This is the final article in our series taking a deeper look at the proposed revisions to NZS 3910:2013, all previous articles are at the bottom. The disputes clause of NZS 3910 has long been considered overly complex and difficult to understand. The new disputes regime aims to simplify the dispute resolution process.
This new process is set out in section 6.4 Review of Instructions and Decisions and the significantly revised Section 13 Disputes.
The first provision (6.4.1) provides to either party the ability to request a review by the Independent Certifier (IC) of any ‘Instruction given under 6.3.5, 9.3.4 or 10.3.4 or any Decision other than a Final Decision ….’. The parties should be alert to the inclusion of the instructions under 9.3.4 or 10.3.4 as reviewable by the IC, under 6.4.1:
Accordingly, and while the CA is the agent of the Principal, any agreement reached by the Contractor and the Principal, via the CA, can be amended or even struck down, on the request of either party, by the IC. In short, both agreements are not binding. We are of the view this is an error and it should read ‘…except 9.3.4 or 10.3.4, …’
A Final Decision is broadly equivalent to the previous formal decision. We say broadly equivalent as a Final Decision is no longer a hurdle to clear to go to mediation or arbitration.
The balance of 6.4.1 and 6.4.2 are relatively straightforward other than to note that 6.4.1(b) places a 3 month time limit in which to seek a review of the Instruction or Decision from the date of the ‘original Instruction or Decision’. Also note that the output under 6.4.2 is a ‘further Decision’, stating it is made under 6.4.2.
The next layer (6.4.3) is if either party is dissatisfied with the Decision under 6.4.2 (that is the ‘further Decision’) then they can request a further review or they can request a Final Decision. Arguably, this process at 6.4.3 leaves open the opportunity for numerous rounds of ‘further Decisions’ until somebody requests a Final Decision.
The answer may reside in two places:
There has always been some contention about placing time limits on the dispute review provisions in NZS 3910 as to whether they offend section 12 of the Construction Contracts Act 2002 (CCA) and/or are a condition precedent. However, within section 6 there is no mention of adjudication under the CCA and therefore section 12 of the CCA does not arise.
Similarly, neither 6.4.1(b) or 6.4.4(b) purports to make the three month time limits conditions precedent. This can be contrasted with the old 13.1.1 which, in addition to outlining the three month period, says that a decision will be final and binding unless it is referred to a dispute in that period. This aspect has been removed in the draft.
Finally, new 6.4.7 imports from the old section 13 the ability of either party to refer a matter for review by the IC or any question arising, to an agreed expert to make a ‘recommendation to assist them to resolve the matter’.
Section 13 has been significantly amended and simplified. Gone are:
The Engineer’s review process under 13.2 has been recast and moved to 6.4 (refer above) and replaced with new 13.2 which deals with mediation. This new mediation section removes the majority of the old 13.3 mediation provisions except for the requirements that all discussions in mediation are ‘without prejudice’, that the Principal and the Contractor are to bear their own costs, and that the mediator shall not be referred to as a witness in any other proceedings.
To summarise the changes between the old 13.2 and new 6.4:
New Arbitration section 13.3 has been introduced which allows the parties to refer ‘any’ dispute or difference, including ‘any’ dispute of a Final Decision, to arbitration. Under the old 3910, the formal decision acted as a gate to first pass through. This is no longer the case. Even with the new Final Decision process, this is not a precondition to arbitration. You can elect to serve a notice of arbitration for any dispute or difference under the Contract.
Having set out the general and broad right of arbitration, 13.3.2 deals with how a party gives notice if the dispute arises in relation to a Final Decision. This is straightforward and echo’s the process in the old 13.4.1.
What is missing is the process by which notice of arbitration is given for any dispute or difference other than arising from a Final Decision. Strictly speaking, this is not required as article 21, Schedule 1 of the Arbitration Act 1996 provides that the arbitration commences on notice being served on the other party requesting the dispute go to arbitration. Clause 15.1.3 of DZ 3910 provides for service under section 13. Nevertheless, it may have been useful to have the process for giving notice of arbitration with section 13.3.
Section 13.4 deals with the parties conduct during any dispute process while the Contract is still being performed (the old 13.5). The only change of note is within 13.4.2 by deleting ‘No payment due under Section 12 shall be withheld by reason of the existence of any dispute.’ By deleting this sentence, the IC shall value and certify what is properly payable, and because the process under 122.1 to 12.28 applies, the Principal can now make an amendment or deduction on the basis of the dispute resulting in non-payment or an under-payment to the Contractor.
If at the end of the dispute proceedings the Principal is correct, than no foul. If the Principal is wrong, then the Contractor’s remedy is interest. But to succeed in a claim for interest the Contractor would have to establish that the Principal’s deduction was ‘unreasonable’. The Principal being wrong is not enough. Its actions must have been unreasonable.
Having charged the IC with independently assessing what is payable during a dispute period, the deletion of the last sentence to 13.4.2 could render that role nugatory.
Finally, a further change is the deletion of the old section 13.6. This is not required as section 12(1)(b) of the Arbitration Act 1996 already empowers the arbitrator in the same terms.
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