The latest QV House Price Index has confirmed that property values fell further in the past 12 months than they did in the previous 15 years and reflects the efforts made by the Reserve Bank to curb rocketing inflation. These measures are set to continue with the central bank predicting choppy times ahead.
Liquidations growing
In December 2022, then Commerce and Consumer Affairs Minister David Clark confirmed 283 building company liquidations in the previous 11 months.
In conjunction with increases in construction costs, lack of skilled labour and ongoing issues with COVID-19, there’s a clear signal that those involved in resolving disputes in construction are in for a busy year in 2023.
Rising construction costs are just one aspect of the building and construction world. As someone who works in the sector as an adjudicator – from cases involving stand-alone residential developments to large infrastructure projects – I know from personal experience this is a significant indicator of what’s usually in store.
Simplicity Living’s Shane Brealey has said that within 6 months, the construction of new homes will halve and the industry will ‘fall off a cliff’. He believes the industry could lose up to 45,000 jobs. While others have sounded a more optimistic note, even the best-case scenario suggests a bumpy year.
More disputes going to adjudication
Certainly, from my vantage point, I’m seeing more cases going to adjudication than at any time since the post-global financial crisis (GFC) period. Anecdotally, colleagues talked about a marked increase over the last half of 2022.
As the highest construction activity of late has been in Auckland, Bay of Plenty and Christchurch, we can make an educated guess as to where the highest number of these disputes will be taking place in 2023. That said, however, I am already seeing an increase in cases from the Waikato and Queenstown/Wānaka regions.
Adjudications tend to lag behind the initial numbers. And even though exact numbers are hard to come by – this is, after all, a confidential process – we are going to see more stress within the construction sector.
After the GFC, it took up to 18 months before the avalanche of disputes became apparent. This time, that timeframe has been extended due to the significant government-assistance packages since the first COVID-19 lockdown in 2020. Now, government support has run out and those who managed to survive are looking to recoup outstanding money.
According to Rachael Douglas, General Manager of the Arbitrators’ and Mediators’ Institute of New Zealand, there has been a notable uptick in interest in the ramifications of all this for those involved in dispute resolution.
Ways disputes are handled
How are such matters resolved? The construction sector is unusual in that there are several options for people who find themselves at loggerheads. Other than leaky building defects, this doesn’t always involve court proceedings.
Mediation, which is the cheapest, most time-efficient and simplest avenue, offers facilitation rather than a third party imposing a decision. It lets parties seek a solution that each can live with and on numerous occasions allows the relationship to be preserved.
Arbitration is more expensive and time-consuming. Both parties need to agree to it – indeed it will often be in their contract – and the decision imposed is binding. In recent years, arbitrators and counsel are moving away from the traditional court style model of arbitration. More and more arbitral processes are being adopted that better suit the disputes in question. This is increasingly seeing streamlined arbitrations – reducing time and costs.
This has been in no small part due to the success of adjudications over the last 20 years. They are the predominant construction dispute resolution process because they are quick and cost-efficient
One party can instigate them and the decision will be temporarily binding until either party chooses to relitigate the dispute afresh. From my vantage, fewer than one in 10 disputes referred to adjudication these days goes on to be relitigated.
Adjudication and arbitration are areas of professional interest for me, not only because I am involved in them, but because they are broadly indicative of how things are going, or not going, in the construction sector.
Did the government act too late?
Could the trend go in a more positive direction? In January, the government announced a suite of measures to further support Aotearoa New Zealand businesses through the global labour shortage and attract more high-skilled workers for the long term.
Among the trades greenlighted were construction supervisors, gasfitters, drainlayers and skilled crane operators. Civil Contractors New Zealand Chief Executive Alan Pollard told RNZ that the organisation was ‘delighted with the outcome’.
Given that the changes only kicked in in March, however, it feels like a case of too little too late.
This article is not intended as legal advice. For specific advice, contact your legal advisor or the Major Projects and Construction team at Dentons Kensington Swan.