When builders and clients fall out ...

By WARREN GAMBLE

Builder Keith Brown will never forget his first house contract in 1980. Twenty-two years later the modest South Auckland two-storey home with a concrete-block base and stone cladding is still haunting him.

The Manurewa house has been at the centre of one of the longest-running civil disputes in the country, earning the bewilderment of judges all the way to the highest court in the land.

It has cost former owner Bruce Adkin his marriage and almost triple the $50,062 price he contracted Brown for in July 1980.

It has also highlighted a recurring problem for the building industry - how to negotiate the minefield of commercial disputes without breaking the bank and spending years embroiled in disputes.

Last month, Court of Appeal judges refused Adkin leave to put the case before them. They upheld a High Court judgment forcing Adkin to pay Brown around $49,000 - the original disputed sum of $15,000 being dwarfed by interest and legal costs.

The appeal judges described it as an "almost unbelievably protracted saga." In the High Court last year Justice O'Regan said it was hard to believe that the parties could still be trying to settle a dispute involving a relatively small sum 20 years later.

Adkin, now 52, says the dispute was the major cause of his marriage breakup in 1988. His wife later reached a settlement with Brown and still lives in the Manurewa home.

Last week Adkin took out a loan to settle the case to pre-empt bankruptcy proceedings lodged by Brown.

He "hates to think" how much his own legal bill has been, saying only it was in the tens of thousands. Court papers show his bill was $92,000 last year.

Adkin admits the case does not make much sense in financial terms.

"The economy of it is absolutely a laugh, isn't it? All I wanted to do was to get the place right and there was no compromise to the structure of the home.

"At the end of the day if I have won anything it was a structurally safe home for my family."

At the heart of the dispute was Adkin's cancellation of Brown's contract in March 1981, citing structural and other construction defects.

The courts found the cancellation and non-payment of the $15,000 were premature. The defects could have been remedied for a relatively small sum and Brown was not given the chance to complete the job.

Brown began court action for his outstanding payment in July 1981. By 1990, after protracted disagreement over the extent of the defects, an independent panel of building referees was brought in. That is where the issue became further bogged down. Adkin challenged the referees' report all the way to the High Court, saying he was denied the chance to present oral evidence from experts.

The issue was referred back to the referees, who gave their second report in December 1999, assessing the items of defective workmanship at $3500.

The case was heard in November 2000 in the district court, which found the defects could have been remedied and were not enough to warrant cancellation. Adkin appealed unsuccessfully to the High Court and sought a Court of Appeal hearing.

The one thing that the former Air Force workmates agree on is the farcical length of time taken to resolve the case, but each blames the other for being obsessed.

Adkin also blames the justice system for delays and what he sees as the denial of his basic right to present evidence. "It was a case where there were so many people ducking for cover," he says. "Looking at it in hindsight, I should have taken another attitude and said, 'Get your house off my land'."

Brown, who acted for himself for most of the case, is also critical of the system.

"It's a case of obsessive people being led along by so-called expert witnesses and the judicial system doing nothing to speed up the process."

In a final twist this week, Brown is now discussing with his lawyer how much of the payment will go in legal fees.

"It's one thing to win the case after 22 years, but I still do not know how much I will get."

Brown was hoping the settlement would give him a new start.

Construction industry experts say while the case is extreme, it can take up to two years even to get a building dispute to arbitration.

Ray Duncan, owner of medium-sized Alliance Construction, has first-hand experience.

One dispute, still unresolved after two years, forced Duncan to refinance his family home to pay subcontractors.

"We were hurting pretty bad at that time and hanging on by our fingernails, but no way was receivership an option for us.

"My wife and I decided to inject some serious cash into the business to get all the smaller subcontractors paid off. Some of the larger subcontracting companies gave us some grace to help us out."

Duncan says he has seen dramatic changes in attitudes to contracts during his 30 years in the industry.

"Lots of deals between main contractors were done on a verbal price and the strength of a handshake.

"These days are quite different and the way some people are treated under the present laws is deplorable."

The industry, tarnished by building firm collapses such as Auckland-based Hartner, which went down owing creditors around $30 million, will get an overhaul this year with the arrival of the Construction Contracts Act.

Arbitrator and quantity surveyor Geoff Bayley says the act, due to be passed in the next few months, will help remove the "Ned Kelly" behaviour from construction sites.

He says the law of the jungle has prevailed since the 1987 repeal of legislation which allowed contractors to register a charge for money owed or a lien against a property.

Subcontractors were also protected by a system where owners and developers had to put a proportion of the contract price aside to settle disputed sums.

The law was scrapped because it was cumbersome and was abused by contractors holding developers to ransom. But Bayley says its repeal swung the pendulum the other way. It became common practice for subcontractors to have to put up a 10 per cent sum called a performance retention or defects liability fee.

In some cases unscrupulous main contractors used that money to fund jobs, and could not repay subcontractors at the end of the project. They then invented disputes over performance which could take years to sort out.

"If you want to create a nightmare to slow things down in the current judicial process, you can," says Bayley.

He says the act's fast-track dispute and enforcement procedures should also change attitudes from developers, owners and builders over contract conditions.

Bayley says one of the worst examples of onerous conditions was at an Auckland multistorey building where the developers insisted on the right to make random audits and cancel the contract if subcontractors were not financially sound. Farcically, a poor financial position could be because of non-payment by the developers.

Thirty subcontractors signed the clause, which was not invoked.

Bayley says the new act will not provide guaranteed payment, but ensures that cashflow is maintained and disputes sorted quickly. The fast-track disputes procedure provides for a building expert adjudicator to decide on a claim within 20 working days. Adjudicators can be agreed on or appointed by an independent body within five days of a claim being lodged.

Payment must then be made within two working days and before a party can take the case to arbitration or court.

The bill will invalidate the widespread practice of "pay when paid" clauses, which mean subcontractors would get paid only when or if the main contractors did.

Enforcement will also be beefed up under the act. Builders and subcontractors will be able to suspend work after five working days, and they can also apply to have adjudicators' decisions enforced in a fast-track court judgment or can apply for a charge against the land to secure payment. The charge can be ordered even if the landowner is only a close associate of the developer, such as a family member or business partner.

Bayley says the act will not prevent building industry failures, but it will reduce them.

"It will mean you will be dealing with acorn-sized disputes rather than oak trees, and will ensure that payments continue to flow."

For smaller problems, the Disputes Tribunal should provide a relatively quick and inexpensive option.

But as Auckland plasterer Darrin McLay found, its processes can also be manipulated.

In September 2000, McLay carried out a job for a small debt-collection company, charging $1500. After several excuses the company failed to follow its slogan: It's your right to be paid.

It also failed to turn up to a Disputes Tribunal case which the plasterer won. Instead, on the eve of that hearing the company countersued for $15,000, alleging delays to its renovations caused by McLay's faulty workmanship. The $15,000 figure, which was not backed by details, was conveniently above the $12,000 threshold for the tribunal, taking the case into the district court.

The firm missed several filing deadlines and had still failed to provide details of its claim ahead of a scheduled hearing in February. It then applied to switch the case back to the Disputes Tribunal for a lower amount, a request refused by the registrar.

Eighteen months after the job, the firm has paid the bill without interest.

McLay is waiting to hear whether legal aid will waive its charges. If not, all the money will go on legal and filing costs.

"I had no idea that the whole process would be so incredibly stressful and it's made me a lot more wary about what jobs I take on.

"It also made me realise that if you have no scruples and know how to manipulate the justice system, it's easy to beat someone down and get away with it."