A REVIEW OF THE CASES ON THE CONSTRUCTION CONTRACTS ACT 2002
As at 7 December 2012
by
Tómas Kennedy-Grant, QC
MA(Oxon), Gray's Inn, FCIArb, FICA, FSIArb, FAMINZ(Arb/Med)
Chartered Arbitrator
Introduction
1 It is impossible to tell how many times the provisions of the Construction Contracts Act 2002 (“CCA”) have been invoked since the Act came into force on 1 April 20031. It is also impossible to tell what proportion of the cases in which the Act has been invoked has resulted in judicial decisions. A search of the Ministry of Justice’s website2 at http://jdo.justice.govt.nz/jdo/Search.jsp provides links to 177 superior court decisions referring to the Act including one Supreme Court decision and 12 Court of Appeal decisions. There have, in addition, been a number of District Court decisions; but these are not easily accessible.
2 I examine these decisions under the following heads: a. Definitions – paragraphs 3-8;
b. The right to progress payments and the procedure for claiming and making them – paragraphs 9-57;
c. The consequences of a payer’s failure to comply with the provisions regarding payment schedules and the making of progress payments – paragraphs 58-59;
d. Adjudication – paragraphs 60-99;
1 The texts of the Act and of the Construction Contracts Regulations 2003 can be accessed on the New Zealand Government legislation website at www.legislation.govt.nz
e. Recovery of unpaid claims and enforcement of adjudicator’s determinations – paragraphs 100-128;
f. Service – paragraphs 129-137;
g. The prohibition of contracting out – paragraphs 138-139;
h. The High Court’s powers of judicial review – paragraphs 140-145.
3 In addition to giving references to printed law reports I have given references to the case reports on the Judicial Decisions Online website3 or, where available, to the case reports on the New Zealand Legal Information Institute website at http://www.nzlii.org .
Definitions
(a) “Construction contract”
4 In O’Connor Holdings Ltd v Ace Builders Construction Ltd4 the Court held that, while a contract for the direct hire of labour is not within the Act5, a contract for the supply of workers is.
(b) “Construction work”
5 The term “construction work” is defined in s 6 of the Act, as follows:
(1) In this Act, unless the context otherwise requires it, construction work means any of the following work:
(a) the construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling of any building, erection, edifice, or structure forming, or to form, part of land (whether permanent or not and whether constructed wholly or partly on, above, or below ground level):
(b) the construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition,
3 See paragraph 1 above for the url. 4 [2005] DCR 193
removal, or dismantling of any works forming, or to form, part of land; including—
(i) any road, motorway, aircraft runway, wharf, docks, harbour works, railway, cableway, or tramway:
(ii) any canal, inland waterway, pipeline, reservoir, aqueduct, water main, well, or sewer:
(iii) any electricity, water, gas, or telephone reticulation: (iv) any telecommunication apparatus or industrial plant:
(v) any installation for the purposes of land drainage or coast protection:
(c) the installation in any building or structure of fittings forming, or to form, part of land; including heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, security, and communications systems:
(d) the alteration, repair, maintenance, extension, demolition, or dismantling of the systems mentioned in paragraph (c):
(e) the external or internal cleaning of buildings and structures, so far as it is carried out in the course of their construction, erection, alteration, repair, restoration, or extension:
(f) any operation that forms an integral part of, or is preparatory to or is for rendering complete, work of the kind referred to in paragraphs (a) to (d); including—
(i) site clearance, earthmoving, excavation, tunnelling, and boring; and
(ii) laying foundations; and
(iii) erecting, maintaining, or dismantling scaffolding or cranes; and
(iv) prefabricating customised components of any building or structure, whether carried out on the construction site or elsewhere; and
(v) site restoration, landscaping, and the provision of roadways and other access works:
(g) the painting or decorating of the internal or external surfaces of any building or structure.
(2) Despite subsection (1), construction work does not include any of the following work:
(a) drilling for or extracting oil or natural gas:
(b) extracting (whether by underground or surface working) minerals, including tunnelling or boring, or constructing underground works, for that purpose.
6 This definition has been considered in the following cases:
a. In Gulf Harbour Investments Ltd v Y Gulf Harbour Ltd 6 the Court held that a yacht is not a “structure” within the meaning of that term in the definition of “construction work” in s 6(1)(g) of the Act. The argument that was advanced was that the absence from s 6(1)(e) and 6(1)(g) of the words “forming, or to form, part of land” meant that,
under those paragraphs of the subsection, construction work could include work in relation to chattels, including boats and aircraft. The Judge rejected this argument on the ground that it was clear from the definitions of “construction contract”, “commercial construction
contract” and “residential construction contract” in s 5 of the Act that
“construction work” is in every case on buildings or structures forming part of the land.
b. In Central House Movers Ltd v Russell7 it was accepted by both parties
that the relocation of a villa was “construction work”.
c. In Westpark Marina Ltd v Automated Solutions Ltd8 it was argued that the installation of cameras and computer software in barrier arms for a car park comes within the definition of “construction work”. The Court did not need to decide the issue;
d. In M.van der Wal Builders & Contractors Ltd v Walker9 the Court held that:
The Act does not presently authorise claims for payment in connection with construction work preparation or consultancy in connection with proposed work.
(c) “Dispute”
7 The term “dispute” is important because of its use in Part 3 of the Act, which provides for the adjudication of disputes. I consider it in paragraphs 60-70 below.
(d) “Residential occupier”
8 The term “residential occupier” is defined in s 5 of the Act to mean:
an individual who is occupying, or intends to occupy, the premises that are the subject of a construction contract wholly or mainly as a dwellinghouse.
7 High Court, Palmerston North, CIV 2010-454-103, 20/05/10, Christiansen AJ 8 High Court, Auckland, CIV2011-404-7295, 30/11/11, Abbott, AJ
I consider it in paragraph 108 below.
The right to progress payments and the procedure for claiming and making them
(a) Introduction
9 Part 2, Subpart 2 (ss14-18) of the Act provides that the parties to a construction contract “are free” to agree on progress payment provisions but that, to the extent that they “fail” to do so, the default provisions stipulated in the Act apply.
10 Part 2, Subpart 3 (ss19-24) of the Act provides for the making of, and responding to, payment claims (sections 20-21) and prescribes the consequences of failure by the payer to make payment (sections 22-24). Section 19 contains some necessary definitions.
11 Among the definitions in s 19 is the definition of “payee” as:
“the party to a construction contract who is entitled to a progress payment”10
In Suaniu v Hi-Qual Builders Ltd 11 the Court held that the fact that a code compliance certificate, the existence of which was a condition of a claim for payment, was rescinded after the claim had been made but before the time for serving a payment schedule had expired (no payment schedule was served) was irrelevant: the claim was valid when made.12
(b) Procedure: the courts’ general approach
12 The general approach of the courts to cases arising under Part 2 subpart 3 of the Act may be summed up by the following quotations:
10 The term “progress payment” is defined in s 5 of the Act and includes “final payment under the
contract”.
11 High Court, Auckland, CIV 2008-404-1576, 26/6/08, Wylie J.
12 See, to similar effect in relation to the effect of a later payment certificate and schedule on an earlier one the basis of a claim, Nash Properties Ltd v Harris Holdings Construction Ltd (High Court, Auckland, CIV 2009-404-1013, 11/6/09, Faire AJ).
a. from George Developments Ltd v Canam Construction Ltd 13
[41] We are satisfied that the necessary analysis must be undertaken with the purpose of the Act in mind. The purpose provision of the Act includes the fact that the Act was “to facilitate regular and timely payments between the parties to a construction contract”. The importance of such regular and timely payments is well recognised. Lord Denning (quoted in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195, 214 (HL) Lord Diplock) said:
“There must be a “cashflow” in the building trade. It is the very life blood
of the enterprise”.
[42] As is noted in Smellie Progress Payments and Adjudication (2003) at 31, “Although [the s 20(2)] requirements are mandatory, technical quibbles that they have not been complied with will probably receive scant
attention”. The learned author notes the New South Wales case of Hawkins Construction v Mac’s Industrial Pipework [2001] NSWSC 815 where Windeyer J considered the validity of a payment claim under legislation equivalent to the New Zealand Act and said at paragraph 8:
[Counsel] contended that the payment claims served on the plaintiff … were ineffective because they did not comply with section 13(2)(a) and (c) of the Act. The arguments were that they contained the incorrect contract number and abbreviated the name of the Act under which the claim was made … As to the first, while the contract number may have been wrong in some cases, the claims did identify the work done. The second argument was that because the payment claims abbreviated the name of the Act, they did not fulfil a statutory requirement to name the Act. This argument might have had some weight in 1800. In 2001, an argument based on the absence of the word “and” and the letters “USTRY” has no merit. It should not have been put.
[43] We acknowledge that the approach of this appellant was not as pedantic as those confronting Windeyer J, but the general observation that technical quibbles should not be allowed to vitiate a payment claim that substantively complies with the requirements of the Act is critical and needs to be weighed alongside the “technocratic” interpretation advanced by George. 14
b. from Marsden Villas Ltd v Wooding Construction Ltd 15
[16] The Act sets up a procedure whereby requests for payment are to be provided by contractors in a certain form. They must be responded to by the principal within a certain timeframe and in a certain form, failing which the amount claimed by the contractor will become due for payment and can be enforced in the Courts as a debt. At that point, if the principal has failed to provide the response within the necessary time frame, the payment claimed must be made. The substantive issues relating to the payment can still be argued at a later point and adjustments made later if it is shown that there was a set-off or other basis for reducing the contractor’s claim. When there is a failure to pay the Act gives the contractor the right to give notice of intention to suspend work, and then if no payment is made, to suspend work. There is also a procedure set up for the adjudication of disputes.
13 [2006] 1 NZLR 177 (CA), (2005) 18 PRNZ 84, CA 244/04, 12/4/05.
14 See, for examples of the courts distinguishing between substantial objections and technical ones,
Foggo v R J Merrifield Ltd (High Court, Christchurch, CIV 2009-409-605, 21/9/09, French J) and Coker v Phil Brown Building Ltd (High Court, Blenheim, CIV 2010-406-235, 17/2/11, Ronald Young
J).
[17] The Act therefore has a focus on a payment procedure, the results that arise from the observance or non-observance of those procedures, and the quick resolution of disputes. The processes that it sets up are designed to side-step immediate engagement on the substantive issues such as set-off for poor workmanship which were in the past so often used as tools for
unscrupulous principals and head contractors to delay payments. As far as the principal is concerned, the regime set up is “sudden death”. Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits. In that way if a principal does not act in accordance with the quick procedures of the Act, that principal, rather than the contractor and sub-contractors, will have to bear the consequences of delay in terms of cashflow.
c. from Laywood v Holmes Construction Wellington Ltd16:
[52] … the CCA adopts a “pay now, argue later” philosophy … 17
(c) Payment claims
(i) Permissible and impermissible claims
13 Section 20(1) provides that:
“A payee may serve a payment claim on the payer for each progress payment”
The term “progress payment” is defined in s 5 as follows:
(a) means a payment for construction work carried out under a construction contract that is in the nature of an instalment (whether or not of equal value) of the contract price for the contract (other than an amount that is, or is in the nature of, a deposit under the contract); and
(b) includes any final payment under the contract.
16 [2009] NZCA 35, [2009] 2 NZLR 243
17 This principle has been recognised by the Court of Appeal in Rees v Firth [2011] NZCA andapplied in the following cases at first instance: Luxta Ltd v Capital Construction Ltd (High Court, Wellington, CIV 2009-485-1957, 10/02/10, Gendall AJ); Yun Corporation Ltd v YQT Ltd (formerly Canam
Construction (1955) Ltd) (High Court, Auckland, CIV 2009-404-7656, 26/02/10, Abbott AJ); Canam Construction Ltd v Ormiston Hospital Investment Ltd (High Court, Auckland, CIV 2010-404-291,
10/8/10, Faire AJ); Kariiti Ltd v Donovan Drainage & Earthmoving Ltd (High Court, Whangarei, CIV 210-488-613, 19/11/10, Bell AJ); Luxta Ltd v Paragon Builders Ltd (High Court, Wellington, CIV 2010-485-1825, 17/12/10, Gendall AJ); Chow Group Ltd v Walton (High Court, Auckland, CIV 2011-404-3148, 9/6/11, Rodney Hansen J); M van der Wal Builders and Contractors Ltd v Dunphy (High Court, Auckland, CIV 2011-404-83, 26/8/11, Christiansen AJ; and Absolute QS Ltd v Ascot Aluminium
14 In George Developments Ltd v Canam Construction Ltd18 the Court of Appeal made the following fundamental statement regarding the scope of the Act at paragraphs [55]-[56] of the Judgment:
[55] … Although the definition of construction work in s 6 of the Act refers to physical work, the force and thrust of the Act cannot be limited to claims for physical work actually done as opposed to costs which inevitably arise from carrying out the work. This might include: insurance costs, interest, costs of preparing a programme or an extension of time entitlement. As long as the construction contract provides for the payee to be paid the claimed amount in consideration for its performance of construction work (whether or not the entitlement is contingent on a factor such as an extension of time being granted), the payee is entitled to make a claim for payment in a payment claim. If the payer’s stance is vindicated, the particular amount will not have to be paid, but that will not prejudice the entitlement of the payee to be paid the other amounts claimed in the payment claim or invalidate the payment claim as a whole. It is not necessary that every amount claimed in the payment claim can be directly linked to a physical task involved in the construction of the building or structure. The Act was specifically intended to be interpreted so as to achieve its object of speeding up payments.
[56] This approach was echoed by Quasar, where the Court distinguished between an amount claimed under a provision in the construction contract and a claim for damages for breach which is not referable to a provision in the contract. We too adopt the same reasoning. We reject the suggestion that the Act and its protective processes are to be interpreted in a restrictive and confining manner.
In that case the Court of Appeal upheld the lower Court’s finding that a claim for extension of time costs could be included in a payment claim under the Act.
15 In Jian Hua Property Ltd v Freemont Design & Construction Ltd 19 the contractor contended that the principal’s payment schedule was defective because it did not deal with payment claims for “down time and loss of
profits”. The contract had been terminated prematurely, by mutual consent,
because of difficulties being experienced in obtaining the necessary planning consents. The Court held that the claims did not arise under the contract but were “the respondent’s estimates of the loss it has suffered because it is no
longer possible to carry out the work under the contract”. The claims were
therefore not properly the subject of a payment claim under the Act.
18 [2006] 1 NZLR 177 (CA) (2005) 18 PRNZ 84, CA 244/04, 12/4/05 19 High Court, Auckland, CIV 2005-404-5526, 16/2/06, Doogue AJ.
16 In Marsden Villas Ltd v Wooding Construction Ltd 20 the progress claim included claims that had been considered and, it was contended, rejected by the adjudicator at an earlier adjudication. The Court held that the adjudicator had not in fact determined those claims, so that it was unnecessary for it to determine the effect on the payment claim if it had included determined claims. However, obiter, the Court drew a distinction between determinations that a party is liable to make a payment and determinations about the parties’ rights and obligations under the construction contract and noted that it is only the former that are enforceable under s 58 of the Act.
17 In Invent Solutions Ltd v Chan Developments Trustee Ltd 21 the Court held that claims made under an exit agreement providing for the termination of a construction contract were claims arising under the contract.
18 In Redhill Development (NZ) Ltd v Green 22, a judicial review application, the Court said:
[33] I deal first with the submission that the phrase “under the contract” should be interpreted narrowly. I agree that the use of this phrase suggests that Parliament intended to restrict the range of disputes that adjudicators could determine under the Act. Disputes may arise out of, or in relation to, a construction contract in numerous ways. It would not be appropriate, however, for many of them to be determined by an adjudicator. Claims for misrepresentation and under the Fair Trading Act 1986 are good examples of this. Parliament clearly intended that those types of claims should remain solely within the jurisdiction of the courts notwithstanding the fact that they might arise out of, or be in relation to, a construction contract.
[34] I do not, however, accept that the words “under the contract” should necessarily be interpreted as narrowly as the plaintiffs suggest. They must be interpreted so as to give effect to the purposes and objects of the Act. If that requires them to be accorded a broad interpretation, then that is the approach that the Court must take.
The Court in that case was required to consider whether an adjudicator, having found that the parties to a construction contract had not agreed to an extension of time for the service of a payment schedule, had jurisdiction also to find that, in terms of s 23(2)(a), the amount of the claim was recoverable ‘as a debt due
to the payee”. The applicant developer argued that that was a consequence of
the statute and did not arise under the construction contract, so that the
20 [2007] 1 NZLR 807, High Court, Auckland, CIV 2008-404-2136, 25/5/06, Asher J. 21 High Court, Wellington, CIV 2005-485-2834, 1/4/09, Gendall AJ.
adjudicator had no jurisdiction to make the order in question. The Court took as its starting point the identification of the dispute that the adjudicator was required to determine. It held that the dispute was whether the amount of the claim was payable to the payee under the contract and that the adjudicator had jurisdiction to make the order challenged. Alternatively, the Court held that the challenged order was of “a consequential or ancillary nature necessary to
exercise or complete the exercise of the [admitted] jurisdiction”, under s
38(1)(b) of the Act.
19 In M van der Wal Builders & Contractors Ltd v Walker 23 the Court held, in the context of a summary judgment application to enforce an adjudicator’s determination upholding a claim for breach of contract, that a determination upholding a claim for damages for breach of contract was not a determination of “a liability to ‘make a payment under’ that contract” under s 48(1)(a) of the Act and was therefore not enforceable under s 58(1)(a) and s 59(2). An adjudicator’s determination in respect of such a claim would be subject to s 58(2) and (3) and s 61.
(ii) Frequency
20 Section 20(1) provides that:
A payee may serve a payment claim on the payer for each progress payment,— (a) if the contract provides for the matter, at the end of the relevant period that
is specified in, or is determined in accordance with the terms of, the contract; or
(b) if the contract does not provide for the matter, at the end of the relevant period referred to in section 17(2).
21 In Marsden Villas Ltd v Wooding Construction Ltd 24 the Court held that, notwithstanding the inclusion in the contract of a clause stating that payment claims “shall be submitted in respect of work carried out during periods of not
less than one Month ” and the definition in the contract of “Month” as
23 High Court, Auckland, CIV 2011-404-83, 26/8/11, Christiansen AJ.
“calendar month”, a claim for a shorter period was not invalid. The Judge took the same approach, obiter, to the equivalent provision in the default payment regime (s 17(2)).
(iii) Service
22 Section 20(1) requires a payment claim to be served “on the payer”. In
Winslow Properties Ltd v Wooding Construction Ltd25 the Court held that, where the contract provides for service on the engineer for the principal, such service is valid. The argument that such a contractual provision amounted to contracting out of the Act was rejected (see further paragraph 101(d) below).
23 In Herbert Construction Company Ltd v Alexander26 the Court rejected an argument that the payment claim was invalid because it was not “addressed to
the payer”, on the basis that s 20 did not require a payment claim to be
“addressed to any one particular person”.
24 For the effect of s 80 see paragraphs 92-99 below.
(iv) Content: introduction
25 Section 20(2)-(4) provide:
(2) A payment claim must— (a) be in writing; and
(b) contain sufficient details to identify the construction contract to which the progress payment relates; and
(c) identify the construction work and the relevant period to which the progress payment relates; and
(d) indicate a claimed amount and the due date for payment; and (e) indicate the manner in which the payee calculated the claimed
amount; and
(f) state that it is made under this Act.
25 High Court, Auckland, CIV 2006-404-4969, 14/12/06, Cooper J. The decision is reported at [2007] DCR 408. It was followed in Hawkins Construction Ltd v Ecosse Afrique Enterprises Ltd (High Court, Wellington, CIV 2008-485-2327, 25/2/09, Gendall AJ).
(3) If a payment claim is served on a residential occupier, it must be accompanied by—
(a) an outline of the process for responding to that claim; and (b) an explanation of the consequences of—
(i) not responding to a payment claim; and
(ii) not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4) The matters referred to in subsection (3)(a) and (b) must— (a) be in writing; and
(b) be in the prescribed form (if any).
Form 1 in Schedule 1 to the Construction Contracts Regulations 2003 prescribes the information that must accompany a payment claim served on a residential occupier.
26 The requirements of s 20(2)(a) and (f) must be complied with to the letter. The requirements of s 20(2)(b)-(e) are less strict and are satisfied if complied with substantially.27
(v) Content: indication of construction work to which the progress claim relates (s20(2)(c))
27 In Cube Building Solutions Ltd v King28 the construction contract provided for six progress payments as follows:
80 Bale shed
5% of the Contract Price paid as a non-refundable deposit upon signature of this Contract 10% of the Contract Price paid 1 month before the advised start date of construction. 20% of the Contract Price paid 30 days following the start of construction. 20% of the Contract Price paid 60 days following the start of construction
35% of the Contract Price paid 90 days following the start of construction.
10% of the Contract Price paid on notification of issue of code compliance certificate.
The contractual payment provisions were thus very different from the normal value-of- work done or milestone-reached formula. The contractor (“Cube”) served a payment claim on the employer (“King”) which did not ascribe particular work to the claim but, rather, claimed 35% of the contract price as the payment agreed to be made “90 days following the start of construction”. Counsel for the employer argued that the payment claim did not comply with s
27 Welsh v Gunac South Auckland Ltd (High Court, Auckland, CIV 2006-404-7877, 11/2/08, Allan J) and McAlpine Hussmann Ltd v Cooke Industries Ltd [2012] NZHC 464.
20(2)(c) of the Act, in that “it did not identify the construction work ... to
which the progress payment relates”. The Court rejected this argument at
paragraphs 27-29 of the judgment :
[27] The regime under the contract does not provide for payments proportionate to the work completed to a particular date. Rather it provides for payments to be made at given points as percentages of the contract price. In these circumstances it would be a
misnomer to say in a payment claim that the progress payment relates to any particular construction work. The claim comes about not because particular work has been done but because a date has arrived when the contract requires a percentage of the contract price to be paid.
[28] In these circumstances, it is sufficient that the construction work as a whole has been identified (the position is of course different in relation to claims for variations, to which I will return – there the payment claim, in the terminology of s20(1)(c) can be truly said to relate to particular construction work).
[29] I do not find PC5 to be ineffective by reason of a breach of s20(2)(c) – for the reasons I have stated PC5 adequately identifies the construction work to which it relates.
28 In McAlpine Hussmann Ltd v Cooke Industries Ltd29 a contract for the supply and installation of HVAC Mechanical Services required the subcontractor to supply air conditioning diffusers and componentry made by a particular manufacturer. For reasons which it is unnecessary to explain, the contractor instructed the subcontractor to cancel the order which it had placed with the manufacturer. The subcontractor submitted a claim for “Charges associated
with the cancellation of your order no …” The Court held that the reference to
the order number was a sufficient compliance with s 20(2)(c).
(vi) Content: indication of due date for payment (s20(2)(d))
29 In Jenkin v Hanna30 the Judge held that the deficiency was remedied by the fact that, by reference to the notice to residential occupier, “the defendant
would have been readily able to ascertain a due date”. I question the
correctness of the Judge’s decision.
30 In Suaniu v Hi-Qual Builders Ltd 31 the Court held:
29 [2012] NZHC 464.
30 District Court, Blenheim, CIV 2008-006-101, 23/6/08, Zohrab DCJ. 31 High Court, Auckland, CIV 2008-404-1576, 26/6/08, Wylie J.
a. that, where the contractual term as to the due date for payment is unworkable, the default provision of s 22(b)(ii) applies; and
b. that the fact that the payment claim stated that payment was due five days after receipt of the claim (which was not correct, given (a)) did not invalidate the claim.32
31 In Cube Building Solutions Ltd v King33 the Court held that the statement in the payment claim that “the claim is payable on” complied with s 20(2)(d) because:
Any reading of the payment claim would indicate the “payable” is intended to be synonymous with “due”.
32 Sections 14 and 15 of the Act provide:
14 The parties to a construction contract are free to agree between themselves on a mechanism for determining—
(a) the number of progress payments under the contract: (b) the interval between those payments:
(c) the amount of each of those payments:
(d) the date when each of those payments becomes due.
15 If the parties to a construction contract fail to agree on a mechanism for determining any of the matters referred to in section 14, the relevant provisions of sections 16 to 18 apply to the extent that those provisions relate to any matter for which a mechanism has not been agreed on between the parties
Section 10(a) of the Act provides that ss15-18 do not apply to “residential
construction contracts” (see s5 for the definition of a “residential construction contract”). In Coker v Phil Brown Building Ltd34 the parties had agreed that there would be progress payments under the contract but had not agreed on the details of those payments. In the District Court it was held that the reference to s 17(2) in s 20(1) (see paragraph 20 above) was effective to fix the date by which the progress payment was to be made. The High Court rejected this approach.
32 This case was followed, in relation to the issue of the effect of misstatement of the due date, in Invent
Solutions Ltd v Chan Developments Ltd (High Court, Wellington, CIV 2008-485-2834, 1/4/09, Gendall
AJ).
33 High Court, Christchurch, CIV 2009-409-34, 17/12/09, Osborne AJ. 34 High Court, Wellington, CIV 2010-406-235, 2/5/11, Ronald Young J.
33 In Chow Group Ltd v Walton35 the Court held that the provision in the general conditions of contract36 that:
No payment otherwise due under the Contract Documents shall become payable until the Contractor and its surety have executed and delivered the bond to the Principal
did not have the effect of postponing the date on which the sum claimed became due. The Court held:
The concept of a due date for payment under the contract is a different concept to whether or not a payment which otherwise may be due (because the due date has passed) is payable.
34 In Loveridge v Watts & Hughes Construction Ltd37 the claimant had inserted, in the line of the payment claim form entitled “Claim date and Period
covered” the information “30/6/2010 feb-june”. It therefore failed to state a
date on which payment was said to be due. The Court held that the payment claim was invalid because it did not specify a due date for payment.
35 In Herbert Construction Co Ltd v Alexander38 the Court held that the failure of the architect to assess the contractor’s payment claim and issue a provisional payment schedule, as part of the payment process, did not have the effect of postponing the due date for payment in terms of the contract conditions, ie, in that case, within 10 days of receipt of the payment claim. The Associate Judge distinguished his earlier decision in Construction Service Co
(Wellington) Ltd (in receivership) v Wellington Waterfront Ltd39. Further reference is made to this decision in paragraph 115 below.
(vii) Content: indication of manner in which claimed amount calculated (s20(2)(e))
35 High Court, Auckland, CIV 2011-404-3148, 19/8/11, Venning J. 36 NZS 3915:2005 cl 3.1.3.
37 High Court, Tauranga, CIV 2011-470-275, 29/9/11, Doogue AJ. 38 High Court, Napier, CIV 2011-441-500, 21/10/11, Gendall AJ. 39 High Court, Wellington, CIV 2006-485-1117, 13/9/09, Gendall AJ.
36 In George Developments Ltd v Canam Construction Ltd40 the Court of Appeal
held that it was permissible to have regard to earlier claims in deciding whether a claim “indicated” the manner in which the claimed amount had been calculated.
(viii) Content: identification as claim under the Act (s20(2)(f))
37 Section 20(2)(f) of the Act provides that a payment claim:
must ... state that it is made under the Act.
38 The District Court, in Civil Construction Group Limited v Dhuez Ltd41, and the High Court, in Welsh v Gunac South Auckland Ltd 42 have held that failure to comply with this provision is fatal.
39 However:
a. In the latter case Allan J stated, obiter, that:
It may be that in a given case a Court might properly conclude that an omission to comply with s 20(2)(f) is not determinative. An example might be the case of a major construction project in which a single payment claim appearing in the middle of a series of similar documents happens to omit the necessary reference to the Act. In those circumstances, it could not properly be said that the principal had been misled, or is in doubt as to what is intended. A Court might well then hold that the document ought to be read along with all previous payment claims in the series. But I express no firm view as to that. It is a matter for another court at another time.
b. In Winslow Properties Ltd v Wooding Construction Ltd 43, Cooper J held that a claim that failed to state that it was a payment claim under the Act was nevertheless valid, because it was accompanied by a
40 [2006] 1 NZLR 177 (CA), (2005) 18 PRNZ 84, CA 244/04, 12/4/05. 41 District Court, Auckland, CIV 2006-4-102, 19/5/06, Joyce DCJ. 42 High Court, Auckland, CIV 2006-404-7877, 11/2/08, Allan J.
43 High Court, Auckland, CIV 2006-404-4969, 14/12/06, Cooper J. The decision is reported at [2007] DCR 408. It was followed in Hawkins Construction Ltd v Ecosse Afrique Enterprises Ltd (High Court, Wellington, CIV 2008-485-2327, 25/2/09, Gendall AJ).
covering letter, the first paragraph of which referred to the claim as “Progress Claim No 18 which is a payment claim under the
Construction Contracts Act 2002”.
c. In Invent Solutions Ltd v Chan Developments Ltd 44 the Court held that the misdescription of the Act as the Construction Contracts Act “2003” did not invalidate the claim.
(ix) Content: information required to be given to residential occupier in terms of s 20(3) and (4)
40 Section 20(3) and (4) of the Act provide:
(3) If a payment claim is served on a residential occupier, it must be accompanied by—
(a) an outline of the process for responding to that claim; and (b) an explanation of the consequences of—
(i) not responding to a payment claim; and
(ii) not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).
(4) The matters referred to in subsection (3)(a) and (b) must— (a) be in writing; and
(b) be in the prescribed form (if any).
41 In Bills v Arnold Jensen (2005) Ltd 45 the contractor’s payment claims were initially served without the information required to be given to a residential occupier. The claims were subsequently reissued with the necessary information; and no issue was taken regarding this.
42 In Foggo v RJ Merrifield Ltd46 the prescribed form was used but contained
errors capable of confusing the payer. The claims were held to be invalid.
(x) Format
44 High Court, Wellington, CIV 2005-485-2834, 1/4/09, Gendall AJ. 45 High Court, Christchurch, CIV 2008-409-1349, 10/10/08, Fogarty J. 46 High Court, Christchurch, CIV 2009-409-605, 21/9/09, French J.
43 In George Developments Ltd v Canam Construction Ltd47 the Court of Appeal also rejected the argument that the payment claim in that case was invalid because it was in the normal, cumulative, format. The Court took the view that:
… technical quibbles should not be allowed to vitiate a payment claim that substantively complies with the requirements of the Act
and went on to note that the contractor in that case had not complained about the comprehensibility of previous payment claims made in the same way. (This reliance on the course of conduct between the parties is reflected in a number of other cases, eg Solidcrete Technology Ltd v First Pacific
Investments Ltd48 and Marsden Villas Ltd v Wooding Construction Ltd 49).
(xi) Inability to cure defect by amended or substituted payment claim
44 In Loveridge Ltd v Watts & Hughes Construction Ltd50 the Court held that it is not possible to cure a defect in a payment claim by serving a subsequent amended or substituted payment claim, on the basis that:
By using the terminology that it did in enacting ss 20 and 21, the legislature has made it clear that there will be only one payment claim relating to each progress payment and one payment schedule responding to it.
The Court held that there is no bar to a claim being made in a later period for work done in an earlier period.
(xii) The possible effect of bad faith
45 The question of whether the validity of a payment claim or payment schedule may be affected if there is bad faith has been considered in two cases:
a. In Cube Building Solutions Ltd v King51 the Court considered, but
rejected on the facts, the contractor’s argument that the employer’s
47 [2006] 1 NZLR 177 (CA), (2005) 18 PRNZ 84, CA 244/04, 12/4/05. 48 [2005] DCR 769.
49 [2007] 1 NZLR 807, High Court, Auckland, CIV 2008-404-2136, 25/5/06, Asher J. 50 High Court, Tauranga Registry, CIV 2011-470-275, 29/9/11, Doogue AJ.
payment schedules were invalid because they asserted there was no sum payable on the claim but accepted that there might be “extreme
cases where an inference of bad faith is irresistible having regard to the content of a particular payment schedule” and “that it would not have been Parliament’s intention in the Act to allow a payer to have treated as valid a payment schedule presented in bad faith” (see
paragraphs [68]-[71] of the judgment for the full extent of the Judge’s consideration of the point).
b. In Chow Group Ltd v Walton52 the Court referred to the earlier decision in Cube Buildings Solutions Ltd v King (see subparagraph (a) of this paragraph) but held that the later case fell well short of the extreme case posited by Osborne JA in the earlier case.
(d) Payment schedules
(i) Content: introduction
46 Section 21 of the Act provides:
(1) A payer may respond to a payment claim by providing a payment schedule to the payee
(2) A payment schedule must— (a) be in writing; and
(b) identify the payment claim to which it relates; and (c) indicate a scheduled amount.
(3) If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a) the manner in which the payer calculated the scheduled amount; and (b) the payer's reason or reasons for the difference between the scheduled
amount and the claimed amount; and
(c) in a case where the difference is because the payer is withholding payment on any basis, the payer's reason or reasons for withholding payment.
51 High Court, Christchurch, CIV 2009-409-34, 17/12/09, Osborne AJ. 52 High Court, Auckland, CIV 2011-404-3148, 19/8/11, Venning J
(ii) Content: nature of payment schedule
47 In Jian Hua Property Ltd v Freemont Design & Construction Ltd53 the Court
held that the provisional progress payment schedule issued by the engineer to the contract (in terms of a contractual scheme which required the payer to respond to the provisional progress schedule and the engineer then to issue a progress payment schedule) was not a payment schedule. The Court said:
The engineer’s letter of 25 August 2005 does not clearly amount to a statement of the amount that the payer proposes to pay to the payee. That letter is a preliminary communication between the engineer and the payer. An objective reading of the document would not convey to the payee that this was the statement by the payer of the amount that it proposed to pay.
(iii) Content: meaning of the word “indicate”
48 The word “indicate” is used in both s 21(2)(c) and s 21(3). In Solidcrete
Technology Ltd v First Pacific Investments Ltd54 Judge Roderick Joyce QC had this to say about the meaning of the word “indicate” in s 21(2)(c):
[61] Did it indicate the payer’s reason or reasons for withholding payment on any basis? In other, related to the statute, words did it explain (in indicative terms) the difference?
[62] To “indicate” means “to point out, point to or make known – to show more or less distinctly”: see the Shorter Oxford Dictionary on Historical Principal [sic]. That dictionary offers as a variant “to express briefly, lightly or without development; to give an indication.
[63] So the statute’s choice of verb must be taken to demonstrate that something rather less than, for example, the full and explicit particulars requisite for many pleadings will suffice.
…
[65] After what appears immediately above had been written, my attention was drawn to Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140. [66] There, (under the equivalent New South Wales legislation) Palmer J had the
following to say as to what a payment schedule should show: …
s 14(3) of the Act, in requiring a respondent to “indicate” its reasons for withholding payment, does not require the payment schedule give full particulars of those reasons. The use of the word “indicate” rather than “state”, “specify” or “set out”, conveys an
53 High Court, Auckland, CIV 2005-404-5526, 16/2/06, Doogue AJ. 54 [2005] DCR 769.
impression that some want of precision and particularity is permissible as long as the essence of the “reason” for withholding the payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication
[67] I take respectful comfort from the fact that this approach is one coinciding with that to which I had already been attracted.
(iv) Content: permissibility of inclusion of claim for set-off
49 In Cube Building Solutions Ltd v King55 the Court held (applying s 79 of the Act by analogy) that counterclaims/set-offs/cross-demands contained in a payment schedule cannot be upheld unless they are the subject of a judgment or there is no factual dispute in relation to them but that the inclusion of claims for set-off in a payment schedule does not invalidate the payment schedule. The Court’s reasoning for the latter part of its decision was as follows (paragraph [62] of the judgment):
The fact that s 79 permits a court to give effect [to] a counterclaim/set-off/cross-demand where there is not in fact any dispute between the parties in relation to that claim indicates that at least in some circumstances a counterclaim/set-off/cross-demand can be validly claimed within a payment schedule. In the context of developing discussions or disputes between parties, it may well be that a paye[e] does not know whether there is any dispute as to a set-off until the payer provides the payment schedule claiming the set-off. At that point it is open to the payee to accept or dispute the said set-off claim. At the point the payment schedule is provided, it cannot be argued that the claiming of a counterclaim/set-off/cross-demand of itself invalidates a payment schedule.
In coming to this conclusion, the Associate Judge declined to adopt what he appeared to consider to be the contrary view expressed by Harrison J in
Metalcraft Industries Ltd v Christie56.
(v) Content: whether requirements as to content satisfied
50 The following are some of the cases in which a payment schedule has been held to satisfy the requirements of the Act as to content:
a. Solidcrete Technology Ltd v First Pacific Investments Ltd57 :
55 High Court, Christchurch, CIV 2009-409-34, 17/12/09, Osborne AJ. 56 High Court, Whangarei, CIV 2006-488-645, 15/2/07.
In this case the Court held that the plaintiff had sufficient information to enable it to decide whether to pursue the claim: the previous claims had been dealt with on the same basis of a valuation of completed work and the reason for the difference on this occasion (defective work) was already known to it.
b. Westnorth Labour Hire Ltd v SB Properties Ltd 58:
In this case the judge held that, although the respondent’s letter did not adopt the terminology of the Act, was not stated to be a payment schedule and did not “specify that the scheduled amount is nil”:
… the essential message is clear and unequivocal. Mr Mullane explains why he now doubts the accuracy of Westnorth’s time sheets and hence the sums he has been charged. He identifies a charge for materials that have been returned and instances of faulty workmanship which would entitle SB Properties to counterclaim. He says he will not pay the two invoices [which were the last two in a series] until Westnorth provides him with full particulars of what the contracted labour has done.
c. NCB 2000 Ltd v Hurlstone Earthmoving Ltd59 :
In this case the payment schedule took the form of a letter, which had the heading “88 Lady Ruby Drive – Construction Contracts Act 2002”. It did not specify the payment claim to which it was a response. However, because there was only one relevant claim that the letter could have been responding to, the Court held that the relevant claim had been sufficiently identified. The Court also held that, in the circumstances of the case, the question of whether NCB had sufficiently stated the reasons for the difference between the scheduled amount and the amount claimed should be judged against the background of previous correspondence between the parties.
51 The following are some of the cases in which the payer’s response has been held not to satisfy the requirements of the Act as to the content of a payment schedule:
a. West City Construction Ltd v Edney60:
58 High Court, Auckland, CIV 2006-404-858, 19/12/06, Rodney Hansen J. 59 High Court, Auckland, CIV 2010-404-8096, 23/6/11, Wylie J.
In this case the respondent did not specify a payment amount but, in the Judge’s words, “rather, at most, it specified a formula”.
b. 10 Gilmer Ltd v Tracer Interiors and Construction Ltd 61:
In this case there were four payment claims. Two of the responses were held to be defective because, although they included a scheduled amount, they did not indicate the manner in which that amount was calculated nor the payer’s reasons for the difference between the claimed amount and the scheduled amount nor the payer’s reasons for withholding payment.
c. Mules Construction Ltd v Wedding Earthmovers Ltd62 :
In this case (which is one of a number of cases in which the alleged payment schedule has taken the form of a letter rather than a formal document (other such cases are Westnorth Labour Hire Ltd v SB
Properties Ltd63 and Metalcraft Industries Ltd v Christie 64)) the letter made it clear that the head contractor would “dispute liability for the
claims and that the invoices [would] be subject to counterclaims or counter charges for the cost of remedial works” but did not specify
“the extent to which any charges may be set off against the claim”. d. Metalcraft Industries Ltd v Christie 65:
This is another letter case. The payer asserted that remedial work was required at a cost which would exceed the payment claim. The Court held that:
An assertion that remedial work is required at a cost which would exceed the payment claim could never constitute a valid reason either for the difference between the scheduled amount and the amount claimed or for withholding payment. General and unspecified allegations of defective workmanship are insufficient unless quantified within a reduction for the claimed cost of remedial work.66
e. Greys Avenue Investments Ltd v Harbour Construction Ltd 67:
61 High Court, Wellington. CIV 2005-485-2009, 6/12/05, Gendall A.J. 62 High Court, Auckland, CIV 2006-404-4570, 20/12/06, Sargisson A.J. 63 High Court, Auckland, CIV 2006-404-858, 19/12/06, Rodney Hansen J. 64 High Court, Whangarei, CIV 2006-488-645, 15/2/07, Harrison J. 65 High Court, Whangarei, CIV 2006-488-645, 15/2/07, Harrison J.
66 For a similar case see Invent Solutions Ltd v Chan Developments Trustee Ltd (High Court, Wellington, CIV 2005-485-2834, 1/4/09, Gendall AJ).
The payer responded to two of the three claims by providing a document headed “Claims Certificate Breakdown Summary”. The Court held that this did not comply with the requirements of s 21(2)b) and (c) or (3)(a) and (b).
f. Foggo v RJ Merrifield Ltd 68:
In this case the Court declined to apply the approach adopted in
George Developments Ltd v Canam Construction Ltd69 to oral discussions between the parties.
g. Concrete Structures (NZ) Ltd v Inframax Construction Ltd70 :
In this case the respondent wrote a letter giving as its reasons for providing a “nil” scheduled amount the facts that the previous payment claim was subject to adjudication, the amount claimed in the current payment claim was less than that claimed in the previous payment claim, no work had been done since the previous payment claim, there were no new items, and there was nothing new in the current claim. The respondent was in error in saying that the current payment claim did not go beyond the previous one and contained no new items. The Court also held that it was not sufficient for the respondent to rely upon the fact that the claimant had not carried out further work on site since it had issued the previous payment claim:
Contracts of this type give rise to an ongoing process in which both parties regularly re-assess their respective positions in light of information that comes to light as matters progress.
h. Chow Group Ltd v Walton71 :
The payment schedule in this case did not indicate a scheduled amount nor set out the reason or reasons for withholding payment.
i. Herbert Construction Co Ltd v Alexander72:
In this case the payer issued a payment schedule in response to one payment claim but not in response to another.
68 High Court, Christchurch, CIV 2009-409-605, 21/9/09, French J. 69 [2006] 1 NZLR 177 (CA), (2005) 18 PRNZ 84, CA 244/04, 12/4/05. 70 High Court, Hamilton Registry, CIV 2010-419-909, 9/11/10, Lang J. 71 High Court, Auckland, CIV 2011-404-3148, 19/8/11, Venning J. 72 High Court, Napier, CIV 2011-441-500, 21/10/11, Gendall AJ.
j. McAlpine Hussmann Ltd v Cooke Industries Ltd73:
In this case the payment schedule letter read, as far as relevant:
To avoid doubt our position is:
1 If that allowance is not acceptable as full and final payment, then no amount is payable, and the amount is nil; …
The Court held that the payment schedule did not comply with s 21 because “a tag is placed on the scheduled amount”.
k. Seating Systems Ltd v Kidson Construction Ltd74:
In this case the document relied on as a payment schedule was an email raising a series of questions about the invoices in question. The Court held that, read as a whole, the document “is seeking answers” and “can[not] be fairly construed as a document which complies with
the requirements of a scheduled amount in s21.”
(vi) Timing
52 In terms of s 22 of the Act:
Liability for paying claimed amount
A payer becomes liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates if—
(a) a payee serves a payment claim on a payer; and
(b) the payer does not provide a payment schedule to the payee within— (i) the time required by the relevant construction contract; or (ii) if the contract does not provide for the matter, 20 working days
after the payment claim is served.
(emphasis added)
53 For a decision on when the default time frame established by s 22(b)(ii) applies see Suaniu v Hi-Qual Builders Ltd 75.
73 [2012] NZHC 464. 74 [2012] NZHC 2217.
54 In each of TGC Properties Ltd v Freemont Design and Construction Ltd 76,
Marsden Villas Ltd v Wooding Construction Ltd 77 and Winslow Properties
Ltd v Wooding Construction Ltd 78 there was a contractual payment regime which required the payment schedule to be served within a shorter period of time than the default statutory period of 20 working days. In all three cases the Court held that the shorter contractual period governed the position and ruled that the payment schedule in each case had been served late. This approach is consistent with s 22 of the Act79.
55 Westnorth Labour Hire Ltd v SB Properties Ltd 80 was a case in which the Court held that the relevant construction contract did not stipulate a time by which the payment schedule was to be provided. In that case the Court held that the provision of the construction contract relied on by the payee related only to the time of payment and did not relate to the time by which the payment schedule must be served81.
56 In Beeby Construction Ltd v Javah Corporation Ltd82, the Court held that a letter written by the contractor after failure to provide a payment schedule within the time prescribed by clause 12.2.4 of NZS 3910:2003 attracted the operation of clause 14.3.2 of NZS 3910 and extended the period within which the payment schedule had to be provided.
(vii) The possible effect of bad faith
76 High Court, Auckland, CIV 2005-404-7165, 10/4/06, Doogue AJ.
77 [2007] 1 NZLR 807, High Court, Auckland, CIV 2008-404-2136, 25/5/06, Asher J.
78 High Court, Auckland, CIV 2006-404-4969, 14/12/06, Cooper J. The decision is reported at [2007] DCR 408. It was followed in Hawkins Construction Ltd v Ecosse Afrique Enterprises Ltd (High Court, Wellington, CIV 2008-485-2327, 25/2/09, Gendall AJ).
79 In Suaniu v Hi-Qual Builders Ltd (High Court, Auckland, CIV 2008-404-1576, 26/6/08, Wylie J) an argument that there was a shorter contractual period was rejected on the facts.
80 High Court, Auckland, CIV 2006-404-858, 19/12/06, Rodney Hansen J.
81 See also Cube Buildings Solutions Ltd v King (High Court, Christchurch, CIV 2009-409-34, 17/12/09, Osborne AJ).
82 A District Court decision of which I am aware only as a result of criticism of it in one of Kensington Swan’s newsletters. I agree with Kensington Swan’s criticism of the decision.
57 See paragraph 45 above.
The consequences of a payer’s failure to comply with the provisions of the Act regarding payment schedules and the making of progress payments
58 Sections 22-23 of the Act set out the consequences of failure to serve a proper payment schedule on the payee. Section 24 prescribes the consequences of failing to pay the scheduled amount indicated in a payment schedule.
59 I will return to this topic later in the paper under the heading of recovery and enforcement (see paragraphs 100-125 below).
Adjudication
(a) Introduction
60 Section 25(1) of the Act provides :
Any party to a construction contract –
(a) has the right to refer a dispute to adjudication
Sections 25-71 govern the procedure to be followed in an adjudication.
61 The term “dispute” is defined, not very helpfully, in s5 of the Act to mean:
A dispute or difference that arises under a construction contract
62 An example of a dispute is given in s 25(2):
An example of a dispute is a disagreement between the parties to a construction contract about whether or not an amount is payable under the contract (for example, a progress payment) or the reasons given for non-payment of that amount.
Again, this is not very helpful.
a. there must be “a dispute or difference”; b. “that arises under a construction contract”.
(b) Subject matter of an adjudication : “a dispute or difference”
64 In Willis Trust Co Ltd v Green 83 the Court held that “whether or not a dispute
exists is of an intensely factual nature”. In that case the contractor had issued a final payment claim to the principal and the principal had failed to provide a payment schedule within the statutory period and to pay the whole or any part of the claimed amount before the due date. The contractor elected to follow the path of adjudication rather than applying directly to the Court for summary judgment. Counsel for the principal argued that there was no dispute because the engineer to the contract had issued a statement of reasons for his inability to issue or otherwise deal with a final payment schedule. It was clear from the evidence as a whole, however, that the principal had (or believed it had) a counterclaim and did not intend to pay the contractor’s claim. The Judge ruled that there was clearly a dispute.
65 In Horizon Investments Ltd v Parker Construction Management (NZ) Ltd 84 the Court “respect[ed] the capacity of the parties to identify what points of
dispute they would like an answer on”.
66 In Spark It Up Ltd v Dimac Contractors Ltd 85 the Judge followed the approach adopted in Horizon86.
83 High Court, Auckland, CIV 2006-404-809, 25/5/06, Harrison J. 84 High Court, Wellington, CIV 2007-485-332, 4/4/07, Simon France J. 85 High Court, Wellington, CIV 2008-485-1706, 12/6/09, Dobson J. 86 See paragraph 80(c) for the facts of Spark It Up.
67 In Redhill Development (NZ) Ltd v Green 87 the Court held that the challenged order of the adjudicator was within his jurisdiction having regard to the nature of the dispute referred to him.
68 In Plimmerton Courtyard Ltd v Huntingdon 88, Plimmerton, as contractor, had obtained a determination for the amount of unpaid progress claims 13, 14 and 15 against a Ms Franklin, as principal. She in turn had sought and obtained a determination in respect of unexecuted or defective work included in earlier progress claims which she had paid. Plimmerton effectively accepted the correctness of all of Ms Franklin’s criticisms of its earlier work but refused to remedy them until the amount of progress claims 13-15 had been paid by Ms Franklin. It argued in the adjudication initiated by her, and in subsequent judicial review proceedings, that “there was no dispute because it agreed with
all her complaints”. The Court rejected the argument, saying:
“One cannot avoid the process by simply agreeing fault but refusing to fix it until
other conditions are met. The adding of another condition – in this case payment of … claims [13-15] – of itself creates a dispute. So does the refusal to work on site, and to fix the errors.”
(c) Subject matter of an adjudication : “arises under a construction contract”
69 The decisions in Jian Hua Property Ltd v Freemont Design & Construction
Ltd 89 and Invent Solutions Ltd v Chan Developments Trustee Ltd 90 noted in paragraphs 15 and 17 above, under the heading ‘Payment claims: (i)
Permissible and impermissible claims’ are also relevant to the question of
whether a claim, the subject of adjudication “arises under a construction
contract”.
87 High Court, Auckland, CIV 2009-404-3784, 5/8/09, Lang J.
88 High Court, Wellington, CIV 2009-485-772, 14/7/09, Simon France J. 89 High Court, Auckland, CIV 2005-404-5526, 16/2/06, Doogue AJ. 90 High Court, Wellington, CIV 2005-485-2834, 1/4/09, Gendall AJ.
70 In addition, reference should be made to the decision in M van der Wal
Builders & Contractors Ltd v Walker 91 There were two issues in this case: a. Whether there was a concluded contract (the adjudicator had found that
there was);
b. Whether the adjudicator’s determination that the defendants should pay damages for breach of contract was valid, alternatively, if valid, enforceable.
In the course of considering the plaintiff’s application for summary judgment based on the adjudicator’s determination, the Court held:
i. that it was arguable that there had not been a concluded contract; ii. that a liability to pay damages for a “breach of contract” is not
liability to “make a payment under” that contract:
[98] … The differentiation between liability to pay a debt and liability for damages is a well established one. I agree with Mr Price’s submission that for a damages for breach of contract determination to come within s 48(1)(a) one would either need to treat an award of damages as being an obligation to pay money under the contract (which could not be the case) or to treat “under the contract” as meaning “arising out of”, which would be contrary to the distinction between matters “under” and “arising out of” an agreement.
[99] Therefore a claim for damages falls within the scope of a “rights and obligations determination” and is not a claim for payment under a construction contract and as such is not a s 48(1)(a) determination nor is enforceable pursuant to s 59.
The effect of this judgment, if correct, is that a claim for damages for breach of contract may be made the subject of an adjudication claim but, if upheld, will be treated as a s 48(1)(b) determination, ie a “rights and obligations” determination and as such not enforceable under s 58(2) but only a matter to which any court “must have regard” under s 61(2)92.
(d) The selection and appointment of the adjudicator
91 High Court, Auckland, CIV 2011-404-83, 26/8/11, Christiansen AJ.
