchange for something, the offer is accepted, and there is an intention to form a binding relationship. The construction contract governs the contractual rights and duties of the parties to the construction project.
The main parties to a construction contract are frequently known as the principal and contractor.The principal being the party for whom the contract is being undertaken (the Principal)and the contractor the party completing the contracted works (the Contractor).Depending on the size and complexity of the project, other professional advisors such as architects, engineers, surveyors, quantity surveyors and project managers may also be involved. These professional advisors will often be governed by their own professional bodies and terms of engagement.
It is important to understand the role of each party and any overlapping contractual obligations contained in a construction contract. This is discussed below.
Principal
In the construction industry, the Principal (also known as the employer or client), is the party for whom the project is being undertaken. In most cases, the Principal supplies information to the Contractor to review and price the project. In some instances, the Contractor may provide design services and construct the building as well.
The three main obligations owed by the Principal to the Contractor are:
To pay the Contractor;
Not to hinder the Contractor from completing its work; and
To do anything necessary for the Contractor to complete its work.
A breach of the first obligation is normally considered to be an essential breach that would entitle the Contractor to terminate the contract or in some circumstances, suspend work. Accordingly, the Principal should ensure that it does not fall foul of this obligation.
It is imperative for the Contractor to understand and verify the identity of the Principal before entering into the contract. The Principal could either be a natural person, a company or a trust and it is important to properly understand the different legal requirements for contracting with each entity.
This issue of identifying the Principal is crucial in the residential construction industry where it is common for the property in question to be held in trust. For example, if a trust is involved, the law requires unanimous consent from all trustees to enter into a contract.If not, there could be issues with enforcing the contract against the trustees.
To avoid any difficulties with enforcement, we recommend naming all trustees of a trust as the Principals to the contract and requiring each trustee to execute the contract.This will provide the Contractor with the best chance of enforcing the contract against the trust in the event of non-payment.
Contractor
The Contractor constructs the project in accordance with the information provided by the Principal. In contrast to the Principal, the Contractor provides that Principal with a range of warranties. Typical warranties that are implied in a construction contract are:
All building work will be done properly, competently and according to the plans and specifications in the approved consent;
All materials used will be suitable and, unless otherwise stated in the contract, new;
The building work will be consistent with the Building Act 2004 and the Building Code;
The building work will be carried out with reasonable care and skill, and completed within the time specified or a reasonable time if no time is stated;
The home will be suitable for occupation at the end of the work; and
If the contract states any particular outcome and the Principal relies on the skill and judgment of the Contractor to achieve it, the building work and the materials will be fit for purpose and be of a nature and quality suitable to achieve that outcome.
These warranties apply automatically to all contracts for building work on a residential house, whether written or oral. In addition, there are other legal obligations imposed by the Building Act 2004, the Consumer Guarantees Act 1993, and other duties of care under general law.
Generally, when entering a construction contract, the parties agree to do all that is necessary to be done on their part for carrying out of the project, though there may be no express words to that effect.
Professional advisors
In complex projects, professional advisors will also be appointed to administer different elements of the contract requiring specialist advice, such as design, quantity surveying and engineering (the Professional Advisors). The Professional Advisors are normally appointed by the Principal and are responsible for tasks allocated under the contract.
The Professional Advisors are Principal’s agents. It means that they must act in the best interests of the Principal and are authorised to legally bind the Principal. However, the Professional Advisors can also carry out a quasi-judicial role. This distinction is regularly misunderstood.
For example, an engineer may issue a payment claim and/or a payment schedule as a Principal’s agent. However, when an engineer assesses the value of the Contractor’s payment claims, it must do so impartially. Given the dual role of some Professional Advisors, it can be difficult to act in an impartial manner and in good faith. In this example, an engineer must also act in an impartial manner when making decisions such as approving and valuing variations, confirming unforeseen physical conditions, granting extensions of time, and resolving disputes between the parties.
It is common for engineers to act in “subjective fairness” rather than the objective standard required under law. In Brown & Doherty v Whangarei District Council, the Court held that:
I commenced this section of the judgment by emphasising that no criticism is intended of the personal subjective honesty of either Mr Beck of Mr Brennan. Both struck me as competent Engineers honest and reasonable men, who sought to discharge their duties under this contract in a proper and fair manner. But as the cases I have quoted emphasise, it is not a matter of subjective fairness. Rather it is a matter of looking at the whole situation objectively from the point of view of a reasonable contractor and asking whether what occurred appears to be fair and whether, in carrying out his duties, the Engineer appeared to act with independence and impartiality. To borrow words from the judgment of Woodhouse and Cooke JJ in the Canterbury Pipe Lines case I have reached the conclusion that “both as to a matter of fact and degree” it cannot be said objectively that Mr Beck’s conduct in this case was fair and impartial in the sense that is required by law.
If an engineer does not act impartially in making a quasi-judicial decision under the contract, that will be a breach of contract by the Principal as the engineer is the agent of the Principal. The Principal can therefore be liable in damages for such a breach.
The Principal must therefore be careful when communicating with a Professional Advisor, especially if it concerns a dispute. Prudently, Professional Advisors should also obtain legal advice in respect of their conduct to ensure that they do not commit a breach of contract and/or their professional obligations.
Summary
In summary, we have identified that the obligations owed by the Principal, Contractor, and Professional Advisors are extensive. There are overlapping contractual obligations that must be considered carefully.
Essentially for the Contractor, these obligations can significantly affect the Contractor’s ability to be paid for its work and the enforceability of the construction contract. This will be discussed in further detail in future articles.
Professional Advisors also need to be mindful of their dual capacities so as not to prejudice the Principal in respect of their decisions.
Contact us if you have a question about a construction contract that you are a party to, or if you are considering entering a contract. Our lawyers at Norling Law can also review your contract and discuss potential fishhooks that are in the contract as part of our no obligation legal consultation. To book a free 30-minute consultation please click this link https://norlinglaw.co.nz/consultation
Brown & Doherty v Whangarei District Council CP 3/86, Smellie J, Auckland, 13 February 1987.
Our mediator, Wendy Alexander, regularly assists with the facilitation of settlements through online mediation.
A variety of disputes could be suitable for online mediation. 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.
Commercial lease disputes can often be suitable for online mediation.
At Norling Law, we receive a large amount of commercial lease disputes arising from the Covid-19 lockdowns.
Disputes between commercial landlords and tenants can be extremely stressful during the periods of COVID-19 lockdowns. Both parties are usually under financial pressure. The parties may have been negotiating directly in an attempt to reach a solution that would meet the interests of both parties. However, the parties often find it difficult to reach agreement on what is a fair proportion of rent and outgoings for lockdown periods.
Using online mediation is an option that could potentially resolve commercial lease problems quickly and efficiently. Online mediation is a low-cost option to consider before deciding on whether to proceed to terminate the lease and/or litigate. Cancelling a lease is a serious step to take and may result in severe consequences if not managed properly. Traditional mediation is usually a more expensive process as it involves the parties meeting physically and there are resulting costs involved with travel and booking a neutral meeting room (or rooms). Sometimes, due to COVID-19 travel/meeting restrictions, traditional mediation might not be available at all for urgent matters.
What happens during online mediation?
Mediation is a form of negotiation where an independent and neutral person assists the parties to negotiate. Best described as a private facilitated negotiation. The primary objectives of mediation are to enable and empower the parties to negotiate and resolve the dispute promptly, cost effectively, and confidentially, rather than have a decision imposed upon them by a judge or an arbitrator.
Online mediation is a mediation conducted remotely, using online communication platforms such as Skype, Zoom and emails, or through phone. Unlike traditional mediation, the parties and the mediator do not actually meet in a physical sense.
Online mediation is generally more cost efficient and flexible than traditional mediation. The parties could appear through video from different geographic areas and reduce their travel costs. There is no need to hire a venue for mediation. Online mediation needs a strong Wi-Fi link and a willingness to negotiate.
Mediation can also be conducted in parts where the mediation can be paused for several hours or days while the parties consider their options. This can be useful when there are a number of issues to be considered. Wendy believes a mediation conducted over time could often lead to a better settlement for the parties.
Further, during the current COVID-19 environment when travel restrictions are a common occurrence, online mediation could be the only available method of mediation for some parties.
Online mediation is also a real option for parties whose conflict is so strong they cannot stand to be in the same room.[1]
Fundamentally, the process of online mediation is similar to traditional mediation, however, there are inherent technical differences. Below, we illustrate the process employed by Wendy while conducting online mediation.
Engagement
An agreement to mediate is circulated to the parties with a clear explanation of Wendy’s professional obligations. Amongst other terms, the parties agree to adhere to the confidential process of an online mediation.
Once the parties understand and agree to all terms of the agreement, the mediation process can commence.
Individual meetings
First, Wendy meets with each party individually online (no more than 30 minutes). Together, they explore the issues confidentially. This part of the process is incredibly important. It establishes trust with the mediator and a clear understanding of the issues and interests of each party.
A skilled mediator can lower the emotional temperature in a negotiation to foster more effective communication. This is done by gaining the trust of both parties that the mediator is a neutral party who is there to serve both parties equally. According to a survey by Northwestern University law professor Stephen Goldberg, veteran mediators believe that establishing rapport is more important to effective online mediation than employing specific mediation techniques and tactics. Before people are willing to settle, they must feel that their interests are truly understood. Wendy often receives feedback from the mediation parties that they felt relaxed and in safe hands with the management of the dispute and that Wendy truly understood where they were coming from.
The individual meeting is also a great opportunity for the mediator to reiterate the professional obligations a mediator has. Fundamentally, to always remain neutral and keep all information shared confidential (until express consent is given to share information).
Joint discussion
Then, a joint discussion is scheduled where the parties explain to each other directly their objectives. They clearly explain to each other, in Wendy’s calming presence, what they were aiming to achieve in this negotiation.
In most cases, neither party to a commercial lease want the lease to end – the landlord needs to retain the tenant and get paid, and the tenant needs the premises so they could continue trading. However, both parties want the rent and outgoings to be paid fairly.
Successful Outcome
If the parties are invested in finding a solution (together with a facilitation from Wendy), it is usually all that is needed to end a costly negotiation quickly. The terms of the agreement reached are recorded in a formal deed of settlement.
Importantly, the parties can achieve a resolution quickly and cost efficiently. Both parties are then able to move forward and focus on running their businesses.
Online mediation is a dispute resolution process that could help to avoid hefty costs, uncertainty as to outcome, delays and significant stress.
Online mediation does have its limitations, in comparison with traditional mediation. As such, it is important to first ascertain with the proposed mediator whether online mediation is the best way for resolving your particular dispute.
Wendy has extensive experience as a mediator, including mediations conducted online.
If Wendy’s expertise can be of assistance, the first step is to send us the details of the situation here.
Footnotes:
[1] Jennifer Parlamis, Noam Ebner, and Lorianne Mitchell in a chapter in the book Advancing Workplace Mediation Through Integration of Theory and Practice.
The High Court has clarified the scope of directions under s 284(1)(a) of the Companies Act (the Act).
Liquidators are considered officers of the Court and operate under the Court’s supervision. Pursuant to s 284(1)(a) of the Act, a liquidator may apply to the Court for directions in relation to any matter arising in connection with the liquidation. Generally, if a liquidator has obtained directions from the Court, they will have immunity from claims when following those directions.
In Dalton v Mackley, the liquidators applied for directions under s 284(1)(a) of the Act, specifically, they requested directions that certain assets set out in a purchase order are owned by the company and delivered to the company by the respondent.
In this case, the liquidators say that the company owned the assets. They say that they were transferred from Mr Mackley to the company.
Mr Mackley disagreed. He said that the assets were not actually transferred as the transaction never completed.
As such, the ownership of the assets were in dispute.
Despite this dispute, the liquidators sought directions from the Court, declaring the assets to be owned by company in liquidation.
This essentially asks the Court to provide judgment, to determine ownership of the assets. Norling Law acted on this matter. It was our submission that it was inappropriate for the proceeding to be commenced under s284 of the Act. This is because s 284 of the Act is about either supervising liquidators or providing them with directions.
It is not about determining substantive property or contractual rights.
Where substantive rights are to be determined, a proper, full process is required. A process that will allow for:
Proper pleading;
The opportunity for discovery.
The opportunity to interrogate.
The opportunity to cross examine witnesses.
It was our view that this shortcut is inappropriate.
Relevant Law
A handy starting point is the section itself:
S 284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a) give directions in relation to any matter arising in connection with the liquidation:
(b) confirm, reverse, or modify an act or decision of the liquidator:
(c) order an audit of the accounts of the liquidation:
(d) order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:
(e) in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f) to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(g) declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:
(h) make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.
(2) The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
(3) Subject to subsection (4), a liquidator who has—
(a) obtained a direction of a court with respect to a matter connected with the exercise of the powers or functions of liquidator; and
(b) acted in accordance with the direction—
is entitled to rely on having so acted as a defence to a claim in relation to anything done or not done in accordance with the direction.
(4) A court may, on the application of any person, order that, by reason of the circumstances in which a direction was obtained under subsection (1), the liquidator does not have the protection given by subsection (3).
Discussion
The purpose of s 284(1)(a) was considered by Associate Judge Paulsen in Dalton v Mackley in depth, stating that, prima facie, the Court had the power to make a wide variety of orders in its supervisory jurisdiction over liquidators.
This was the first fully reasoned consideration of s 284(1)(a) in this context in New Zealand.
Despite s 284(1)(a)’s broad wording, the Associate Judge confirmed the purpose and wording of the section, that is, to allow for expedient proceedings without particularised pleadings, or where there are no significant factual disputes.
Paulsen AJ further states that the text of s 284 and other indications provided by the Companies Act do not support the interpretation of making binding orders in the nature of judgments, rather, they support the view that the proper subject of directions should be confined to the manner in which a liquidation should be carried out under the control of the liquidator.
Further, Paulsen AJ considered s 284(3) of the Act, stating that the protection offered by the provision was concerned with the proper discharge of a liquidator’s functions, and that the protection was offered against allegations of breach of duty by creditors and shareholders. Accordingly, in the present scenario, it would not be of much use.
As there had been relatively little discussion as to the scope of the type of directions that can be sought under s 284(1)(a) in New Zealand, we referred his honour to Australian provisions under the corresponding legislation.
The position in Australian Courts is unambiguous. It has a long history.
The Australian position did not enable the Court to make binding orders in the nature of judgments when asked for directions by a liquidator.
The Associate Judge found comfort in relying more heavily on Australian authorities, noting that Kelly (Liquidator), in the matter of Halifax Investment Services Pty Ltd (in liq) v Loo (Kelly v Loo) was heard concurrently with Re Halifax New Zealand Ltd (in liq) v Loo, in the Federal Court of Australia and the High Court of New Zealand respectively, with the Federal Court emphasising the desirability in a consistency of approach between the two jurisdictions.
Our Comments
It is unfortunate that this matter needed to be litigated. It is of a modest amount.
In our practice, we see countless examples of modest claims being pursued by liquidators in the hopes of shaking money out of inexperienced or under resourced litigants. It can be tough for counterparts of liquidators to succeed given the resource imbalance.
This case demonstrates the risk to liquidators in taking short cuts. Sometimes those who take short cuts get cut short.
We welcome this clarification by the High Court, as this issue had not been previously examined in depth. We trust that this will ensure a clear boundary for liquidators moving forward.
Please refer to our People for more information on who we are, our experience, and how we can help you.
At Norling Law, we are passionate about providing our clients with a problem-solving approach to solving legal issues. We use our problem-solving skills in serving our clients on a daily basis.
There are various options available for resolving commercial disputes. Often, some of them could lead to hefty costs, uncertainty as to outcome, delays and significant stress.
Mediation is a dispute resolution process that could help to avoid these costs and achieve a prompt resolution. Mediation should always be considered by parties when seeking to resolve a dispute, and where suitable, encouraged by their legal advisors.
Mediation is a form of negotiation where an independent person, a mediator, helps parties to define issues, negotiate and resolve disputes using an established process in a confidential environment. Mediation provides the parties with the opportunity to negotiate flexible and creative solutions, which are often not available in litigation. A skilled mediator assists the parties to develop and explore settlement options and negotiate a mutually acceptable settlement which meets the interests and needs of all parties.
The primary objectives of mediation are to enable and empower the parties to negotiate and resolve the dispute promptly, cost effectively, and confidentially, rather than have a decision imposed upon them by a judge or an arbitrator.
Norling Law supports mediation as an efficient way of solving legal issues, and where suitable, encourages the use of mediation to its clients.
Norling Law also offers an independent and impartial mediation service to non-clients in a dispute.
What happens in a mediation?
There are usually six phases in a mediation process. At Norling Law, we endorse the following:
Phase 1 – Planning and pre-mediation conference
At a pre-mediation conference, the issues are discussed to ensure mediation is the appropriate process for the nature of the dispute. The roles and responsibilities of the mediator and the parties involved are clarified. It is also explored if further exchange of documents or other steps need to be undertaken prior to mediation, in which case, such steps and deadlines for them can be discussed and agreed upon.
Phase 2 – Mediator’s introduction
At the start of the mediation, the mediator introduces the participants, explains the mediation process, and explains (and seeks agreement to) ground rules. The mediator then presents the goal of the mediation process: to help the parties come to a negotiated agreement on the situation before them.
Phase 3 – Opening remarks – defining the problem
Each party has the opportunity to express fully their perspective on the legal, commercial, and personal issues involved, without interruption. The mediator then explores and defines the issues and seeks agreement from the participants that these are the issues they would like to discuss.
Phase 4 – Understanding law and interests
The parties, with the assistance of their lawyers, explore and understand the legal risks and opportunities. The mediator then assists the parties to explore the legal, commercial, and personal interests in resolving the dispute (i.e. they explore what really matters to the parties).
Phase 5 – Generating options, exploring interests and packages
The parties have full control in generating options for settlement (with guidance from their legal representatives). The options are then discussed, evaluated and prioritised to develop suitable packages for resolution.
Phase 6 – Concluding and looking to the future
The parties review, refine and improve upon the preferred agreement package. Then, the mediated agreement is drafted and executed (with guidance from their legal representatives).
Does mediation work?
In 2015, research examined the nature of commercial mediation in New Zealand by conducting a survey amongst local commercial mediators. Over half of the mediators surveyed, reported a 90 – 100% settlement rate, and none reported a settlement rate of less than 70%.[2]
This research also revealed that 62% of the participants in mediation saw the price of mediation as the major drawcard, as it is significantly cheaper than litigation. Mediation’s speed and efficiency, compared with the often-lengthy litigation process, was the second most common response. Confidentiality provides an element of privacy that litigation does not, and it was identified as the third most common influence on parties when choosing to mediate. It is possible the commercial mediators who participated in this research, echoed the reasons they have been given first-hand from their parties, and that cost is the biggest reason that parties pursue mediation.[3]
In summary, parties undertaking mediation are mainly driven by a desire to avoid the price, time and publicity that comes with undertaking court action.
There are limited disputes that are not suitable for mediation. The parties’ legal advisors would be able to identify such disputes and inform the parties from the outset, to avoid incurrence of unnecessary costs.
How can you find out more?
Our expert mediator, Wendy, assists parties to navigate through the issues and find creative and profitable solutions.
Our office is located on the North Shore in Auckland, New Zealand, or can have the consultation by phone.
Footnotes:
[1] Grant Morris and Daniella Schroder “LEADR/Victoria University Commercial Mediation in New Zealand Project Report (June 2015)” (Research Paper, Victoria University of Wellington, 2015).
