02 May 2011
To Reply or Not to Reply – That is the Question!
The Construction Contracts Act has a set formula for adjudications that contemplates each party getting "one bite of the cherry" and then a determination being made. However, section 42(1)(b) attempts to remedy this by allowing further submissions and a response to those if an adjudicator requires these. This provision is not widely used and has instead been "replaced" in effect by nominating bodies who have introduced a reply process, giving the referring party essentially two bites of the cherry to the respondent's one.
Nominating bodies that allow a reply often state it must be "strictly in reply" and not introduce new arguments. However it is unclear exactly where this line is drawn, when responding "strictly in reply" to a point from the Response, which gives rise to a new point relating to the reply point, can this be included? If so, should this be considered?
The process has recently been considered by the High Court in the decision of Construct Interiors NZ Ltd v Peter William Jones & KMB Interior Contracts Ltd. In this case, the provision of a reply without a corresponding response, was held to be a breach of natural justice and the determination was quashed. The question for all parties adjudicating must now be whether to reply or not to reply.
The Construct Interiors case was an adjudication arising from a payment dispute between Construct Interiors and KMB. The dispute was comprised of two claims, the first in relation to the identity of the contracting party, whether it was Construct Interiors or another entity, and the second, arising from the first, what if any sums were due to KMB and by whom.
Construct Interiors denied both claims on the basis it was not the correct contracting entity, and as such had no liability for the debts claimed.
The Adjudicator provided KMB with the opportunity to provide a reply. KMB used this opportunity to provide a comprehensive reply consisting of written submissions, witness statements, affidavits and further supporting documentation.
The Adjudicator considered the available material and made Determinations in KMB's favour, awarding it the sums claimed and costs. In reaching his Determinations the Adjudicator clearly placed significant emphasis on the documentation filed as part of the Reply.
Construct Interiors issued judicial review proceedings alleging that the procedures adopted by the Adjudicator resulted in a breach of natural justice. In particular, the Adjudicator's decision to allow KMB to reply to Construct Interiors' response resulted in KMB providing further significant documentation. Construct Interiors were afforded no opportunity to respond to this further evidence, and on reading the Determinations it was clear that this documentation was influential in the decision making process
KMB's position was that the Notice of Acceptance of Appointment as Adjudicator made a clear reference to the provision of a reply and Construct Interiors did not, at any time prior to the issue of the judicial review proceedings, indicate an opposition to this process. In addition, the reply was "strictly in reply" to issues from the response and did not introduce any new evidence.
When considering whether there had been a breach of natural justice the Court looked at the provisions of the Act. In particular, the Court examined whether a reply was contemplated within the Act and how the nominating body's provision of the reply should be construed in light of section 42(1)(b). This section details the powers of the adjudicator including the power to request further written submissions from the parties, as long as the other parties are given an opportunity to comment on those submissions. The critical difference between the nominating body's provision and the Act's position was that the nominating body did not "give the relevant parties an opportunity to comment on those submissions". Had it done this there would be no alleged breach of natural justice.
KMB's position was that the general power of adjudicators to conduct adjudications in any manner they decide (under section 42(1)(a)), took precedence and allowed an adjudicator to determine if a party could have a right to reply, which was something different to the further submissions contemplated under section 42(1)(b).
The Court found that the general provisions of section 42(1)(a) did not take precedence over the specific provisions of 42(1)(b) and therefore the respondent should have been afforded the opportunity to reply to the Reply. It went further and stated that this was a "one time only" opportunity, as the section referred to " an opportunity to comment" and therefore the process was not open ended.
This decision therefore appears to clearly determine that the provision of a reply by nominating bodies contravenes the provisions of the Act and an unsuccessful party may well be able to set aside a Determination where this has occurred. Therefore it appears that where a reply is offered claimants should be aware, that a chance to have the last word carries with it a chance to have a Determination set aside. Perhaps it would be better to instead take the time to prepare and file a fully reasoned Claim and chose not to reply, as intended by the Act.
Originally published in Contractor Magazine May 2011