The dispute resolution process contained in section 13 of NZS 3910:2013 has long been thought too complex and unclear. One of the major changes in the 2023 revision to NZS 3910 is a simplification of this section. By Brendan Cash, Partner, and Miles Rout, Law Graduate, in Dentons’ Major Projects and Construction team.
As in the 2013 revision, the new section 13 provides for mediation and arbitration of disputes. In the 2013 edition, section 13 also provided for referral of disputes to the Engineer.
This is no longer covered by section 13, as the formal decision of the Engineer does not need to be issued before a dispute can be referred to mediation or arbitration. The review provisions have been moved to section 6.4.
The new section 13 is now much simpler and also contains a clause requiring the parties to negotiate via senior management in good faith before further dispute resolution processes are invoked.
Review of Instructions and Decisions
Understanding the changes in this area requires understanding another significant change in the 2023 revision: the splitting of the role of the Engineer. In the 2023 revision, the “Engineer to the contract” is no more.
There are instead two new roles: the Contract Administrator and the Independent Certifier. These correspond to the dual roles of the Engineer as Principal’s agent and as a fair and impartial decision-maker respectively.
We wrote more about this change in the March 2024 edition of Contractor magazine in an article titled ‘Changes to engineer under NZS 3910:2023’. The role of the Engineer in reviewing matters has been allocated to the Independent Certifier role.
In the 2013 revision, disputes or differences under the contract needed to be referred to the Engineer under section 13. The Engineer then had 20 working days to give a formal decision. The mediation and arbitration provisions of section 13 were available only where a party was dissatisfied with the Engineer’s formal decision or no formal decision was given within the time limit.
A referral to mediation or arbitration also had to be given within a strict timeframe from the date of the formal decision (within one month).
In the 2023 revision, independent review is provided for in section 6.4. Under 6.4.1, any party may request that the Independent Certifier reviews an instruction or decision or other matter, subject to some exceptions. The Independent Certifier has 20 working days (or as soon as practicable) to confirm, correct, or amend the relevant instruction or decision. If a party is dissatisfied with the decision, it may be referred to the Independent Certifier again for a further decision under 6.4.1. However, a dissatisfied party may instead request a final decision under 6.4.5. A final decision cannot be further reviewed under 6.4, so a party wishing to dispute it must go through section 13.
There are time limits on the ability to make these requests to the Independent Certifier. A request for a review under 6.4.1 must be made within three months of the party becoming aware of the matter or the date of the original instruction or decision, and a request for a final decision under 6.4.5 must be made within three months of the date of the previous decision.
A final decision cannot be submitted again to the Independent Certifier for review. There has always been some contention about placing time limits on the dispute review provisions in NZS 3910 and whether those limits offend s12 of the Construction Contracts Act 2002 (CCA). Within the new s6 there is no mention of adjudication under the CCA and so this issue does not arise.
Dispute resolution
The remaining provisions of section 13 relate to negotiation, mediation, and arbitration of disputes arising under the contract.
A significant change is that, under 13.1.1, before a dispute is referred to a formal process under section 13, the parties agree that their senior management will attempt to resolve the dispute by negotiation in good faith. This requirement is arguably phrased as mandatory but the (non-binding) guidelines state that the parties are “encouraged” to negotiate, which suggests it is not a mandatory step.
This ambiguity may be worth resolving by an amendment to the special conditions.
In the new revision, under 13.2 the parties may agree to refer matters to mediation “at any stage”. Mediation is confidential and without prejudice. The mediator cannot be called as a witness by either party. The parties agree to bear their own costs and to split the cost of the mediator.
Similarly, arbitration rights under the new revision are now broad. The parties agree under 13.3.1 to refer any dispute or difference between them to arbitration, including any dispute of a final decision.
The key change here is that there is no requirement to go to the Independent Certifier for a review before mediation or arbitration. The only (potential) precondition in the contract is the good faith negotiation requirement in 13.1. There are also no time limits for referral to arbitration.
This means that matters can be referred to arbitration that could not be subject to the review of the Independent Certifier, such as defective work arising after final completion.
The changes should mean that arguments and complications that arose under the 2013 edition – such as whether decisions were final and binding and could not be challenged (e.g. by way of adjudication), or whether the arbitration clause applied to the dispute and was still operative – should no longer be an issue.
The clauses and process is now pretty simple and straightforward
No suspension of work or payment and no contracting out
As would be expected in a construction context, and as is consistent with the objects of the Construction Contracts Act, the new revision makes it clear that the Contractor cannot suspend work during a dispute (13.4.1), and that the Principal cannot withhold payment schedules or payment of scheduled amounts (13.4.2).
It also clearly specifies that nothing in section 13 affects the parties’ rights under the Construction Contracts Act. These are largely a repetition of the clauses in the 2013 edition.
Conclusion
The 2023 edition of NZS 3910 greatly simplifies and improves the dispute resolution clauses. It is another benefit for the new edition and a good reason why the 2023 edition should be adopted and used.
• This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons does not accept any liability other than to its clients, and then only in relation to specific requests for advice. For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons on (09) 379 4196.
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