Birchler v Homebuild Homes Limited
[2023] NZHC 2547
•13 September 2023
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2023-454-34
[2023] NZHC 2547
UNDER the Construction Contracts Act 2002 BETWEEN
COLIN ANDREW BIRCHLER and ROBYN KAYLENE BIRCHLER
Appellants
AND
HOMEBUILD HOMES LIMITED
Respondent
Hearing: 16 August 2023 Counsel:
Appellants in person
G P Mason for Respondent
Judgment:
13 September 2023
JUDGMENT OF RADICH J
Introduction
[1] The appellants (Mr and Mrs Birchler) and the respondent (Homebuild) entered into a contract under which Homebuild was to build a house for Mr and Mrs Birchler just to the north of Feilding.
[2] Payments under construction contracts are governed by the Construction Contracts Act 2002 (the Act). Under the Act, a builder1 may issue a “payment claim” relating to a payment sought for construction work carried out.2 A customer3 may
1 More particularly under the Act, a “payee” which, in s 19, is defined as “the party to a construction contract who is entitled to a payment”.
2 ` Section 20.
3 More particularly under the Act, a “payer” which, in s 19, is defined as “the party to a construction contract who is liable for that payment”.
BIRCHLER v HOMEBUILD HOMES LIMITED [2023] NZHC 2547 [13 September 2023]
respond to a payment claim by providing a “payment schedule” which, in essence, identifies the amount they will be paying and, if it is less than the amount sought in the payment claim, explains why.4 If a payment schedule is not provided by a certain date, the sum sought in the payment claim may be recovered as a due debt.5
[3] The payment that is required under a payment claim does not prevent a builder’s customer from raising a dispute about, for example, the reasonableness of the claim or the quality of the builder’s work. But, if a payment schedule is not issued, they must pay first.
[4] Homebuild issued one of its final payment claims to Mr and Mrs Birchler. It claimed just over $45,000, primarily for the cost of engineering work over and above a limited engineering estimate that was given in the contract document. Mr and Mrs Birchler did not issue a payment schedule in response and they did not pay the sum claimed in the payment claim. As a consequence, the sum claimed became a due debt and there were grounds for summary judgment to be entered for Homebuild – which the District Court did in the decision under appeal.
[5] Mr and Mrs Birchler feel particularly aggrieved by the whole affair. They say that the sums claimed in the payment claim are not justified, that they have not received a proper breakdown or explanation of them and that they relate to substandard work. This was the focus of their appeal. While the Court acknowledges the detail the plaintiffs have provided on those points, and the intensity of their views on them, there is no place in this proceeding for substantive underlying issues of that sort to be considered. They are not lost and may be the subject of a separate claim. But this proceeding is concerned only with the unavoidable consequence of the statutory ‘pay first and dispute later’ scheme.
[6] Mr and Mrs Birchler’s appeal was brought well out of time. In this decision, I grant leave to appeal out of time. But there is no tenable basis upon which it can be said that the District Court Judge erred in granting summary judgment on Homebuild’s claim.
4 Section 21.
5 Sections 22 and 23.
Factual background
[7] Homebuild is a building company which subcontracts its construction work. It has built over 700 homes.
[8] On 10 September 2020, the parties entered into a residential building contract for the construction of a house for Mr and Mrs Birchler in Halcombe (the contract). The contract was for a 340 square metre house with 80 square metres of covered patios, for $750,103 (including GST), subject to exclusions and variations.
[9] Section 1(a) of the general terms of contract contained a “letter of quote” with a price to complete the house on a level site in accordance with plans and specifications. The letter of quote gave figures for interior and exterior components of the house. It contained a third category of figures under the heading “Engineer work – sum only as no design done”. Two figures were given: $20,000 for “foundation” and $15,000 for “structural: two gables, one portal” (the provisional engineering costs).
[10]Under the entries just mentioned was the following:
This FIXED COST QUOTE is subject to the following conditions which may alter the final cost.
…
3. If your site requires engineer design to foundation, floor or framing resulting in additional materials and/or labour.
[11] The contract went on to make it clear that the provisional engineering costs really were provisional. For example, on p 16 of the contract, under a heading “Important note regarding engineering”, was the following entry:
If, after the contract is signed, an engineer is required to carry out any work, additional costs will include engineer’s costs, labour and materials for the resultant work plus a $500+gst administration charge.
[12] Page 17 of the contract included an entry under the heading “Engineering” which provided that figures for “foundation – design” were “not included”. Equally, page 22 of the contract included an entry under the heading “Engineering” which
provided that “engineer’s design or resultant work that may arise from the section, the design or council/legal requirements” were one of the contract’s “price exclusions”.
[13]And, again, at page 25, under the heading “Contract exclusions” is the entry:
Other Costs Not Included:
Civil Engineers’ Design Costs.
Civil Engineers’ Design Requirements for the Floor or Subfloor.
[14] Clause 16.4 of the general terms and conditions of the contract was in the following terms:
The Contract Price does not include engineering work unless otherwise stated and/or a specific engineer’s design is included in the contract documents.
16.4.1 The Owner is liable for any extra costs that may arise from an engineer’s design being required after the contract is signed, or from changes required to an existing design.
[15] The provisional engineering costs, totalling $35,000, were clearly subject to these repeated qualifications and exclusions.
[16] Included within the schedules to the contract was a sample payment claim under s 20 of the Act. The sample, on page 64, gave a blank invoice by way of example, together with an explanatory note, on page 65. The explanatory note summarised s 20 of the Act (discussed below), outlining the ways in which payment claims need to be responded to, describing the payment schedule procedure under s 21 of the Act and making it clear that, if a payment claim is not responded to through the provision of a payment schedule, then Mr and Mrs Birchler would become liable to pay the claimed amount and it could be recovered from them “as a due debt, in the appropriate court”.
[17] The contract did not include an engineering design for the foundation despite a director of Homebuild, Ms May-Jakobs, advising Mr and Mrs Birchler that an engineering design should be obtained at the outset. Mr and Mrs Birchler preferred to proceed on the basis of the provisional engineering costs provided for in the contract
and expressed the view, quite firmly, in the hearing that a provisional sum of $35,000 should have been more than enough.
[18] Throughout the construction process, Homebuild, through Ms May-Jakobs, communicated with Mr and Mrs Birchler about additional sums that were accruing, over and above the provisional engineering costs for the “foundation” and “structural” items covered by the $35,000 estimate. Just some examples are these:
(a)On 7 April 2021, Homebuild provided Mr and Mrs Birchler with a quotation for steel portals which exceeded the component of the provisional engineering costs to which the portals related.
(b)On 31 May 2021, Homebuild, in an email to Mr and Mrs Birchler about foundation costs, explained that the scope of the work was substantially greater than the sum allowed within the provisional engineering costs. A “heads-up” was given that extra costs under this head at that point in time were $27,000 with more to come. As Homebuild said, the sums allowed for in the contract were completed without a design and had been highlighted earlier as being likely to be inadequate. An email in response from Mr and Mrs Birchler referred to an increase over the
$35,000 provisional engineering costs as being “alarming”.
(c)“Settlement statement summaries” given to Mr and Mrs Birchler in April and May 2021 referred to running total costs that were “extra to contract”. The May statement included an additional $11,508.26 for foundations.
(d)An email on 4 August 2021 referred to the “running total of extras on the foundation/floor as a result of engineer design [being] just under
$39,000” and attached a statement. While Mr Birchler responded the following day saying that the “cost overruns has me sick”, Ms May- Jakobs responded on 6 August 2021 making the point that Homebuild was passing on, without margin, the actual engineer design costs and suggesting that a registered quantity surveyor could be engaged by them to measure and cost the work.
(e)On 7 September 2021, Homebuild, in an email to Mr and Mrs Birchler, advised that “engineer extra costs” would be the subject of further invoicing given that, at that point in time, the concrete pads had been laid.
(f)An email dated 10 September 2021 provided a “provisional running summary” of variations to the contract, dated 9 September 2021. The summary included an entry providing: “engineered footing/floor – extra to contract claim - $33,303.35 – running total”. And it contained an entry “steel portal – extra to contract (supply and install) –
$11,935.21 – running total: includes portal est plus pad prep”.
[19] There are many more communications between the parties during this period, including detailed emails from Mr and Mrs Birchler in response to communications from Homebuild expressing objections and concerns. These communications, while providing context, are not relevant to the issue before the Court, which is confined to Mr and Mrs Birchler’s response to the payment claim. Some of them are included here to show that, whatever Mr and Mrs Birchler’s view of them, there were receiving ongoing updates as to the gradually increasing costs for the foundation and structural work, over and above the provisional engineering costs. I am satisfied that Homebuild was doing what it could to ensure that there were no surprises.
[20] On 10 November 2021, the payment claim to which this proceeding relates was provided by Homebuild to Mr and Mrs Birchler. It was in a similar form to the example invoice and payment claim referred to in [16] above. It included a page of advice on the effect of the payment claim, the responses that could be given, and the need for a payment schedule that complied with s 21 of the Act in the event that there was any dispute, failing which it would become a due debt. Particulars of the claim for $45,136.26 in the payment claim document were as follows:
Invoiced 10 November$45,136.26
Engineering Extras – Foundation & Floor
Engineered Footing work extra to Sum allowed $34,239.84 As at 10 November 2021
Plumbing & Drainage revision – to underslab $ 1,903.86
Roofing – Variation to T Rib $ 3,010.56 *30/9 New Price (inflation)
Portal – Manufacture and Install $ 5,982.00 CR Engineering costs only
[21] Under the contract, and as provided in the payment claim, payment, or a payment schedule, was due on the fifth day after delivery of the payment claim – by 17 November 2021.
[22] On 16 November 2021, Mr and Mrs Birchler emailed Homebuild to cancel a meeting. The email included the following content:
We are trying to second guess where this is heading. We request a full breakdown of all of the out of contract pricing that appears to be finding their way into what appears to be a grossly over-engineered foundation as a bottomless pit.
[23] Homebuild responded right away. It reiterated that the cost was dictated by the engineering design and that, under the contract, neither Homebuild nor Mr and Mrs Birchler had control of these particular costs because engineering design had been prepared before the contract was signed, as had been Mr and Mrs Birchler’s preference.
[24] On 24 November 2021, Mr and Mrs Birchler wrote again about the costs for the foundation and portal work, amongst other things, saying:
At this point and without prejudice we will pay the xtra’s invoice minus the charge over the quoted and the without prejudice that the xtra’s being charged in respect of the over-runs to foundation and portal work of which we cannot obtain from your info just what cost what.
[25] The relationship between the parties effectively came to an end at that point. Homebuild suspended work (as they were entitled to do under the contract and under the Act), the defendants engaged other contractors and Homebuild, as a result, cancelled the contract and made demand for the payment claim.
District Court judgment
[26] In his decision of 10 February 2023, Judge Kelly determined Homebuild’s application for summary judgment (the judgment).6 Homebuild sought orders that Mr and Mrs Birchler pay the debt due of $45,613.26, interest at the contractual rate of
6 Homebuild Homes Ltd v Birchler [2023] NZDC 1320.
10 per cent from the due date, the contractual late payment fee of $250 and actual and reasonable costs pursuant to s 24(2)(a)(ii) of the Act.
[27] The Judge summarised relevant summary judgment principles and then outlined the scheme of the Act, concluding:
[50] Put bluntly, the Act focuses more on procedure than on proof and establishes a draconian ‘sudden death’ regime if its payment procedures are not complied with.7 The scheme of the Act is to entitle a payee to prompt payment where the amount claimed is not disputed and to provide dispute resolution procedures for disputed claims.8
[28] The Judge made the point that s 79 of the Act reinforces the obligation on a payer to “pay first and argue later”.9 Mr and Mrs Birchler were required to follow the dispute mechanism in subpart 3 of part 2 of the Act. Without using those mechanisms, Mr and Mrs Birchler, the Judge found, would lack a tenable defence to summary judgment.10
[29] The Judge was satisfied that the payment claim met all of the requirements for payment claims in s 20 of the Act.11
[30]The Judge referred to the emails described in [22] and [24] above and said:
[58] On the other hand, the defendants’ emails disputing the amount claimed do not comply with the statutory requirements for payment schedules. The only emails that are within the time prescribed by s 23(b)(ii) of the Act are emails dated 16 November 2021. None of these emails refer to the payment claim, or state a scheduled amount (that is a lesser sum that they were prepared to pay),12 or any reasons about why that lesser sum is appropriate.
[31] The Judge considered that the email of 24 November 2021 did “not expressly set out what amount the defendants were agreeing to pay” and, in any event, “the offer is outside the statutory period in s 21(3) of the CCA”.13 The Judge concluded, for these reasons, that the email did not constitute a payment schedule for the purposes of
7 At [52], quoting Salem Limited v Top End Homes Ltd CA169/05, 12 December 2005 at [22].
8 At [53].
9 At [52].
10 At [53].
11 At [56]–[57].
12 At [60].
13 At [60].
the Act.14 Mr and Mrs Birchler were, the Judge concluded, obliged to pay the sum sought in the payment claim and the points made in their notice of opposition did not provide a tenable defence to that obligation.
[32] Summary judgment was entered for Homebuild for the amounts sought (as referred to in [26]).15
Leave to appeal
[33] While the District Court judgment is dated 10 February 2023, it was not released until 27 February 2023. The 20 working day appeal period ended on 27 March 2023. The appeal was not served until 31 May 2023.16
[34] Homebuild has opposed Mr and Mrs Birchler’s application for leave to appeal out of time, referring to prejudice and hardship for Homebuild, which has paid its subcontractors without having been paid by Mr and Mrs Birchler. They observe that there are no issues of particular significance in the case because, if Mr and Mrs Birchler are required to pay as the Act provides, they retain their right to pursue the issues they wish to raise through separate proceedings in the courts.
[35] Mr and Mrs Birchler have explained that they expressed their intention to appeal to the Court Registry on the day on which they received the judgment and that their notice of appeal was emailed to the Court on 11 March. However, it took until 11 May for documents that could be accepted for filing to be provided.
[36] While there was some confusion on the part of Mr and Mrs Birchler as to the way in which an appeal needed to be commenced, I have little difficulty in granting the application for leave to appeal out of time. In considering an application of this sort, the Court is to have regard to the length of delay, the reasons for the delay, the conduct of the parties, any prejudice or hardship to the respondent, the significance of the issues and, to some extent, the merits of the case.17 Here, the delay was not terribly
14 At [61].
15 At [64].
16 Under r 20.6(1)(c), an appeal is not brought until it is served.
17 Almond v Read [2017] 1 NZLR 801 at [35]–[40]. See also My Noodle Ltd v Queenstown-Lakes District Council [2009] NZCA 224, (2009) 19 PRNZ 518 at [19].
long, the reasons for it are understandable, the conduct of the parties is not in question and there is little in the way of prejudice to Homebuild.
[37] When the relevant considerations are balanced, it is appropriate for leave to be granted.
Legal principles
Appeal principles
[38] This is a general appeal under ss 124 and 127 of the District Court Act 2016. It proceeds by way of rehearing. The Court can “make any decision it thinks should have been made”,18 coming to its own conclusion on the merits of the case and, if appropriate, substituting its decision for that of the District Court.19
Construction Contracts Act 2002
[39] The purpose of the Act is to facilitate regular and timely payments between the parties to a construction contract; to provide for the speedy resolution of disputes arising under a construction contract; and to provide remedies for the recovery of payments under a construction contract.20
[40] The Act prescribes a strict procedure for making and responding to payment claims. The relevant provisions are ss 19 to 24.
[41] Under s 20, a builder21 (here, Homebuild) may serve a customer22 (here, Mr and Mrs Birchler) with a payment claim which must, among other things “state a claimed amount”. The provision prescribes a range of requirements for payment claims (none of which are in issue here).
[42] If a customer disagrees with the claimed amount and intends to dispute it, they must do so in accordance with s 21 of the Act by issuing a “payment schedule” with a
18 District Court Act 2016, s 128.
19 Austin, Nichols & Co Ltd v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
20 Construction Contracts Act 2002, s 3.
21 More particularly under the Act, a “payee”; s 19.
22 More particularly under the Act, a “payer”; s 19.
“scheduled amount” to the payee within the required timeframe. A “scheduled amount” is “an amount of a payment specified in a payment schedule that the [customer] proposes to pay the [builder] in response to a payment claim”.23
[43] A payment schedule must comply with certain requirements in s 21(2). If the scheduled amount is less than the claimed amount, the payment schedule must indicate:
(a)the manner in which the customer calculated it;
(b)the reason for the difference between the claimed and scheduled amount; and
(c)the customer’s reason for withholding payment if this is what gives rise to the difference between the amounts.24
[44] If a customer does not provide a payment schedule within the time allowed, the claimed amount will become a debt due.25 The builder can then pursue the debt under s 23 of the Act.
[45] The Act gives any party to a construction contract a right to refer a dispute to adjudication. An adjudicator’s determination may be enforced under s 59.
[46] A dispute may not be referred to adjudication without the consent of the parties.26 However, nothing prevents a party to a construction contract from submitting a dispute to another dispute resolution procedure, such as the Court.27
[47] Section 79 of the Act governs proceedings for recovery of a debt under ss 23, 24 (which relates to the recovery of due debts where payment schedules have not been provided) or 59 (which relates to compliance within an adjudicated determination). Under s 79, the Court can only give effect to any counterclaim, set-off or cross demand
23 Section 19 (definition of “scheduled amount”).
24 Section 21(3).
25 Section 22.
26 Section 25(3).
27 Section 26(1).
raised by any party if judgment has not been entered for that amount or if the parties dispute the claim for that amount.
[48] Accordingly, the scheme is quite clear: where a payment schedule that complies with the statutory requirements has not been provided, the debt becomes due. And the debt cannot be subject to any counterclaim, set-off or cross demand in circumstances such as those which arise here.
The positions of the parties
[49] Mr and Mrs Birchler have advanced their case passionately and comprehensively. They have filed a lengthy memorandum explaining their position on each paragraph in the District Court decision and on a procedural minute issued by Palmer J in this Court. Mr Birchler has filed a 111-page affidavit with over 300 further pages of exhibits. Further memoranda have been filed by Mr and Mrs Birchler and a number of additional documents were handed up during the hearing. The Court acknowledges the real effort Mr and Mrs Birchler have put into preparing for and presenting their claim. However, the matters they raise in this appeal, and which I come on to describe, are not relevant to the confined issues in the case. They relate to their view that the items to which the 10 November 2021 payment claims relate are not justified – that, essentially, nothing beyond the $35,000 sum for the provisional engineering costs could be warranted.
[50] While inter-related, the points that Mr and Mrs Birchler raise can be grouped in the following ways:
(a)Mr and Mrs Birchler say that the items claimed in the payment schedule, for engineering work and for the manufacture and installation of the portal28 was not valid or justified. They question, in a substantive way, the need for the engineering footing work, describing what should and should not have been involved in terms of footing design and construction for a property such as theirs. They compare the costs
28 The portal is a portion of the house that extends, with a roof of an A-frame nature, from the bulk of the building.
claimed with the costs of a 24 metre x 12 metre shed. They express the view that the additional cost relating to the manufacture and installation of the portal are the result, in material ways at least, of defects in construction and installation. They refer under this head to a quantity survey that they undertook on the building in April 2022 which shows, in their view and amongst other things, the sums in the payment claim to be unwarranted. Homebuild says that the quantity survey report shows Homebuild’s price for the foundations, floor slab and post footings to be less than that in the quantity surveyor’s report. Mr and Mrs Birchler take issue with Homebuild’s calculations on this point. By reference to photographs, drawings and descriptions, they say that the sums claimed just cannot be justified.
(b)Mr and Mrs Birchler say that the $35,000 provision for engineering in the contract – the provisional engineering costs – was reasonable and that no more should have been needed. Mr Birchler explained that he had been an engineer and that the $35,000 sum was a “safe call”. He took particular issue with Homebuild’s view that the $35,000 provision that Mr and Mrs Birchler wished to make would be relevant for a flat site rather than the building site that was used here. Mr Birchler expressed the view that he was as good as anyone as quoting on items like these.
(c)Mr and Mrs Birchler say that they made a number of requests for a breakdown of the sums sought in the payment claim. They sought underlying documents and invoices. It was said that they could not “make head nor tail of” the schedules that were provided to them by Homebuild.
(d)Mr and Mrs Birchler say that they were wanting to arrange a meeting with Homebuild to discuss the claims that were being made. Ultimately, on 16 November 2021, they called off a scheduled meeting.
(e)Mr and Mrs Birchler see a number of items of work as being substandard. They are concerned, for example, about the quality of certain painting work and about the way in which the portal was manufactured or installed (referring, through photographs, to the portal framing being twisted and to the payment claim therefore concealing an engineering issue).
[51] This description is very much a summary of points that Mr and Mrs Birchler have made in the documents they have filed and in the submissions they have made. The stressful nature of the building process and of this litigation for them, as was expressed clearly in their submissions, is certainly acknowledged. However, I do no more than summarise the points that Mr and Mrs Birchler have made because they are not matters that this Court, which is considering a summary judgment entered on a payment claim under ss 19 to 24 of the Act, can consider or determine. Mr and Mrs Birchler’s case did not turn upon the application of the Act. However, Mr Birchler did make mention of it to the extent that he said that, “having signed up to 82 pages of contract, we can’t see how one clause can be used to throw the book at us”.
[52] Homebuild, in supporting the District Court judgment, says that it had worked extensively with Mr and Mrs Birchler to explain increasing engineering and portal costs since April 2021. It says that the issue that Mr and Mrs Birchler have – that the
$35,000 provisional engineering costs were adequate and that engineering beyond it was unnecessary – could have been raised in a payment schedule but that was not done. It is said that Mr and Mrs Birchler did not pay the payment claimed because they were focused on the $35,000 sum and did not look at the details contained in the payment claim.
[53] Homebuild observes that the only response that was received within the time period within which a payment schedule needed to be issued was the 16 November 2021 email referred to in [22] above. While further detail was provided in the 24 November 2021 email referred to in [24] above, that email was outside the time limit for issuing a payment schedule and it was unclear from that email or otherwise, in any event, what Mr and Mrs Birchler’s position was.
Discussion
[54] For the reasons that follow, I am satisfied that Mr and Mrs Birchler were required to, but did not, dispute the payment claim as was required under s 21 of the Act. The Judge was not in error when he decided to that effect.
The requirement to follow the payment claim and payment schedule process
[55] The Judge’s description of the statutory regime as “pay now, argue later” is accurate.29 It is in line with the purposes of the Act which, through s 3, are described in paragraph [39] above. The scheme of the Act, which facilitates that purpose, is to provide a structured process to facilitate payments between parties to a construction contract and to resolve disputes. The purposes of the Act are reinforced by the explanatory note to the Construction Contracts Bill:30
The Construction Contracts Bill (the bill) aims to counter problems that have arisen in the construction industry in recent years … In particular, this bill seeks to bar ‘pay-when-paid’ or ‘pay-if-paid’ clauses, which are common in the industry and make a party’s obligation to pay subject to payment made to that party. These clauses can often leave sub-contractors in a vulnerable position where they are unpaid but still obliged to complete work. The bill establishes a quick and inexpensive adjudication process to aid in the resolution of disputes. … For commercial construction contracts, the bill also establishes default provisions, grants parties a right to suspend work if payment has not been made …
[56] In accordance with the Act’s purpose to provide for the “speedy resolution of disputes”31 it provides a scheme that “prevents or minimise[s] mischief like that which has occurred in the past: principals and head contractors would withhold payment ‘often on a pretext or with little foundation’”.32 The payment claim and payment schedule process are designed to enable a dispute to be identified and dealt with but in a structured and time-sensitive way. Under s 21(3), in the event that a payer disputes the sum claimed – as Mr and Mrs Birchler do here – then they must, through a payment schedule, pay the amount that is not disputed and set out their reasons for not paying
29 Dews Construction Ltd v Longwood Court Developments Ltd [2019] NZDC 25687; Suaniu v Hi- Qual Builders Ltd HC Auckland CIV-2008-404-1576, 26 June 2008; and Salem Limited v Top End Homes Ltd CA 169/2005, 12 December 2005 at [22].
30 Construction Contracts Bill (128-2).
31 Section 3(b).
32 John Ren “What it Takes to Be a Valid Payment Schedule under the Construction Contracts Act 2002” (2008) 14 NZBLQ 78 at 80, citing Metalcraft Industries Ltd v Christie HC Whangarei CIV- 2006-488-645, 15 February 2007 at [26].
the full amount. The Act then provides an expedient adjudication process to determine the dispute. If the process is not followed, then the debt becomes due immediately.
[57] The Judge, rightly, emphasised s 79 of the Act. As mentioned already, that provision means that, in a proceeding like this to recover due debt in circumstances in which a payment schedule has not been provided, the Court cannot give effect to a counterclaim, set-off or cross demand unless judgment has been entered for that amount or unless there is in fact no dispute in relation to the claim for that amount.
[58] Parties to a construction contract cannot contract out of the Act.33 Accordingly, where a party challenges sums sought through a payment claim “the appropriate way for that to be challenged is by means of the payment schedule process”.34 Where a party has not complied with the processes in the Act, their right to dispute the amounts involved prior to payment is lost.35 This was Parliament’s intention. Importantly, it does not deprive a payee from the ability, having paid, to challenge the amount sought through separate proceedings. But the challenge cannot come through a proceeding such as this in circumstances in which payment has not been made and a payment schedule has not been provided.
[59] Accordingly, the only live question in this proceeding is whether or not Mr and Mrs Birchler have essentially, through their email correspondence, responded to the payment claim in a way that might comply with s 21 of the Act.
What is required to respond to a claim under s 21 of the Act?
[60] Mr and Mrs Birchler have said in their notice of appeal that the breakdown of the component parts of the 10 November 2021 payment claim, as set out at [55] of the District Court decision (and in the same terms as those set out in [20] above) was something that they had not seen before. However, the payment schedule, including the breakdown, was annexed to Mr Birchler’s affidavit in this proceeding. The payment claim was valid. It met the requirements of the Act. However, Mr and
33 Section 12.
34 Top End Homes Ltd v Salem Ltd HC Whangarei CIV-2005-488-332, 19 July 2005 at [30].
35 10 Gilmer Ltd v Tracer Interiors & Construction Ltd HC Wellington CIV-2005-485-2009, 6 December 2005; and Absolute QS Ltd v Ascot Aluminium Ltd [2012] NZHC 648.
Mrs Birchler’s understanding of what they needed to do upon receiving the payment claim appears to have been limited.
[61] Mr and Mrs Birchler do go on, however, to refer to email exchanges between them and Homebuild following receipt of the payment claim in which they sought to have a meeting to “sort out this extreme change to which our position has not varied in any way”. They say, in addition, that Homebuild ignored disputes they had raised about increasing costs from “an early stage”. The point they make is, essentially, that the $35,000 allowance in the contract for engineering and for the portals was sufficient, that anything additional was not justified and their position, known to Homebuild, was sufficient to meet the requirements in s 21 of the Act.
[62] It does not appear that Mr and Mrs Birchler disagree expressly with the finding made by the District Court Judge that no formal payment schedule was issued within the requisite timeframe. In response, they say:
Is that really the criteria that the court makes judgment against us on, whether or not we for the xth times have been asking that this dispute be attended to and that we would pay on a without prejudice basis and upon the receipt of suitable explanatory invoicing information from which we can be able to satisfy our in dispute concerns about the context of all of the xtra’s invoices.
[63] Mr and Mrs Birchler’s submissions appear to turn on two primary points. The first is that correspondence prior to a payment claim being issued could be used to dispute a payment claim under the statutory process. And the second is that the Court should not be able to make an order for summary judgment without first being satisfied that the component parts of the payment claim are able to be proved.
[64] A payment schedule, under s 21 of the Act, need not be in a particular form. It was suggested in Canam Construction Ltd v George Developments Ltd that the use of a form such as that suggested in relevant texts36 is beneficial in that it should “leave contracting parties in no doubt that the schedule complies with the Act”.37 The Court
36 Referring to G Bayley and T Kennedy-Grant, A Guide to the Construction Contracts Act and to Smellie, Progress Payments and Adjudication (2003) pp 34–35.
37 Canam Construction Ltd v George Developments Ltd HC Auckland CIV-2004-404-3565, 10 November 2004 at [55] and [56]. The High Court decision was upheld on appeal in George Developments Ltd v Canam Construction Ltd CA 244/04, 12 April 2005 but the appeal did not include consideration of the payment schedule issue.
went on to say that, even if a single form was not intended, the component parts of a payment schedule must be cross-referenced and the relationship between them should be explained so that a contractor has no doubt about what is being addressed.38
[65] In Manchester Industrial Holdings Ltd v Hazelton, the High Court held, in a judicial review proceeding, that an adjudicator had erred in law in finding a payment schedule needed to be contained in a single document.39 However, the Court found that the adjudicator was correct in determining that emails sent by the property owner in that case did not constitute a valid payment schedule because they did not contain sufficient details to meet the requirements in s 21(3).
[66] The s 21 requirements will be met most readily through the provision of a single document that meets the requirements of the section and contains all of the information the provision requires. That single document could take the form of an email but, as was said in Canam Construction, the email needs to leave the contracting parties in no doubt that what is being provided is a schedule that complies with the Act.40 The requirements in s 21 are cumulative: if one of the requirements is absent, there will not be a payment schedule that complies with the Act.
[67] There are a number of examples of cases in which email exchanges following a payment claim have been found not to have met the s 21 requirements. They include:
(a)An email that asked various questions but failed to give an unequivocal notice of all areas of difference to enable the contractor to be able to assess future options.41
(b)An email which did not “state a scheduled amount” as required by s 21(2) or indicate the manner in which a proposed schedule amount was calculated and which did not provide reasons for the differences between a scheduled amount and the amount of the payment claim.42
38 At [60].
39 Manchester Industrial Holdings Ltd v Hazelton [2016] NZHC 211.
40 Above, n 37.
41 Seating Systems Ltd v Kidson Construction Ltd [2012] NZHC 2217.
42 Melbourne Ltd v Bartlett Concrete Placing Ltd [2022] NZHC 1786.
(c)A purported payment schedule which did not set out either a scheduled amount or a reason for withholding payment – the Court finding that it was not sufficient to rely upon a prior agreement as to the basis for failing to provide information given that the requirements of s 21 of the Act are clear.43
(d)An email disputing variations claimed in a payment claim but not providing the information required under s 21.44
[68] Mr and Mrs Birchler have placed some reliance upon their earlier correspondence, in which previous invoices provided by Homebuild were disputed, to support their claim that they raised a dispute about the payment claim at the earliest opportunity. However, this correspondence related to earlier invoices, not to the payment claim made on 10 November 2021. They do not respond to the payment claim itself and do not otherwise meet the requirements of s 21.
[69] In my view, the Judge was right to focus on emails sent by Mr and Mrs Birchler to Homebuild after the payment claim was made. There were two such emails.
[70] Mr and Mrs Birchler’s 16 November 2021 email to Homebuild sought a “full breakdown of all of the out of contract pricing” and expressed the view that the foundation for the home that was being built was “grossly over engineered”. While this email was sent in response to the payment claim, it did not set out a scheduled amount – that is, a sum that Mr and Mrs Birchler were prepared to pay – even if that amount was zero. The reference to the foundation as having been, in Mr and Mrs Birchler’s view, grossly over engineered is not sufficient to meet the requirements of s 21. The email does not “give full and unequivocal notice of all areas of difference to enable the contractor to properly assess its future options”.45
[71] The second email that falls for consideration was sent by Mr and Mrs Birchler to Homebuild on 24 November 2021. In this email, Mr and Mrs Birchler have indicated more clearly that they were not willing to pay the additional engineering
43 Chow Group Ltd v Walton [2011] NZAR 747 (HC).
44 Steelcraft Structural Ltd v A 2 Z NZ Powercom Ltd [2022] NZHC 2017.
45 Seating Systems Ltd v Kidson Construction Ltd, above n 41 at [28].
costs. And it does make an offer to pay the “xtra’s” invoice. But, nonetheless, I agree with counsel for the respondent that the proposal, or the scheduled amount, that Mr and Mrs Birchler are making in this email is not clear. In addition, their reasons for withholding payment were not given.
[72] Mr and Mrs Birchler’s submission that the Court was required to test the validity of the payment claim before judgment could have been entered against them cannot, given the nature of the statutory scheme as I have described it, be accepted.
[73] For the validity of Homebuild’s payment claim to be challenged and tested by Mr and Mrs Birchler, two primary options were available (and the second option remains available). As the first option, Mr and Mrs Birchler would have needed to provide a payment schedule that complied with s 21 of the Act. It would have needed to state a scheduled amount which was less than the claimed amount, explain how it had been calculated, the reason for the difference and the reason for any payment being withheld. Homebuild’s entitlement to the balance could then have been referred to adjudication through the process prescribed in Part 3 of the Act. Instead of adjudication under Part 3, another resolution procedure could have been used, such as mediation or a proceeding in a Court.46 A further option was to use a dispute resolution process prescribed in the contract.47
[74] The second option is available where, as here, a payment schedule had not been issued. In this case, the full amount of the payment claim needed to be paid by its due date. Having paid it, a dispute resolution process could be used to recover it.
[75] Accordingly, the Judge was, in my view, well able to say that, in terms of the basis upon which summary judgment may be entered in r 12.2 of the District Court Rules 2014, Mr and Mrs Birchler have no defence to Homebuild’s claim under the Act. The summary judgment principles are well-settled and were explained clearly by
46 Construction Contracts Act 2002, s 26.
47 There are two difference dispute resolution clauses in the contract. The first is in cl 31 of the general terms and conditions of the contract which prescribes arbitration by a single arbitrator. The second is in cl 1.2 in s 2(e) of the contract which relates to “building warranties”. Because it applies to warranties, on its face, it would not appear to be on point here. That clause prescribes both arbitration or, if both parties agree, resolution through a quantity surveyor. While Mr and Mrs Birchler did engage a quantity surveyor at a later point in time, it was not a quantity survey process that complied with this provision in any event.
the Judge.48 The orders made by the Judge, at [64], follow directly from that conclusion and were in order.
Result
[76]The appeal is dismissed on this basis.
[77] In the event that costs are sought and cannot be agreed between the parties directly, then the respondent may file a memorandum within 10 working days of the date of this decision and the applicants may file a memorandum in response within a further 10 working day period. The Court will then deal with costs on the papers. The memoranda (including schedules) should not exceed five pages in length.
Radich J
Solicitors:
Alison Green Lawyer, Palmerston North for Respondent
48 At [41]–[44] – referring to Krukziener v Hanover Finance Ltd [2018] NZCA 1982, [2010] NZAR 307 at [26] and Gidden v IAG New Zealand Limited [2016] NZHC 948 at [60]–[61].
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