How is an adjudicator’s jurisdiction set?

The technical issue of what sets an adjudicator’s jurisdiction has been a bugbear for parties and adjudicators for some time. Adjudicators determine issues on the papers. The process is triggered by an adjudication notice, followed closely by an adjudication claim. But what sets the adjudicator’s jurisdiction and is it set in stone at the outset?

There is a clear tension in the authorities as to whether the jurisdiction of an adjudicator is set by the description of the dispute in the adjudication notice or the adjudication claim.

This issue was considered in the recent High Court decision of AlaskaConstruction + Interiors Auckland Ltd v Lahatte & Anor [2020] NZHC 1056 (Alaska Construction) which contrary to industry practice and Spark It Up Ltd v Dimac Contractors Ltd [2009] BCL 498, found that the document that specifies the nature or grounds of the dispute is the adjudication claim not the notice of adjudication. This infers that the jurisdiction of an adjudicator is set in the adjudication claim.

This article considers the jurisdiction of adjudicators under the Construction Contracts Act 2002 (CCA). It also explores the role and interplay between the notice of adjudication and the adjudication claim.

What sets jurisdiction?

The relevant sections of the CCA outlined below are first examined to understand the issue of what sets jurisdiction.

Section 28 of the CCA specifies the process of initiating an adjudication –

28 How to initiate adjudication

  • Adjudication is initiated by a claimant serving written notice of the claimant’s intention to refer a dispute for adjudication (the notice of adjudication) on—
    • the other party or parties to the construction contract; and
    • the owner if—
      • a determination of an owner’s liability is sought under section 30(a); and
      • an approval for the issue of a charging order is sought under section 30(b).
  • The notice of adjudication must state—
    • the date of the notice;
    • the nature and a brief description of the dispute and of the parties involved;
    • details of where and when the dispute arose;
    • the relief or remedy that is sought;
    • whether approval for the issue of a charging order under section 29 is being sought;
    • whether a determination of an owner’s liability under section 30(a) and an approval for the issue of a charging order under section 30(b) are being sought; and
    • details sufficient to identify the construction contract to which the dispute relates, including—
      • the names and addresses of the parties to the contract; and
      • if available, the addresses that the parties have specified for the service of notices.
  • A notice of adjudication must also set out prominently, in the prescribed form (if any),—
    • a statement of the respondent’s rights and obligations in the adjudication; and
    • a brief explanation of the adjudication process.

Section 36(1) and (2) of the CCA provides the process of referring a dispute to an adjudicator –

36 Referral of dispute to adjudicator

  • After an adjudicator has been appointed, the claimant must, within 5 working days of receiving the adjudicator’s notice of acceptance, refer the dispute in writing (the adjudication claim) to the adjudicator.
  • The adjudication claim—
    • must specify the nature or the grounds of the dispute and, to the extent that it remains relevant, be accompanied by a copy of the notice of adjudication; and
    • may be accompanied by any other documents.

Importantly, the jurisdiction of an adjudicator is defined in terms of the dispute that has been referred.[1] In Alaska Construction it was held that the jurisdiction of an adjudicator is set by the terms of the dispute in the adjudication claim, which can be varied or altered from the earlier description of the dispute in the adjudication notice.

However, prior to Alaska Construction, there was clear authority the notice of adjudication set the adjudicator’s jurisdiction, so long as it complied with the requirements of section 28 of the CCA and defined the issues with sufficient breadth. It was the adjudication claim that then crystallised jurisdiction.

This is illustrated in the High Court decision of Spark It Up Ltd v Dimac Contractors Ltd (2009) 19 PRNZ which held that the Adjudicator’s jurisdiction was confined to the terms of the dispute in the adjudication notice only. Here the principal, Spark It Up Ltd, applied for a judicial review of the Adjudicator’s determination ordering payment to the contractor, Dimac Contractors Ltd, of $92,517.24 as the amount owing under the contract. Spark It Up Ltd argued that the Adjudicator lacked jurisdiction and that his determination was invalid because the Adjudicator based his determination on a pair of invoices, only first mentioned by Dimac Contractors Ltd in the second amended claim, rather than the invoices mentioned in the adjudication notice.

The High Court found that the Adjudicator had acted beyond his jurisdiction by basing his determination on invoices that were not mentioned in the adjudication notice and quashed his determination. Dimac Contractors Ltd, had to bring a fresh adjudication claim if it wished to have its dispute relating to the other invoices (which were not the subject of the adjudicator’s determination) determined.

Has the position changed in Alaska Construction?

The High Court’s determination boiled down to the question of what sets jurisdiction, and referred specifically to section 36(2) of the CCA, which states that:

The adjudication claim—

  • must specify the nature or the grounds of the dispute and, to the extent that it remains relevant, be accompanied by a copy of the notice of adjudication; and
  • may be accompanied by any other documents.

The Court in Alaska Construction, contrary to Spark It Up Ltd v Dimac Contractors Ltd, decided that the grounds of the dispute set out in the notice of adjudication may be superseded by the adjudication claim.

By way of background to the proceedings, the subcontractor Lovich Floors Ltd (Lovich) referred the dispute against the head contractor Alaska Construction + Interiors Auckland Ltd (Alaska) following a series of exchanges between the parties, of payment claims and payment schedules, and Alaska’s failure to respond with a payment schedule to Lovich’s final payment claim dated 16 December 2019 (December payment claim).

Alaska, applied for judicial review of the adjudicator’s determination in favour of Lovich, on three grounds including that the adjudicator had acted beyond the scope of his jurisdiction by basing his decision on the December payment claim which was only first mentioned in the adjudication claim rather than the adjudication notice. Alaska alleged that Lovich had unilaterally modified the dispute by leaving the December payment claim out of the adjudication notice and only later including it in the adjudication claim.

The High Court said that the difficulty in Alaska’s argument was that section 36(2) of the CCA states that the document which specifies the nature or grounds of the dispute is the adjudication claim and not the notice of adjudication.

The Court interpreted the meaning of the words “to the extent that it remains relevant” in section 36(2)(a) of the CCA as clearly indicating that the grounds of the dispute set out in the notice of adjudication may be superseded by the adjudication claim. It was said that the notice of adjudication is seen as the document which initiates the adjudication, and that it may no longer have any relevance or more significance than that. Furthermore, it was said that section 45(c) of the CCA, which deals with matters that an adjudicator must consider, does not require an adjudicator to consider the notice of adjudication.

The implication of this outcome is that the adjudicator’s jurisdiction is set by the adjudication claim.

Commentary

The decision in Alaska Construction is contrary to common industry practice and leads to further uncertainty over the issue of jurisdiction, which is already a frequent point of argument in both the adjudication itself and when opposing the enforcement of determinations. The effect of having the adjudication claim supersede the adjudication notice is that it creates further scope for inconsistency and uncertainty in relation to the terms of the dispute, and consequently the jurisdiction of the adjudicator. This is because the terms of the dispute may then be varied, in the adjudication claim, after the adjudicator has been engaged. The effect of this is that the adjudicator and the respondent cannot be sure of the final terms of the dispute until after the adjudication claim is served.

We are yet to see how the courts and adjudicators will deal with this issue in the future and whether or not Alaska Construction will be applied or overturned. Parties should therefore exercise caution and are advised to proceed as though jurisdiction is set in the notice of adjudication and should use the adjudication claim to crystallise the dispute.

How is scope determined?

The scope of an adjudicator’s jurisdiction boils down to how broadly or narrowly a ‘dispute’ is defined.

In Alaska Construction the court made quite a fact-specific decision on whether the adjudicator’s determination accorded with his statutory function pursuant to section 48. It was decided that the adjudicator did not need to determine any questions in dispute about the rights and obligations of the parties under that contract pursuant to section 48(1)(b) because the terms of the dispute were narrowly defined and did not fall easily within the definition of the rights and obligations of the parties.

The Court also later said that the respondent is not without a process to assert its substantial claim and that it could either issue its own notice of adjudication or take ordinary proceedings. On the one hand this could be thought of as a fair approach considering that adjudication is intended to provide quick answers to discrete contractual issues, in order to help keep projects on track and maintain cash flow, rather than finality.

On the other hand, it could lead to claimants strategically framing the dispute to unjustly promote or enrich their case. The issue then, is whether this goes against the spirit / purpose of the CCA by in effect lengthening the entire process if the respondent then has to refer ‘their dispute’ to adjudication if they feel that the dispute was not adequately framed by the claimant.

To ensure that adjudication makes a meaningful difference as a process for the parties involved and in the interests of fairness – a possible way forward could be to incorporate a further step in the adjudication process to allow the respondent to review and suggest amendments to the wording of the ‘dispute’.

Footnotes

[1]Horizon Investments v Parker Construction Management HC Wellington CIV 2007-485-332, 4 April 2007 at [39].

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