insight

NZ3910:2023 dispute regime – an explainer

09 July 2024

One of the more significant changes ushered in with NZS3910:2023, released in December last year and now coming into use on new projects, is its streamlined and simplified dispute resolution regime. 

We summarise the new regime’s features, explain how they differ from what went before, and suggest some potential improvements.

The new dispute resolution regime

Under NZS3910:2023, if the parties have a dispute or difference, the following process applies:

  1. Either party may ask the Independent Certifier for a Review of the relevant matter, Instruction or Decision.1 The Independent Certifier will issue a Decision within 20 working days of the request.2
  2. If dissatisfied with the Decision, either party may ask the Independent Certifier for a further Decision or a Final Decision.3 Further Decisions regarding the same matter can be requested as many times as the parties choose. Final Decisions are, unsurprisingly, final. A request for a further Decision cannot be made following a Final Decision.4
  3. Crucially, either party may at any point proceed directly to the formal dispute resolution process, which starts with negotiations in good faith between senior members of the respective organisations.5 Following good faith negotiations, the parties can agree to mediate,6 or either party can refer the dispute to arbitration, which provides final resolution of all disputes.7

View the flowcharts at the bottom of this page for a comparison with the equivalent regime under NZS 3910:2013.

While the broad architecture of the two regimes is very similar, there are some important differences, as outlined in the table below.

Requirement

NZS3910:2013

NZS3910:2023

Reference of disputes to Engineer / Independent Certifier

Reference of disputes to the Engineer is a mandatory precondition to subsequent dispute resolution steps. A dispute must go to an Engineer’s Review, then an Engineer’s Formal Decision, before either mediation or arbitration.

Independent Certifier’s Decisions are not preconditions to mediation or arbitration. The Independent Certifier’s process has greater flexibility. The same dispute can be referred to the Independent Certifier as many times as the parties wish.

Time limits for progressing disputes / final and binding Decisions

There are strict time limits throughout the dispute resolution process. Generally, a dispute or difference has to be referred to the Engineer for review within 3 months of the relevant event. Generally, the resulting Engineer’s decision has to be referred to the Engineer for a Formal Decision within 3 months of a prior decision. A Formal Decision has to be referred to either mediation or arbitration within a month. At each of these points, with some exceptions, failure to progress the dispute in time means the Engineer’s current determination is final and binding (though see the comment on adjudications below).

Clause 13 provides that, at some points in the process, a dispute does not have to be progressed within the specified time limits if notice has been given to the Engineer within the time required. However, recent case law has suggested that notice is not adequate, and disputes have to be actively progressed within the time limits specified by clause 13.8

3-month time limits apply throughout the Independent Certifier’s Review process. Request for a Decision must be made within 3 months of the date of the relevant instruction or decision (or 3 months of becoming aware of the matter being disputed). Referral to the Independent Certifier for a further Decision or a Final Decision is also subject to a 3-month time limit. Critically, however, Independent Certifier’s decisions do not become ‘final and binding’ as a result of failure to comply with these time limits.

There are no contractual time limits or preconditions for when disputes can be referred to mediation or arbitration.

Interface with CCA adjudication process

The contractual dispute resolution regime interfaces with the adjudication process under the Construction Contracts Act (CCA), a statutory dispute resolution process which parties cannot contract out of. At various points in the contractual process, the time limits are effectively ‘reset’ to provide an additional month to progress a dispute following an Adjudicator’s Determination. The Act does not impose time limits on when an Adjudicator’s Determination can be sought. Case law suggests that attempts to do so in via contract are unenforceable, as a form of contracting out.9 This can leave parties in a position where they believe they have a ‘final and binding decision’, only to find that the decision is not so final after all.

There is no attempt to interface the contractual dispute resolution process with the CCA adjudication process. The CCA process is still available to parties, but it is entirely separate. 

Expiry of regime

The dispute resolution regime effectively expires in relation to any new disputes 1 month after the Final Payment Schedule is provided. After that point matters cannot be referred to the Engineer for Review, and the Engineer’s Review is a precondition to subsequent dispute resolution steps.10 Disputes can still be litigated through the courts (subject, always, to limitation issues).

The regime does not expire following final payment. The removal of time-limited preconditions to arbitration resolves the issue that arose in the SRG case, leaving parties able to refer disputes to mediation and arbitration under the contract post-completion. 

 

Comments on the new regime

The new regime is a significant improvement on its predecessor which was both unnecessarily complicated and inflexible, leading to disputes regarding whether the formal contractual requirements had been complied with. Parties could be stuck with a decision because of a failure to carry out strictly the necessary steps under relatively short time frames.

Some case law also meant that parts of clause 13 were either unenforceable (insofar as they purported to impose time limits on parties’ rights under the CCA) or might not mean what they appeared to state on their face. Fewer disputes about the meaning of the contract, or about compliance with the formal contractual requirements, is a good thing.

Some may be unhappy with the removal of mandatory reference of disputes to the Engineer / Independent Certifier. That step had value to the extent that it forced parties to articulate their positions and test the merits of the claims in a less formal and faster process before proceeding to a mediation or arbitration. That said, reference to arbitration is a major step. We doubt we will see materially more arbitrations as a result of the new regime.

One criticism we have of the new regime relates to good faith negotiations.

The contract says that parties “will” carry out good faith negotiation before mediation or arbitration. This looks like a mandatory precondition to either process. However, the New Zealand courts have found that agreements to negotiate in good faith, without more, are unenforceable due to lack of objective criteria.11

The contractual guidance notes seem to accept this clause may be unenforceable, stating the parties are “encouraged” to engage in good faith to resolve problems. Parties may consider replacing this clause with a clearer set of process obligations based on objective criteria - for example, requiring specified people to meet to discuss whether a dispute can be resolved, with either party able to proceed to either mediation or arbitration after a specified number of working days.

NZS3910:2023 dispute resolution regime:

NZS3910:2013 dispute resolution regime:

[1] Clause 6.4.1.
[2] Clause 6.4.3.
[3] Clause 6.4.4.
[4] Clauses 6.4.6.
[5] Clause 13.1.1.
[6] Clauses 13.1.2 and 13.2.1.
[7] Clause 13.3.
[8] Northlake Investments Ltd v Civil Construction Ltd [2023] NZHC 2715 at [62]-[68].
[9] DHC Assets Ltd v Toon [2015] NZHC 140 at [15].
[10] SRG Global Remediation Services (NZ) Limited v Body Corporate 197281 [2022] NZCA 518.
[11] Wellington City Council v Body Corporate 51702 [2002] 3 NZLR at 486 (CA).

Related insights

See all insights