Cashflow — the lifeblood of the construction industry


Although the Tribunal can be a very cheap dispute resolution mechanism, one of the disadvantages can be that it is not bound by the same strict procedural rules as a court.
For example, formal rules of evidence are not necessarily applied. In practice too, a hearing can quickly develop into a mediation where parties are willing. These factors can make the outcome of hearings harder to predict than if the claim was made through the courts.

The courts
If the total claim is under $200,000 (including interest and legal fees), the matter is within the jurisdiction of the District Court. The District Court procedure was recently overhauled significantly by the District Court Rules 2009, and it has not necessarily resulted in quicker access to justice in the civil sphere.
The default judgment regime still exists where a debtor files no defence to a claim. However, the summary judgment regime has been almost entirely taken away.

The system that remains is a process where litigants are forced from a very early stage to disclose openly the nature of their case through an information capsule exchange.
This process often culminates in a judicial settlement conference before trial which by no means guarantees resolution of these matters. If this fails then a matter proceeds to trial.
The High Court deals with claims that are larger than $200,000. The High Court still retains a summary judgment procedure which is often the best way of pursuing a simple claim.

This is especially so where the Construction Contracts Act 2002 has elevated the status of the debt into one that can no longer be disputed (for example, an unresponded to payment claim).

It is not unheard of for the summary judgment procedure to be used to collect debts of less than $200,000, relying upon the High Court’s inherent jurisdiction to provide summary judgment.
More complex matters in the High Court would proceed down the standard track, and the opportunity would usually be granted by the court for a matter to resolve itself by mediation or judicial settlement conference.

The High Court process has the potential to become a lengthy and expensive process, as does the District Court procedure. Nevertheless, many cases never make it to trial, instead settling at a judicial settlement conference/mediation
If ultimately successful, a costs award will be made in favour of the plaintiff. This, in practice, equates to around two-thirds of actual costs incurred.

Construction Contracts Act 2002
This Act provides those carrying out construction work with the ability to issue payment claims and, where not responded to fully or on time, elevates the amount sought in payment claims to being amounts that are due and owing.

The aim behind the Act is to promote cashflow or, said in a different way, the philosophy is “pay now argue later”. It is in this context that adjudications pursuant to this Act operate. It is possible for a party to a construction contract to refer a matter to an adjudication under the Act.
This is a fast-track dispute resolution mechanism that potentially places a duly appointed adjudicator under an obligation to make a determination within 35 working days of the adjudication claim being served by the claimant.

Whilst different debt collection methods suit different types of claims, there is no substitute for being sure about the party you are contracting with from the outset.
We recommend you access as much information legally available to you about parties before committing to a contractual relationship with them. In that way, the need to resort to the methods more fully set out above may be avoided.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.