Judicial review and the construction contracts act

Charlotte_Holmes.jpgBy Charlotte Holmes
Kensington Swan Lawyers

Parties will invariably find ways to avoid paying their debts under the Construction Contracts Act 2002 (‘CCA’).  In the current climate, such avoidance tactics are likely to become only more prevalent.  One tactic we’re seeing parties employ more frequently to frustrate prompt payment, is the use of judicial review procedures in the High Court. 

The recent case of Spark It Up Ltd v Dimac Contractors Ltd & Anor (HC CIV-2008-485-1706, June 12, 2009) illustrates this. The developer, Spark It Up, applied for judicial review of the determination of an adjudicator who had ordered it to pay the contractor, Dimac, monies owed under two unanswered CCA payment claims.  Not long before the adjudicator released his decision, Dimac advised that it had referred to the wrong invoices in its claim and, at the request of the adjudicator, filed a corrected claim. Spark It Up was not given an opportunity to respond to Dimac’s amended claim.  Spark It Up’s judicial review proceedings were on the basis that the decision was invalid for want of jurisdiction and was in breach of the principles of natural justice, amongst other grounds.

So what then is judicial review? 

In determining disputes under the CCA adjudicators are exercising statutory powers of a judicial nature, meaning their decisions are subject to review.  Judicial review is a way of holding an adjudicator accountable by ensuring that their decisions are made in accordance with the law.  This is specifically provided for in section 41(c) of the CCA, which compels an adjudicator to observe the principles of ‘natural justice’ at all times. 

While to lawyers the concept of natural justice is a common one, in short, it requires the parties to be treated fairly, to know the case against them and, amongst other rights, to have an opportunity to answer the allegations made against them.  Failure to do so entitles a party to apply to the High Court for a review of that determination (judicial review).

Judicial review is not the same as an appeal of an adjudicator’s decision - under the CCA the parties have no right of appeal.  Judicial review is concerned with procedural errors in the decision-making process rather than the decision itself.  Thus, if the adjudicator has made an error of fact or law (with some exceptions), the parties have to live with it, as these are not grounds for judicial review. 

When reviewing a judicial decision the Court has no power to vitiate a decision that is within the power of the adjudicator to make.  Therefore, judicial review will often result in the same decision being made, but with the proper procedural steps being followed. 

In the case of Spark It Up, the plaintiff (Spark It Up) submitted that the lack of opportunity to respond to the defendant’s (Dimac) amended claim amounted to a breach of natural justice. In response, the defendant argued that the scheme of the CCA, and its purpose of facilitating efficient and prompt provisional resolution of disputes in the construction industry, necessarily requires modification of the conventional scope of natural justice.  The High Court agreed that the adjudicator had acted in excess of his jurisdiction and that he, in failing to provide a proper opportunity for Spark It Up to respond to the amended claim, was in breach of natural justice.  For these and other reasons, the court quashed the adjudicator’s determination.  Dimac was advised to bring a fresh adjudication claim. 

Should Dimac choose to go to the cost of issuing a new claim against Spark It Up, they’re likely to get the same result.  Consequently, Dimac may feel that the return it will get is not worth the cost of pursuing it.  Hence, judicial review can be an effective tool to avoid payment of debts altogether. 

Parties appear to have been slow to take up judicial review as a means of challenging an adjudicator’s decision.  It will be interesting to follow how far the court will go to impose restrictions on a party’s right to attack a determination.  The approach taken by the UK and Australian courts has been to strictly circumscribe the court’s power on review.  However, the New Zealand Court of Appeal has observed that New Zealand administrative law is “significantly indigenous”, and that judicial review powers here have a broader scope than those under English law. 

In Spark It Up the High Court found that a “low-intensity approach to review is appropriate” in the context of determinations made under the CCA, meaning it will be harder for applicants to prove that such grounds justify intervention by the court.

Nevertheless, in the current economic climate it seems likely that judicial review will become a more common method of frustrating payment.

Contractor Vol.33  No.7  August 2009
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