Chillex Services Limited v Best Air Conditioning Limited
[2025] NZHC 1729
•27 June 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2110
[2025] NZHC 1729
BETWEEN CHILLEX SERVICES LIMITED
Applicant
AND
BEST AIR CONDITIONING LIMITED
Respondent
Hearing: 26 March 2025 Appearances:
G K Holm-Hansen and T C Fu for Applicant G Jindal for Respondent
Judgment:
27 June 2025
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 27 June 2025 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
CHILLEX SERVICES LIMITED v BEST AIR CONDITIONING LIMITED [2025] NZHC 1729 [27 June 2025]
[1] Chillex Services Ltd (Chillex) was engaged by Clearwater Construction Ltd (Clearwater) to provide mechanical services for the construction of a private hospital at Auckland. Chillex engaged Best Air Conditioning Ltd (in liquidation) (Best Air) as its subcontractor to supply and install ducting for air-conditioning on the project.1 During the course of the work Chillex raised issues concerning Best Air’s quality management and failure to substantiate costs, defects in the work and delays.
[2] Best Air served Chillex with a statutory demand on 12 August 2024. The amount of the demand was $269,345, said to be due and owing as to $229,345 for construction works “as set out in the attached payment claims, payment schedules, statements and invoices”; $2,500 for legal costs of preparing the statutory demand; and $37,500 as interest due for late payment under s 18G of the Construction Contracts Act 2002 (the Act).
[3] Chillex applies to set aside the statutory demand under s 290(4)(a) of the Companies Act 1993 on the ground there is a genuine and substantial dispute as to whether the individual or combined sums claimed in the statutory demand are due or owing. Specifically, it says:
(a)the statutory demand is based on alleged payment claims (referred to as Payment Claims 1 and 2) under the Act which are not valid payment claims;
(b)it responded to Payment Claims 1 and 2 with payment schedules (referred to as Payment Schedules 10 and 11) within the timeframe required by the construction contract dated 13 April 2023 between the parties (the contract), and the amounts claimed are not a debt due;2
(c)the issue of the statutory demand was premature;
1 Best Air was put into liquidation on 13 September 2024. The liquidators of Best Air have agreed to the continuation of this proceeding under s 248(1)(c) of the Companies Act 1993.
2 Construction Contracts Act 2002, ss 22, 23 and 24.
(d)Best Air invalidly purported to terminate the contract between the parties on 8 August 2024 and Chillex had, in response to Best Air’s repudiation, validly terminated the contract; and
(e)there is a genuine and substantial dispute in respect to the amounts claimed, which Chillex had communicated to Best Air prior to the issue of Payment Claims 1 and 2 and the statutory demand.
[4]Best Air’s position as advanced at the hearing was initially that:
(a)its invoices supporting Payment Claims 1 and 2 were themselves payment claims to which Chillex had not responded with payment schedules;
(b)Payment Claims 1 and 2 were valid payment claims under the Act;
(c)Payment Claims 1 and 2 became immediately due and payable upon it terminating the contract or upon the issue by Chillex of Payment Schedules 10 and 11;
(d)Payment Schedules 10 and 11 were invalid under the Act;
(e)if Payment Schedules 10 and 11 complied with the requirements of the Act as to matters of form, there remains a debt due and owing as Chillex:
(i)reduced amounts certified for payment below what had been certified in prior payment schedules;
(ii)cannot raise counterclaims and/or set-offs in response to Payment Claims 1 and 2;
(iii)was seeking to enforce an unlawful conditional payment provision in the contract which is not effective under s 13 of the Act; and
(iv)had not responded to some of the claimed amounts in Payment Claims 1 and 2.
[5] During the hearing Mr Jindal accepted that Best Air’s invoices supporting Payment Claims 1 and 2 were not themselves valid payment claims. I will not deal with that issue further.
[6] In addition, there was no attempt made to justify Best Air’s demands for legal costs or interest under s 18G of the Act. Section 18G has no application as there were no retentions applied under the contract. I am satisfied those demands cannot be sustained.
[7]The issues I must consider are the following:
(a)Was the issue of the statutory demand premature?
(b)Did Best Air validly terminate the contract?
(c)Were Payment Claims 1 and 2 valid under the Act?
(d)Were Payment Schedules 10 and 11 valid under the Act?
(e)Notwithstanding service of Payment Schedules 10 and 11, does there remain an amount due and owing to Best Air for any of the reasons advanced in [4(e)] above?
Background facts
[8] Chillex specialises in heating, ventilation and air-conditioning services. It was engaged by Clearwater for the construction of a private hospital in Greenlane, Auckland under a contract dated 5 December 2022.
[9] Chillex engaged Best Air as its subcontractor for a portion of the works pursuant to the contract. There is no dispute that the Act applied. The contract was a
construction contract as defined in the Act, entered into after the date of its commencement.3
[10]The terms included:
(a)Best Air was to supply and install ducting for a fixed price of $670,000 excluding GST.
(b)The due date for the original contract works was 14 November 2023.
(c)Liquidated damages were payable by Best Air at a rate of $6,000 for every day that Best Air was late completing its works.
(d)Best Air was to vary the work only as agreed and directed in writing by Chillex. Best Air was to give Chillex five working days’ notice of its intention to claim that work it was undertaking was a variation to the contract. Variations also required approval from Clearwater in advance. Schedule 2 to the contract read “No variation will be paid unless approved and paid by the Principal first”.
(e)If, following 10 working days’ notice in writing from Best Air, Chillex failed to remedy any substantial breach of its obligations then Best Air could by written notice terminate the contract and Chillex would be liable for the value of any work “actually and properly executed at the date of such termination”.
(f)There was a detailed provision for the resolution of disputes.
(g)Best Air was to issue fully detailed payment claims five working days prior to the end of the month that the applicable work was completed and for not less than a month’s work at a time.
3 Construction Contracts Act, s 5 definition of “construction contract” and s 9.
(h)Chillex’s corresponding payment schedules and payments were due 22 working days following the end of the applicable payment claim month.
[11] Chillex considers Best Air’s performance was unsatisfactory. Best Air does not agree. I am unable to resolve these factual disputes on this application but note that the disputes raised relate to the following matters.
[12] Chillex says Best Air was to take instructions from Chillex’s manager/foreman, Hola Iketau, because a clear line of communication was important in the construction project. Best Air is said to have taken instructions directly from Clearwater and performed work outside the scope of the project works without Chillex’s approval.
[13] Chillex says Best Air had no quality assurance systems in place and its work was below what it expected of a capable and experienced subcontractor. It contends also that it was discovered in February 2024 that ducts installed or constructed by Best Air leaked. On 4 March 2024, Chillex’s director, Cameron Crawford, emailed Best Air’s director, Habeeb Syed, noting that some of the “systems are down nearly 20% so the ducting must have more holes in it than a colander”. He advised Best Air would be facing “contra charges” as a result.
[14] Best Air did not issue payment claims under the Act for the entire duration of the project works, which were carried out from April 2023 to March 2024. It issued bare invoices or “Project Variation” documents. Chillex contends these contained limited and inadequate information. Notwithstanding that, Chillex responded with payment schedules under the Act. It issued nine payment schedules during the course of the work and made progress payments to Best Air totalling $752,107.40 excluding GST.
[15] Mr Cameron’s evidence is that the inadequacy of the documentation provided by Best Air meant it was difficult to assess its invoices or to verify Best Air’s work against the contract and contract instructions, or to seek approval from Clearwater for the variations claimed by Best Air. This was reflected in email correspondence,
including an email from Mr Cameron to Mr Syed (and others) of 16 November 2023 as follows:
Team
I cannot stress enough the importance this month of going through the variations And putting $ to any costs For additional works
...
Syed, you MUST break your claims down into materials and hours for justification please, everything has been rejected so far
...
[16] Mr Cameron also says there were meetings that he attended with Best Air to go over the documentation required from Best Air. There is an email of 23 February 2024 as follows:
Gidday Syed
I have sat with you and gone over your variations with you this week in the interests of getting a result for both Best and chillex.
I have spent my very valuable time sitting with you and giving you a clear heads-up on how your variations need to be presented, by complete duct systems within risers etc ie SA, RA OAF etc and showing additions/deletions/no cost sums as required
[To] date by Clearwater have paid Chillex absolutely NOTHING for any of
your variations
We dont have much time left as the job is nearly finished, if we don’t send out revised, compressed, easy to understand ductwork variations (as per my instructions to you), out to the QS by late next week he will strike your variations off and I don’t intend to cover the costs if you don’t perform
I can also confirm Chillex will not process or pay for any other variations not approved at the time the work was carried out by a Chillex PM or Site Manager that are not accompanied by a Clearwater Site Instruction
So, like I have told you to and as soon as you have the correct variation formats in DRAFT and ready to review PLEASE send them through to me immediately, I am working all weekend
This is your last chance on the riser 3 & 5 variation and the horizontal duct variation so get on with it!!
[17] On 23 March 2024, the project achieved practical completion. Chillex says it was agreed between Chillex and Clearwater that remediation of Best Air’s defective
works would be carried out as deferred works to mitigate losses and avoid the imposition of further liquidated damages.
[18] On 22 July 2024, Mr Syed applied to put Best Air into liquidation. An order appointing liquidators was made by the High Court on 13 September 2024.
[19] On 23 July 2024, Best Air, by its lawyer Mr Jindal, issued Chillex with Payment Claim 1 seeking payment of $176,698.65. Payment Claim 1 had attached 17 previously issued invoices dated from August 2023 to April 2024 along with other contract documents.
[20] Mr Cameron responded for Chillex to Best Air’s lawyer on 23 July 2024, requesting information to substantiate Payment Claim 1 and noting “there appears to be quite a discrepancy between what Chillex have assessed as potentially outstanding on schedule #9 and your claim”. “Schedule #9” refers to the previous payment schedule that Chillex had issued to Best Air. Mr Cameron also noted that Clearwater had applied liquidated damages against Chillex due to the failure of the duct work which delayed practical completion and Chillex intended to pass on a portion of those costs to Best Air.
[21] On 25 July 2024, just two days after Payment Claim 1, Best Air issued Payment Claim 2 for $52,644.74. This related to a single invoice dated 1 May 2024 in respect to what are claimed to be variations to the contract.
[22] The same day Best Air issued a “Notice to Remedy Breaches” (the Notice) asserting that Chillex was in breach of the contract because an amount of $229,342 was long overdue and if the breach was not remedied “within time” then Best Air would have no option but to “take the next steps and legal recourse”. The Notice was said to be given under cl 24(a)(iii) of the contract. The amount of $229,342 is not the sum of Payment Claims 1 and 2 (which total $229,343.39) but I understand the Notice was issued in respect to those claimed amounts.
[23] On 8 August 2024, Best Air issued Chillex with a letter purporting to terminate the contract on the basis it had not complied with the Notice.
[24] Also on 8 August 2024, Chillex issued Best Air with Payment Schedules 10 and 11 in response to Payment Claims 1 and 2 respectively. Payment Schedule 10 stated that once contra charges and liquidated damages were applied, Best Air had been overpaid on Payment Claim 1 by an amount of $61,301.90. Chillex assessed the value due to Best Air from Payment Claim 2 as being zero, largely because the claim consisted of what Chillex contends were unapproved variations and because Best Air had not supplied supporting documentation for the claims.
[25] On 9 August 2024, Best Air’s lawyer wrote to Chillex’s lawyers asking if they were able to accept service of documents under the Companies Act. Chillex’s lawyers responded, explaining there was a dispute as to whether there was a debt owed to Best Air and that any statutory demand issued would be an abuse of process.
[26] Best Air issued the statutory demand on 12 August 2024. Chillex’s lawyers responded on 14 August 2024, again asserting that the statutory demand was an abuse of process. Chillex’s application to set aside the statutory demand followed.
Statutory demands: legal principles
[27] Section 289(1) of the Companies Act provides a statutory demand is a demand by a creditor “in respect of a debt owing by a company” made in accordance with the section. Section 289(2) states that the statutory demand must “be in respect of a debt that is due and is not less than the prescribed amount”.4
[28] A statutory demand must adequately identify the debt said to be due and owing in order to ensure the company receiving it knows what it relates to and will therefore know how to respond to the demand.5 A statutory demand which includes a material misstatement of the amount or description of the debt due may be set aside if the court considers that substantial injustice would be caused if it were not set aside.6
4 The prescribed amount under the Companies Act 1993 Liquidation Regulations 1994, reg 5 is
$1,000.
5 Wildlife Pictures Ltd v Busch HC Whangarei CIV-2011-488-574, 18 October 2011 at [9].
6 Companies Act 1993, ss 290(4) and (5).
[29] Section 290 of the Companies Act deals with the setting aside of a statutory demand and relevantly provides:
290 Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a statutory demand.
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
…
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
[30] The principles that apply when the Court is exercising the discretion under s 290(4) were confirmed by the Court of Appeal in Confident Trustee Ltd v Garden and Trees Ltd.7 In summary:
(a)The onus is on the applicant to show there is a fairly arguable basis on which it is not liable for the amount claimed. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed. If such material is available, the dispute should normally be resolved by means of ordinary civil proceedings.
7 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
(c)If a counterclaim, cross-demand or set-off is suggested, an applicant must establish that this is reasonably arguable in all the circumstances.
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[31] In Industrial Group Ltd v Bakker, the Court of Appeal reiterated that on an application to set aside a statutory demand the Court does not attempt to resolve a dispute between the parties. It said:8
[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a). No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator’s award and opposition to summary judgment.
[25] The approach required by the “appearance” test in s 290 is a review with a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.
(footnote omitted)
[32] The Court retains a discretion to refuse to set aside a statutory demand notwithstanding that an applicant has made out the grounds for setting it aside under s 290(4). The discretion will be exercised in rare cases. Ultimately, the governing consideration will be whether allowing the statutory demand to form the basis of an application for liquidation “savours of unfairness or undue pressure”.9
8 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413.
9 Stewart’s Cycle City Ltd v Sheppard Industries Ltd [2013] NZHC 256 at [9].
Construction Contracts Act
[33] In issuing Payment Claims 1 and 2 Best Air was intending to obtain the benefits the Act provides in respect of facilitating timely payments under construction contracts.10 I will set out below the relevant payment provisions of the Act, the intent of which has been explained by the Court of Appeal in Salem Ltd v Top End Homes Ltd as:11
What is plain is that ss 20 to 23 of the Act are designed to facilitate regular and timely payments between the parties to a construction contract. If a property owner does not respond to a payment claim by serving a payment schedule, then the contractor is entitled to recover the amount of his claim as a debt due. Put colloquially, the payer is under an obligation to pay first and argue later. This, we are satisfied, is the intention of the legislation. No doubt it reflects the philosophy … that cashflow is the very life blood of the building industry. Contractors (and their sub-contractors in turn) are entitled to be promptly paid where they have invoked the payment regime under the Act and the payer has not responded as the Act requires.
[34]Section 3 sets out the purposes of the Act as follows:
3 Purpose
The purpose of this Act is to reform the law relating to construction contracts and, in particular,—
(a)to facilitate regular and timely payments between the parties to a construction contract; and
(b)to provide for the speedy resolution of disputes arising under a construction contract; and
(c)to provide remedies for the recovery of payments under a construction contract.
[35] Part 2 of the Act deals with payments under construction contracts. Conditional payment provisions, as defined in s 13(2), are not enforceable in any civil proceeding nor may they be used as a basis for withholding payments that are due and payable under a construction contract. A conditional payment provision is defined as:
10 Construction Contracts Act, s 3.
11 Salem Ltd v Top End Homes Ltd CA 169/05, 12 December 2005 at [22].
13 Conditional payment provisions ineffective
...
(2)In this section,—
...
conditional payment provision of a construction contract means a provision of the contract—
(a)that makes the obligation of one party (party A) to pay an amount owed to another party (party B) conditional on party A receiving payment from a further party (party C); or
(b)that makes the due date for payment of an amount owed by party A to party B contingent on the date on which party A receives payment from party C; or
(c)that is commonly referred to in the construction industry as a “pay when paid” or “pay if paid” clause of a construction contract; or
…
[36] Under s 14 of the Act, parties to a construction contract are free to agree on payment provisions in their contract in relation to:
(a)the number of payments under the contract;
(b)the interval between those payments;
(c)the amount of each of those payments; and
(d)the date when each of those payments becomes due.
[37] If the parties do not agree on such terms then the default provisions set out in ss 16 to 18 of the Act shall apply,12 which under ss 16 and 17 include a right for a party who has agreed to carry out work under a construction contract to progress payments.
[38] The Act contains procedures for making and responding to payment claims, and relevantly defines the phrase “claimed amount” to mean “an amount of a payment, specified in a payment claim, that the payee claims to be due”.13
12 Construction Contracts Act, s 15.
13 Construction Contracts Act, s 19, definition of “claimed amount”.
[39] Section 20 sets out the requirements for valid payment claims in the following terms:
20Payment claims
(1)A payee may serve a payment claim on the payer for a 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 in the case of a progress payment, at the end of the relevant period referred to in section 17(2); or
(c)if the contract does not provide for the matter in the case of a single payment expressly agreed under section 14(1)(a), following the completion of all of the construction work to which the contract relates.
(2)A payment claim must—
(a)be in writing; and
(b)contain sufficient details to identify the construction contract to which the payment relates; and
(c)identify the construction work and the relevant period to which the payment relates; and
(d)state 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.
(3)A payment claim 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).
[40]Section 21 sets out the requirement for valid payment schedules as follows:
21Payment schedules
(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)state 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.
[41] Section 22 of the Act provides that a payer will become liable to pay the claimed amount to which a payment claim relates on the due date if he or she does not serve a payment schedule on the payee within the time limit specified in the Act or the relevant construction contract. It reads:
22Liability for paying claimed amount
A payer becomes liable to pay the claimed amount on the due date for the 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.
[42] Section 23 of the Act sets out the consequences of not responding to a valid payment claim with a payment schedule within the time allowed under the Act, which
includes that the payee may recover from the payer as “a debt due to the payee, in any court” any unpaid portion of the claimed amount. It reads:
23Consequences of not paying claimed amount where no payment schedule provided
(1)The consequences specified in subsection (2) apply if the payer—
(a)becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and
(b)fails to pay the whole, or any part, of the claimed amount on or before the due date for the payment to which the payment claim relates.
(2)The consequences are that the payee—
(a)may recover from the payer, as a debt due to the payee, in any court,—
(i)the unpaid portion of the claimed amount; and
(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and
(b)may serve notice on the payer of the payee’s intention to suspend the carrying out of construction work under the construction contract.
(4) In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.
[43] Under s 24A of the Act, a party who carries out construction work under a construction contract has a right to suspend work under the contract in certain circumstances, including where:14
(i)a claimed amount is not paid in full by the due date for its payment, and no payment schedule has been provided by the party who it is claimed is liable for the payment [the payer]:
(ii)a scheduled amount is not paid in full by the due date for its payment even though a payment schedule given by [the payer] indicates a scheduled amount that [the payer] proposes to pay to [the payee]:
14 Construction Contracts Act, s 24A(1).
[44] Part 3 of the Act contains detailed provisions for the adjudication of disputes under construction contracts, including in relation to whether an amount is payable under a construction contact or the reasons given for non-payment of that amount.15
[45] Because of the reliance placed upon it by Best Air, I also set out s 79 of the Act which relevantly provides:
79 Proceedings for recovery of debt not affected by counterclaim, set- off, or cross-demand
In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—
(a)judgment has been entered for that amount; or
(b)there is not in fact any dispute between the parties in relation to the claim for that amount.
Was the statutory demand premature?
[46] The statutory demand was issued in respect to Payment Claims 1 and 2 and refers to the “attached payment claims, payment schedules, statements and invoices”.
[47]The contract provides in respect to payment as follows:
9.0 PAYMENT
a)The Contractor shall make provisional payments to the Subcontractor for the progress of the Subcontract Works carried out by the Subcontractor and such payments shall be made progressively during the execution of the Subcontract Works. Fully detailed Payment Claims stating the amount claimed by the Subcontractor shall be submitted each month by the Subcontractor prior to the Due Date for Payment Claims for inclusion in the Contractor’s request for payment under the Head Contract. Payment Claims may not be submitted for Subcontract Work carried out for periods of less than one (1) month.
...
c)If the Contractor intends to pay less than the amount of the Payment Claim, the Contractor shall issue a Payment Schedule on or before the Due Date for Payment Schedules. The Payment Schedule shall identify the Subcontractor’s Payment Claim to which it relates and state the amount that will be paid for that Payment Claim, detail how
15 Construction Contracts Act, s25(2)(a).
this has been calculated and provide reasons for any parts of the Payment Claim that are not being paid.
d)On or before the Due Date for Payments the Contractor shall pay to the Subcontractor the amount shown in the Payment Schedule which shall include any sum or sums the Contractor is entitled to set off, retain or be paid at law or under the provisions of this Subcontract.
e)Any payment made by the Contractor shall not constitute acceptance of the Subcontract Work or Variation for which that payment relates. If the Contractor finds an error in any Payment Claim or Payment Schedule, the Contractor may correct the error by issuance of a further Payment Schedule.
...
[48] Schedule 2 of the contract provides that in respect to cl 9.0(a) the frequency for submission of payment claims was monthly, and payment claims were to be issued by the fifth working day prior to the end of the month.
[49] For the purposes of cl 9.0(c) and (d), the due date for both payment schedules to be issued and for payments to be made under the contract was the 22nd working day following the end of the claim month.
[50] Payment Claims 1 and 2 were issued on 23 and 25 July 2024 respectively. The due date for the issue of payment schedules in response to them, and for payment of any scheduled amount, was no earlier than 30 August 2024.16 Despite this, the statutory demand was issued on 8 August 2024. It was therefore premature. The due date for payment of Payment Claims 1 and 2 or any scheduled amount had not arrived.
[51] The fact that Chillex had served Payment Schedules 10 and 11 in response to the payment claims does not alter the due date for payment under the contract. Not only is that the case as a matter of law but I also note that cl 9.0(e) of the contract provides that “if the Contractor finds an error in any Payment Claim or Payment Schedule, the Contractor may correct the error by issuance of a further Payment Schedule”. This provision would be ineffective if a scheduled amount was due upon
16 25 July 2024 was only four working days (not five working days as required by the contract) before the end of the month. There is clearly an argument that the due date for payment of Payment Claim 2 was the 22nd working day following the end of August 2025 but that can be ignored for present purposes.
service of the payment schedule, rather than on the due date for payment under the contract.
[52] It follows that the statutory demand was not issued in respect to a debt that was owing and due and must be set aside, subject only to Best Air’s contention that it had terminated the contract prior to the issue of the statutory demand.
Did Best Air validly terminate the agreement?
[53] Best Air contends it terminated the contract and the effect was that all amounts claimed by it for work done up to the date of termination were due and payable. The contract terms relied upon by Best Air are as follows:
24.0 DEFAULT BY CONTRACTOR
a) If:
...
iii)following 10 Working Days’ notice in writing from the Subcontractor, the Contractor fails to remedy any substantial breach of their obligations under this Subcontract,
without prejudice to any other rights or remedies, the Subcontractor may, by written notice, terminate the Subcontract. The Contractor is liable for the value of any work actually and properly executed at the date of such termination. ...
[54] This argument runs into the immediate problem that it was not the basis upon which the statutory demand was issued. The demand does not refer to amounts payable upon termination of the contract but to “attached payment claims, payment schedules, statements and invoices” (along with the claims for interest and retentions).
[55] It follows that if Best Air wishes to rely on this argument the debt referred to in the statutory demand has been misdescribed for the purposes of ss 290(5) and (6) of the Companies Act. I consider the misdescription material because in making its application Chillex responded to what it reasonably understood was a claim made under the Act. Mr Gillies understandably expressed frustration at the hearing that it was, even at the late stage of making reply submissions, still unclear whether Best Air was advancing its case under the Act at all.
[56] Best Air’s contention must also be rejected for other reasons. The Notice issued by Best Air to Chillex dated 25 July 2024 purports to be a notice under cl 24(a)(iii) of the contract. The breach alleged to have been made is:
Payments have not been made in time and there are payments in the amount of $229,342 (Two hundred twenty nine thousand three hundred and forty two dollars) which are long overdue. If the breach is not remedied within
time, then the Subcontractor will be left with no other option but to take next steps and legal recourse.
[57] The $229,342 is the sum of the amounts of Payment Claims 1 and 2 which had been issued on 23 and 25 July 2024 and therefore were not due for payment under the contract until at least 30 August 2024.17 It follows that Chillex was not in substantial breach of the contract in the manner alleged, and the Notice was therefore invalid and could not be relied upon by Best Air to terminate the contract. Its termination notice was invalid and, as Chillex contends, a repudiation of the contract.
Were Payment Claims 1 and 2 valid payment claims under the Act?
[58] The interpretation of the provisions of the Act is to be undertaken with its purposes in mind. A technocratic or formalistic interpretation is not to be adopted as that would undercut Parliament’s intentions, including in respect to maintaining cashflow in the construction industry.18
[59] I have set out earlier the requirements of ss 20(3) and (4) of the Act as to the mandatory requirements for a payment claim. The mandatory criteria are cumulative. In interpreting those provisions the approach I referred to above, that neither a technocratic nor formalistic interpretation should be taken, has been applied.
[60] CJ Parker Construction Ltd (in liq) v Ketan and George Developments Ltd v Canam Construction Ltd are authority that meritless, technical objections to payment claims will not succeed.19 Payment claims (and payment schedules)20 which
17 Construction Contracts Act, s 19, definition of “claimed amount”.
18 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [41] and [52];
Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [31].
19 CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA 3; George Developments Ltd v Canam Construction Ltd, above n 18, at [41].
20 Fowler Homes Southern Lakes Ltd v Bose [2017] NZHC 1707 at [26].
substantially comply with the requirements of the Act will be upheld.21 In Poly Wealth Trustee Ltd v Van Vlerken, Associate Judge Andrews said:22
The “substantial compliance” test sanctions the upholding of a payment claim (or payment schedule) which faithfully complies with the statutory requirements in relation to most particulars of claim but fails to do so in isolated instances, provided the fundamental tests of reasonable detail and comprehensibility are met.
[61] Here, Best Air’s Payment Claims 1 and 2 do not satisfy the requirements of s 20 as neither payment claim states a due date for payment as required by s 20(2)(d). In both cases the due date for payment was left blank. In respect to Payment Claim 1, the invoices that were attached all had dates for payment that had long since passed. In the case of Payment Claim 2, there was just one invoice, but again the date for payment had passed months before. There was nothing in the covering emails, letters or accompanying documents as to the due date for each payment claim.
[62] Furthermore, while by the terms of the contract the due date for payment was the 22nd working day following the end of the claim month, both Payment Claims 1 and 2 had annexed to them the Form 1 Notice under the Construction Contracts Regulations 2003 which only provided as follows:
The due date for a payment is the date agreed between you and the claimant. That due date must be set out in the payment claim. If you haven’t agreed on a due date, then the Act says that a payment is due within 20 working days after the payment claim is served on you. ...
[63] Chillex submits that the authorities show that while an incorrect due date for payment in a payment claim may be regarded as a technical quibble, a strict view is taken where the due date for payment is missing altogether. In Cromi Investments Ltd v CMP Construction Ltd, the payment claim did not state a due date for payment but it was argued the printed text stating “certified payment is due as per contract terms” was sufficient to indicate a due date for payment.23 Associate Judge Sargisson said:
21 George Developments Ltd v Canam Construction Ltd, above n 18, at [43].
22 Poly Wealth Trustee Ltd v van Vlerken [2020] NZHC 634 at [32], footnotes omitted.
23 Cromi Investments Ltd v CMP Construction Ltd [2019] NZHC 2142.
[33] CMP is correct that the Act does not require a rigid approach to compliance with all the requirements in s 20 and it will not allow its payment regime to be derailed by trifling irregularities. Moreover, the use of the word “indicate”24 in s 20(2)(d) makes plain that some flexibility is allowed. CMP notes in its submissions that s 20(2)(d) of the Act has subsequently been amended to require the claim “state” the due date for payment rather than merely “indicate” it — suggesting that the requirement as it applies here is comparatively lax. But there must be a clear indication of the “route” for determining unambiguously what the due date is. Otherwise the defects in the claim will unfairly prejudice the payer.
(footnote omitted)
[64] The Associate Judge also noted that ordinarily the courts are not entitled to interrogate the merits of a payment claim that has crystallised as an enforceable debt under the Act, but said the position is different where the challenge relates to the mandatory technical requirements laid out in s 20.25 On the facts before her, Associate Judge Sargisson found the payment claim did not satisfy the requirements of the Act.
[65] Mr Jindal referred to Moorhouse Panel & Spray Ltd v The Energy Saving Company Ltd which concerned a payment claim that did not state a due date for payment and was accompanied by a covering note which indicated the date had passed.26 In finding that the payment claim was invalid, Associate Judge Lester referred to the judgment of Downs J in Auckland Electrical Solutions Ltd v Warrington Group Ltd where he said:27
[25] The case law to the effect an error in relation to the due date will not necessarily vitiate a payment claim is distinguishable, as here the invoices’ dates were inconsistent with the actions of the appellant in seeking immediate payments. And importantly, the appellant implied the time for filing a payment schedule had passed when, if the payment claims were freshly issued, it had not.
24 Since Cromi Investments Ltd was decided the obligation to provide a claimed amount and due date for payment under s 20(2)(d) has been made even clearer by substitution of the word “state” for the word “indicate” in that provision. It was amended on 1 December 2015 by s 20(4) of the Construction Contracts Act Amendment Act 2015.
25 Cromi Investments Ltd v CMP Construction Ltd, above n 23, at [22]. The view taken by Associate Judge Sargisson was the one taken by the Court of Appeal in Demasol Ltd v South Pacific Industrial Ltd, above n 18.
26 Moorhouse Panel & Spray Ltd v Energy Saving Company Ltd [2019] NZHC 1804.
27 Auckland Electrical Solutions Ltd v Warrington Group Ltd [2016] NZHC 2245.
[66] The facts of this case are similar to Moorhouse Panel & Paint and Auckland Electrical Solutions as Payment Claim 1 was issued along with an email of 23 July 2024 from Best Air’s lawyer, Mr Jindal, stating that the amount of Payment Claim 1 “is long overdue and owing” and “[w]e have issued a payment claim since payments have been long overdue”.
[67] Another example is Loveridge Ltd v Watts & Hughes Construction Ltd, where the payment claim required insertion of the information “Claim date and Period covered” and the claimant had inserted “30/6/2010 feb-june”.28 Associate Judge Doogue held the document did not state a due date for payment and:
[11] I consider that the defendant is correct in the submission that the payment schedule must specify a due date for payment. It would be surprising if a statutory mechanism which was designed to put the payer on notice that a claim was being made under the Act could be ignored, particularly as the Act has strict time guidelines which are conducive to one of its objects which is to improve promptness of payment, or as it is said in s 3(a), “ to facilitate regular and timely payments between the parties …”.
[12] Further, the mandatory language of the statute which is conveyed by the use of the word “must” does not permit a payee to assert that substantial or approximate compliance with the obligation will suffice.
[13] It would seem that the requirement to insert into the notice of claim the date when the amount claimed became due must be for the purpose of enabling the payer, who must respond to the notice of claim, to decide whether it agrees that payment is due or whether it will dispute that issue, possibly amongst other matters, by serving a payment schedule.
…
[17] I accept that the approach of the Court takes to claims under the Act is to avoid unduly technical interpretation of its provisions. Where non- compliance is alleged, the Court will generally approach that matter by asking whether has been compliance in substance. But in a case where there has been no compliance at all concerning one of the elements which a valid claims is required to include, the claimants position cannot be salvaged by invoking the principle that the Court is to look to matters of substance. The requirement that the notice of claim must indicate “the due date for payment” could hardly be more obvious and there can be little argument that the wording of the legislation is mandatory.
[68] Chillex also argues that Payment Claims 1 and 2 are invalid as they do not comply with s 20(2)(e) and indicate satisfactorily the manner in which Best Air had
28 Loveridge Ltd v Watts & Hughes Construction Ltd HC Tauranga CIV-2011-470-275, 29 September 2011.
calculated the claimed amounts. There is plainly some merit in this submission when particularly Payment Claim 1 has attached an assortment of invoices, contract instructions and an account statement which do not clearly identify the construction work or relevant period that the claim was for and how the claimed costs are calculated. However, I do not need to decide that matter.
Were Chillex’s payment schedules valid payment schedules under the Act?
[69] The requirements of a valid payment schedule are contained in ss 21(2) and (3) of the Act and are set out above at [40]. While I understand Best Air’s case is that Payment Schedules 10 and 11 did not satisfy the requirements of ss 21(2) and (3) of the Act, it was not at all clear to me why it took that position. I believe Mr Jindal’s submission is that the alleged invalidity arises because Best Air does not accept that the reasons given for withholding payments are valid. I will deal with those matters later in the judgment.
[70] Payment Schedules 10 and 11 are in writing, they identify the payment claim they relate to and state a scheduled amount. They also set out the manner in which the scheduled amount has been calculated and provide reasons for withholding payment. Furthermore, the payment schedules were issued well ahead of the contractual (and statutory) timeframes for providing them and the default provisions in s 23 of the Act were not triggered. The payment schedules are valid in my view.
Does there remain an amount due and owing?
[71] Mr Jindal’s main submissions were to the effect that the Court should look behind Chillex’s payment schedules and reject the reasons given for withholding payment of claimed amounts. In circumstances where the payment schedules satisfied the requirements of the Act, I do not consider such an approach is appropriate.
[72] Demasol Ltd v South Pacific Industrial Ltd was an appeal from a decision setting aside a statutory demand that sought payment of the amount claimed in payment claims under the Act, including on the ground that the payment claims were invalid because it was reasonably arguable there was a fixed price contract and that the value of the construction work had not been calculated having regard to the
contract price.29 The Court of Appeal held that the disputes raised in relation to the payment claims were irrelevant in the context of the application to set aside the statutory demand and that:30
In our view, the only enquiries required in relation to SPI’s application to set aside the statutory demand were:
(a)whether the payment claim complied with s 20 of the CCA; and
(b)whether SPI had provided a payment schedule contesting its liability or paid the amount claimed by the due date.
The general merits of Demasol’s payment claim were not open for consideration and were irrelevant in the statutory demand context. In our view, the Associate Judge erred when she embarked on an enquiry into the terms of the contract and the quantum and merits of payment claim 2.
(footnote omitted)
[73]The Court of Appeal went on to say:31
The CCA contains its own procedure for responding to payment claims. The CCA deems an amount claimed to be a debt, if no payment schedule is issued and the amount claimed is not paid. It requires that payment be made in such circumstances. The payee is entitled to enforce that debt. The CCA does not however shut the payer out from disputing the amount claimed. Rather, it requires that the payer pay first and argue later. The law relating to the setting aside of statutory demands is not totally denied by the CCA. If, for example, a payment schedule has been issued, and the dispute between the payer and the payee has not been resolved, then s 23(2)(a) would not apply, there would be a substantial dispute as to whether or not the amount claimed was owing or due and s 290(4)(a) of the Companies Act could be invoked to set aside a statutory demand based on the payment claim.
[74] Chillex responded to Best Air’s payment claims with payment schedules that comply with the mandatory requirements in ss 21(2) and (3). In such a case it cannot be said there is a debt due and owing except in relation to any scheduled amount (of which there was none in this case). Any dispute as to whether an amount is in fact payable or as to the merits of reasons provided for withholding payment fall to be determined by invoking the dispute resolution provisions in the contract, adjudication proceedings under pt 3 of the Act or ordinary proceedings, but not under the statutory demand procedure.
29 Demasol Ltd v South Pacific Industrial Ltd, above n 18.
30 At [47].
31 At [53].
[75] This view is consistent with authority and the scheme of the Act, including that under s 24A(1)(a)(i) and (ii) a payee party may not suspend work unless no payment schedule is provided or a scheduled amount has not been paid by the due date. It is also consistent with the emphasis in the Act on the speedy resolution of disputes under pt 3, including in relation to whether amounts are payable under a construction contact and the reasons given for non-payment.32
[76] The approach Mr Jindal has asked me to take is wrong in principle, but for completeness I consider each of the matters he raised.
Changes in the percentage of claims certified
[77] Chillex had reduced amounts certified for payment under Payment Schedules 10 and 11 below what had been certified in its prior Payment Schedule 9. This is referred to in the affidavit of Best Air’s director, Mr Syed. It is unnecessary to go through every instance this occurred. One that Mr Syed refers to is invoice 0624 in Payment Claim 1, which had been certified for payment in Payment Schedule 9 at 85 per cent but reduced to 50 per cent in Payment Schedule 10 with new reasons. Similarly, invoice 0740 had been certified at 85 per cent in Payment Schedule 9 but reduced to 50 per cent in Payment Schedule 10.
[78] I do not accept Best Air’s argument that Chillex could not take this approach. Under the contract the certification of payments in a payment schedule was not final. Clause 9.0(e) of the contract states “If the Contractor finds an error in any Payment Claim or Payment Schedule, the Contractor may correct the error by issuance of a further Payment Schedule”.
[79]In addition, Payment Schedule 9 has a note:
The Payment Schedule shall neither imply acceptance of the work covered by the certificate nor relieve the Subcontractor from responsibility to remedy or replace Subcontractor Works or materials not in accordance with the Contract Documents.
Any monies certified within this Payment Schedule remain provisional until a final account is agreed between both parties.
32 Construction Contracts Act, s 25.
[80] Payment Schedules 10 and 11 contain the same note as above but with the addition:
The Payment Schedule is without prejudice to the validity of the claim to which it responds under the Construction Contracts Act 2002 and/or the Subcontract.
Counterclaims and/or set-offs cannot be raised.
[81] Mr Jindal argues that Chillex could not raise contra charges, set-offs or damages claims in response to Payment Claims 1 and 2 because of s 79 of the Act. That argument misinterprets s 79 and is not correct.
[82] Section 79, which is set out earlier in this judgment, only applies to the recovery of debts under ss 23, 24 and 59 of the Act. Sections 23 and 24 concern the consequences of not issuing a payment schedule or failing to pay a scheduled amount on the due date. Nothing in those provisions prevents a party raising contra charges, set-offs or counterclaims in response to a payment claim. Likewise, s 59 is concerned with the failure to comply with an adjudicator’s determination under pt 3 of the Act. Section 79 simply has no application in this case.
[83] I add that the amounts Chillex has set-off against Payment Claim 1 relate to the costs of remedying alleged defects in Best Air’s work and liquidated damages for resulting delay. Best Air filed affidavits from Mr Syed and former employees responding to and rejecting the allegation of leaks. Best Air has put forward an alternative explanation for the poor performance of the system. Mr Syed says low airflow was caused by doors having no undercuts and because ducts had to be moved to accommodate other services. There is more than sufficient evidence before me to be satisfied that there is a genuine dispute on these matters which cannot be resolved on this application.
Unlawful conditional payment provision
[84] Best Air argues that the reason Chillex is not paying amounts owed to it is that Chillex has not been paid by Clearwater. It refers to the term of the contract that “No variations will be paid unless approved and paid by the Principle [sic] first”, which it says is an unlawful conditional payment provision. It also refers to email
correspondence between Mr Cameron and Mr Syed where Mr Cameron appears to rely upon non-payment by Clearwater as a reason why Best Air was not being paid, and also to Mr Cameron’s email to Mr Jindal of 26 July 2024 following the issue of Payment Claims 1 and 2 where Mr Cameron drew Mr Jindal’s attention to the term of the contract that variations would not be paid until approved and paid by Clearwater. Best Air also relies on the reasons given in Payment Schedules 10 and 11 that refer to variations not having been approved by the principal, which Mr Jindal submitted I should interpret as meaning that payments had been withheld because Chillex had not received payment from Clearwater.
[85] To the extent that Chillex may have withheld payment of claimed amounts because it had not been paid by Clearwater, that would be unlawful. However, that is not the reason that has been given in Payment Schedules 10 and 11 for withholding payment. The reasons are substantially that amounts claimed are not approved variations in terms of the contract and that claims in respect of them have not been provided with sufficient supporting material in the form of signed day sheets and break downs of materials. I am not able to determine a dispute as to whether those reasons are correct.
[86] A similar issue arose in a summary judgment context in Fowler Homes Southern Lakes Ltd v Bose, where Associate Judge Osborne said:33
[45] Whether or not the variations were authorised is a matter which could be ultimately resolved only through a substantive determination. By its nature, the payment claim issued under Subpart 3 of Part 2 of the Act is a claim. If the payer disputes any aspect of the claim, including the payee’s underlying entitlement to claim the variation, it is for the payer to raise that difference in explanation of its scheduled amount. If a dispute is identified at that point, it falls to be dealt with under the Act’s Part 3 provisions for adjudication disputes.
Chillex did not respond to some of the claimed amounts in Payment Claims 1 and 2
[87] After the hearing Mr Jindal filed a memorandum submitting a table identifying four claimed amounts in Payment Claims 1 or 2 which he submitted Chillex had not responded to in Payment Schedules 10 or 11. On this basis he advanced a further
33 Fowler Homes Southern Lakes Ltd v Bose [2017] NZHC 1707.
argument that those claims must be due and owing. The total amount was
$126,053.57.
[88] Chillex opposed consideration of Mr Jindal’s memorandum, which it submitted was an attempt to have a second bite of the cherry and represented yet a further change in Best Air’s case. Chillex’s counsel did file a response to the matters raised but was at a considerable disadvantage in doing so.
[89] The issues raised in Mr Jindal’s memorandum did no more than add to the confusion of this case, demonstrate that there is a genuine and substantial dispute as to any amount owing, and that the use of the statutory demand procedure was inappropriate.
CI-1388 and 1333
[90] The first two amounts are for $8,235.15 which Best Air invoiced on 23 September 2023, and $24,705.45 invoiced on 30 November 2023, both with the reference CI-1388. The first of these invoices purported to be a “final claim”. Despite that, Best Air claims the entire amount of $32,940.60 remains owing.
[91] Chillex’s position is that this work was the same work as under CI-1333, which had already been paid. Chillex assessed the value of CI-1333 as $11,029.50 in Payment Schedule 10 and records that it had already paid $10,299.90. The relevant invoice was for $24,510 but Chillex assessed that the variation had not been approved by Clearwater. This, however, is at odds with the fact that Chillex issued a contract instruction for this work on 4 August 2023.
[92] On 27 July, Mr Syed quoted Mr Crawford $24,510 for this work, to which Mr Crawford responded on 1 August:
Heads-up
Looks like this will be going ahead however don’t move until you have a work order from us – we are waiting for an SI from clearwater
[93] The contract instruction then issued on 4 August, the work was carried out and an invoice issued for $24,510 as quoted.
[94] I cannot determine on this application if Chillex’s position is correct and the work corresponding to CI-1388 is in fact the same as CI-1333. However, I note that if that is so there would appear to be an amount of $13,000 outstanding in respect of CI-1333. That amount, however, is significantly less than what Chillex says has been overpaid under Payment Schedule 10.
Formshield variation
[95] Best Air claims that an amount of $40,468.50 remains missing, in respect of an invoice issued on 1 March 2024 for a “Formshield variation”. In Payment Schedule 10 Chillex comes to a reduced figure of $5,860.00 and gives three reasons for disputing the claimed amount. Chillex says that the variation was not approved by the principal in accordance with cl 8.0 of the contract, that it arrives at a different calculation for rates and quantities and that the invoice issued on 1 March 2024 was superseded by a later request by Best Air for a reduced sum.
[96] There is a dispute as to whether the formshield work was a variation for which Best Air is entitled to some payment or formed part of the contract works. Mr Crawford emailed Mr Syed on 24 April 2024 attaching correspondence from Clearwater which provides, relevantly, that Clearwater did not consider the work to be a variation:
The tender drawings that were provided to the subcontractor (as noted in their tender) required the ductwork to be insulated. The legend provided was as follows:
EXTERNALLY INSULATED SUPPLY/RETURN AIR SHEET/METAL DUCTWORK – OUTSIDE AND EXHAUST AIR UNINSULATED UNLESS INDICATED OTHERWISE.
The following item further confirms the need for insulation – being:
ALL SUPPLY, RETURN AND OUTSIDE AIR DUCTING RUNNING EXTERNAL TO THE BUILDING TO BE EXTERNALLY INSULATED …
The ducts concerned cannot reasonably be construed to be “internal” to the building therefore being external must be insulated.
[97] I note that in email correspondence on 13 June 2024 Mr Crawford told Clearwater’s representative that Chillex intended to pay Best Air despite non-payment from Clearwater but has not done so.
[98] There is also email correspondence from 6 March 2024 between Mr Crawford and a Senior Quantity Surveyor for Clearwater which indicates that Clearwater considered the invoice issued in respect of this work was incorrect:
Cam,
The additional work includes wrapping the duct with [formshield] wrap.
Your rate of $162.50 applied for the wrap is higher than the rate of supplying new insulated duct.
You’re claiming $56k. I am sorry but this is becoming comical by now. Please confirm the materials and labour cost.
I’ll get the supplier’s invoice in the meantime.
Looking at what was done on site I think both of us know that 56k claimed is absolutely [outrageous].
[99] On 9 March 2024 Mr Crawford requested day sheets from Best Air in order to substantiate the amount as requested by Clearwater. Mr Syed responded on 10 March 2024 that they did not have day sheets. He broke down the cost of labour and material as $42,600 plus GST. After payment was not made, Mr Syed again emailed Mr Crawford on 18 April 2024, revising the amount claimed as $35,190 after removing a 10 per cent margin and attaching new invoices which, Chillex claims, superseded the original invoice of $40,468.50.
[100] Upon my consideration of the evidence, there are genuine and substantial disputes whether the formshield work was a variation to the contract, whether Best Air’s charges are valid and were substantiated, and whether its invoice of 1 March was superseded.
Miscellaneous variations
[101] The final claim is in respect of an invoice for 13 “variations” issued 1 May 2024 for $52,644.47. Chillex’s position was that none of the variations had been approved by Clearwater as required by cl 8.0 of the contract. Of the corresponding 13 variation sheets, four are signed by Mr Pointe of Clearwater and only two are signed by Mr Iketau of Chillex.
[102] Even if I was to accept that the signed variation sheets were approved in accordance with cl 8.0, that relates to a total sum of only $7,500. That leaves
$45,144.47 of the invoices without a corresponding signed variation sheet.
Conclusion
[103] I am satisfied that Chillex has established there is a genuine and substantial dispute as to the amount claimed in the statutory demand. The steps taken by Best Air in issuing the payment claims, notice of breach, termination notice and then the statutory demand all within days of one another were, to my mind, haphazard and inappropriate.
[104] While Best Air considers there is a substantial sum owing to it, there was no need for it to act as it did. It could, and should, have engaged the disputes resolution procedures under the contact or adjudication proceedings under pt 3 of the Act. Had it done so this matter could have been resolved by now.
[105] Finally, I can see no circumstances that would justify me exercising the Court’s discretion to not set aside the statutory demand notwithstanding the existence of a genuine dispute as to the amount claimed, and I do not do so.
Result
[106]The application is granted and the statutory demand is set aside.
[107] Chillex is entitled to costs. If costs are not agreed, Chillex may make any application for costs within 14 days by memorandum and Best Air will have seven days to respond. I would expect to deal with costs on the papers.
O G Paulsen Associate Judge
Solicitors:
Hesketh Henry, Auckland Ormiston Legal, Auckland
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