CMP Construction Ltd v Aluminium Technology Ltd

[2013] NZHC 2481

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-2692 [2013] NZHC 2481

IN THE MATTER

of the Companies Act 1993

AND

IN THE MATTER

of a statutory demand served on 10 May 2013

BETWEEN

CMP CONSTRUCTION LIMITED

Applicant

AND

ALUMINIUM TECHNOLOGY LIMITED

Respondent

Hearing:	12 September 2013
Counsel:	DW Grove for applicant PM Hunter for respondent
Judgment:	23 September 2013

JUDGMENT OF ASSOCIATE JUDGE FAIRE

[on application to set aside statutory demand]

This judgment was delivered by me on 23 September 2013 at 2:30pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:Ellis Law, Auckland Simpson Western, Auckland

CMP CONSTRUCTION LTD v ALUMINIUM TECHNOLOGY LTD [2013] NZHC 2481 [23 September 2013]

The application

[1] The applicant, CMP Construction Ltd, applies to set aside a statutory demand served by the respondent, Aluminium Technology Ltd, on it on 10 May 2013 and which seeks payment of the sum of $50,928.06. The sum sought in the statutory demand relates to two specific contracts, namely:

Target Court               $24,681.31; and
Lovell Court               $26,246.75.

[2] Mr Hunter acknowledged that the correct amount for which the statutory demand  should  have  been  issued  in  respect  of  the  Target  Court  contract  was

$20,039.56 and that the correct amount that should have been claimed in respect of the Lovell Court contract was $22,091.33 making a total of $42,130.89. The revised figures were arrived at by deleting the reference to retention sums. Mr Grove had no objection to my considering a claim for the revised amount. That is, in fact, appropriate having regard to s 290(5) and (6) of the Companies Act 1993.

[3]      The application pleads three principle grounds in support of it, namely, that:

(a)There is a genuine and substantial dispute whether or not the debt is owing and is due;

(b)It has a counterclaim/set-off that is in excess of any sums allegedly due to the respondent; and

(c)Service of the statutory demand is an abuse of process.

It is also asserted that no sum is due from the applicant to the respondent. That is really not a separate ground, but is encapsulated in the three grounds that I have mentioned.

The statutory basis for the application

[4]      The  application  is  made  in  reliance  on  the  three  grounds  specified  in s 290(4)(a), (b) and (c) of the Companies Act 1993. Section 290(4) provides:

290      Court may set aside 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

(b)The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)The demand ought to be set aside on other grounds.

[5]     The court’s approach to an application to set aside a statutory demand based on the Companies Act 1993, s 290(4)(a) can be shortly stated. The court is required to determine whether there is a substantial dispute whether or not the debt is owing

or is due. The applicant must show a fairly arguable basis upon which it is not liable for the amount claimed: Forge Holdings Ltd v Kearney Finance (NZ) Ltd1 and Queen City Residential Ltd v Patterson Co-Partners Architects.2 That formulation was approved in United Homes (1988) Ltd v Workman.3 Once that position is reached the statutory demand should be set aside and the dispute is then disposed of,

if necessary, by other proceedings in the ordinary way.

[6]  When a matter is to be determined pursuant to s 290(4)(b) of the Companies Act 1993, the court’s approach is as set out in Covington Railways Ltd v Uni- Accommodation Ltd where the court said:4

Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance owing to the creditor or even off-sets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant’s side, there is an indisputable liquidated sum, but the other party’s claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off.  It must be able to

1       Forge Holdings Ltd v Kearney Finance (NZ) Ltd HC Christchurch M149/95, 20 June 1995 at 2.

2       Queen City Residential Limited v Patterson Co-Partners Architects Ltd [1995] 3 NZLR 307.

3       United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at 451-452.

4       Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA).

point to evidence before the Court showing that it has a real basis for the claimed set-off and that accordingly, the applicant’s claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in Bryanston Finance Ltd v De Vries (No.2) [1976] Ch 63, 78, it must show that there are “clear and persuasive grounds” for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation procedures improperly because there is a “genuine and substantial dispute” about the net amount of the company’s indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297, 299). The dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.

[7]   When considering what should be appropriate when applying s 290(4)(c) of the Companies Act 1993, assistance can be gained from the comments of the Court of Appeal in Commissioner of Inland Revenue v Chester Trustee Services Ltd:5

That said, I agree with Baragwanath J that the general policy of the Act that insolvent companies should be put into liquidation, if a creditor seeks such an order, should not be departed from lightly. To justify such departure there must be some other factor, be it policy, principle or simply the justice of the particular case, which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation. If the focus is on the justice of the particular case the discretion must always be exercised on a principled basis and not on some ad hoc perception of  what  individual justice might require. All cases involving s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor’s prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue.

The opposition

[8] The respondent opposes the setting aside of the statutory demand on two grounds:

(a)The applicant has failed to serve payment schedules on the respondent in response to the payment claims which the respondent has served on the applicant in respect of the subcontracts relating to the properties at 5 Target Court, Glenfield and 14-18 Lovell Court, Albany within the time required under section 22 of the Construction Contracts Act;

(b)The applicant is no longer able to dispute the amounts claimed by the respondent in the payment claims which it has issued for the two

5       Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3].

subcontracts and it is required to pay the outstanding balance of the payment claims under section 23 of the Construction Contracts Act.

Background

[9] The applicant is a construction company. The respondent is a company that supplies and installs a variety of aluminium building products, including cladding panels. The applicant and respondent are parties to two subcontracts. The first involved the remediation and recladding of a building at 5 Target Court, Glenfield, referred to in this judgment as “the Target Court contract”. The second contract involved installing cladding, louvres and a glass balustrade on a new building which was being built at 14–18 Lovell Court, Albany and is referred to in this judgment as “the Lovell Court contract”.

[10] Both subcontracts were fixed price contracts. The contract price for the Target Court subcontract was $35,480 (GST inclusive). The contract price for the Lovell Court subcontract was $53,900 (GST inclusive).

[11] The respondent completed both subcontracts. The total amount that the respondent  claimed  for  the  Target  Court  subcontract,  including  variations,  was

$46,417.46.  It has been paid $21,736.15.

[12] The total amount that the respondent claimed in respect of the Lovell Court subcontract,  including  variations,  was  $89,246.85.    It  has  received  payment  of

$63,000.01.

The issue raised by this application

[13] The respondent’s case is that it is entitled to the revised claims referred to in [2], which it claims for both contracts, on the basis that the applicant has failed to provide payment schedules in response to its payment claims within the time required under the Construction Contracts Act 2002.

The Construction Contracts Act 2002

[14] In Marsden Villas Ltd v Wooding Construction Ltd, Asher J described the payment procedure which is established by the Construction Contracts Act 2002 as follows: 6

[16]The Act sets up a procedure whereby requests for payment are to be provided by contractors in a certain form. They must be responded to by the principal within a certain timeframe and in a certain form, failing which the amount claimed by the contractor will become due for payment and can be enforced in the Courts as a debt. At that point, if the principal has failed to provide the response within the necessary time frame, the payment claimed must be made. The substantive issues relating to the payment can still be argued at a later point and adjustments made later if it is shown that there was a set-off or other basis for reducing the contractor’s claim. When there is a failure to pay the Act gives the contractor the right to give notice of intention to suspend work, and then if no payment is made, to suspend work. There is also a procedure set up for the adjudication of disputes.

[17] The Act therefore has a focus on a payment procedure, the results that arise from the observance or non-observance of those procedures, and the quick resolution of disputes.  The processes that it sets up are designed to side-step immediate engagement on the substantive issues such as set-off for poor workmanship which were in the past so often used as tools for unscrupulous principals and head contractors to delay payments. As far as the principal is concerned, the regime set up is “sudden death”. Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits. In that way if a principal does not act in accordance with the quick procedures of the Act, that principal, rather than the contractor and sub-contractors, will have to bear the consequences of delay in terms of cashflow.

[15] I set out the relevant parts of the Construction Contracts Act 2002 that require consideration in analysing this application. Section 20 deals with payment claims. Subsections (1) and (2) are relevant and provide as follows:

20Payment claims

(1)A payee may serve a payment claim on the payer for each progress payment,—

(a)if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or

6            Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 (HC).

(b)if the contract does not provide for the matter, at the end of the relevant period referred to in section 17(2).

(2)A payment claim must—

(a)be in writing; and

(b)contain sufficient details to identify the construction contract to which the progress payment relates; and

(c)identify the construction work and the relevant period to which the progress payment relates; and

(d)indicate a claimed amount and the due date for payment; and

(e)indicate  the  manner  in  which  the  payee  calculated  the claimed amount; and

(f)state that it is made under this Act.

[16] Section 21 prescribes what must follow where a payee has issued a payment claim. The payer may respond to a payment claim by providing a payment schedule to the payee.  Section 21 provides:

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)indicate a scheduled amount.

(3)If  the  scheduled  amount  is  less  than  the  claimed  amount,  the payment schedule must indicate—

(a)the  manner  in  which  the  payer  calculated  the  scheduled amount; and

(b)the payer's reason or reasons for the difference between the scheduled amount and the claimed amount; and

(c)in a case where the difference is because the payer is withholding payment on any basis, the payer's reason or reasons for withholding payment.

[17]   Section 22 provides that the payer will become liable for the amount claimed in a payment claim which is served on them if they do not serve a payment schedule

in response to the payment claim within either the time prescribed by the contract or 20 working days.  Section 22 provides:

22Liability for paying claimed amount

A payer becomes liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates if—

(a)a payee serves a payment claim on a payer; and

(b)the payer does not provide a payment schedule to the payee within—

(i)the time required by the relevant construction contract; or

(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.

[18] Section 23 states that a party may recover an amount that becomes payable under s 22 as a debt in any court together with the “actual and reasonable costs of recovery” awarded against the payer by the court. Service of a statutory demand has been held to be a proceeding for recovery of a debt under s 23.7 It is also a consequence of a judgment of the Court of Appeal in Laywood v Holmes Construction Wellington Ltd where the court specifically discusses the effect of s 79, to which I’ll make reference shortly.8 It is appropriate to record that the Supreme Court declined leave to appeal from that judgment. It states the position authoritatively.

[19] Section 79 of the Construction Contracts Act restricts the parties ability to raise a counterclaim or set-off in opposition to a claim under s 23 of the Construction Contracts Act. Of particular importance is the ruling of the Court of Appeal in Laywood v Holmes Construction Wellington Ltd where it was concluded that s 79 prohibited the court, in dealing with an application to set aside a statutory demand pursuant  s 290(4)(b)  of  the  Companies  Act  1993,  from  giving  effect  to  any

counterclaim, set-off or cross-demand.9   The court noted that the position is different

when a liquidation or adjudication application in a personal bankruptcy is being considered. That, however, does not require consideration in this judgment.

7       Seating Systems Ltd v Kidson Construction Ltd [2012] NZHC 2217.

8       Laywood v Holmes Construction Wellington Ltd [2009] 2 NZLR 243 (CA).

9       Ibid.

[20] The Court of Appeal’s ruling is the answer to the second of the principal grounds upon which the application is based and it is for that reason that I will consider that ground no further.

The Target Court subcontract

[21] One payment claim only is the subject of the claim made in the statutory demand. It is a claim that was issued on 27 February 2012 for $23,414.81. Payment was made on 29 April 2012 in the sum of $3,375.25. The shortfall of $20,039.56 is what is in issue in respect of this part of the claim.

[22] Four specific grounds are advanced by the applicant in support of the proposition that the payment claim made is invalid.

[23]  The first ground alleges that the claim does not indicate the manner in which the respondent calculated the amount claimed. The respondent’s director, Mr WA North, filed a second affidavit on 9 September 2013 which specifically addresses the complaints that were identified in counsel for the applicant’s submissions which had been previously filed. Mr Grove, understandably, did not oppose my reading this further affidavit. The result is that the evidence as produced by Mr North shows a sufficient compliance with s 20(2) so far as the question of the manner in which the amount claimed is calculated.

[24]     Accordingly, the first ground of invalidity claim is not made out.

[25] The second ground alleges that the payment claims are invalid because they incorrectly state the due date for payment.

[26] The date for payment specified in the claim was  25 March  2011.  The reference to 2011 is clearly wrong and should have been 2012. The point, in fact, was not picked up until counsel’s oral submissions were made to the court.

[27] In addition, Mr Hunter acknowledged that the due date recorded  in  this payment claim had not been calculated in accordance with clause 8.3 of the contract. Clause 8.3 of the contract provides that claims are payable on the last working day of

the month following the month in which the claim is issued. Mr Hunter submitted that the error in payment date did not invalidate the payment claim.   Although s 20(2)(d) of the Construction Contracts Act 2002 requires that a payment claim indicates the due date for payment, he drew attention to decisions of the court that have held that minor errors in a payment claim, such as an error in the due date, should not be allowed to frustrate a subcontractor’s entitlement to payment under the

Construction Contracts Act 2002. Such errors are regarded as mere technical quibbles.10

[28] He drew attention to the fact that there is no evidence that the applicant has been misled by the error. He referred me to the two decisions where the courts have disregarded an error in the due date for payment as being a ground for holding that the payment claim was invalid.11

[29] I conclude that there is nothing in this case that would justify my concluding that an error in the payment date should invalidate the payment claim.

[30]    The position, however, must be contrasted with the time for the providing of a payment schedule in response to a payment claim. No time is specified for the provision of a payment schedule in the Target Court subcontract.  The result is that s 22 of the Construction Contracts Act 2002 applies and a payment schedule must be provided within 20 working days of the payment claim.

[31] The third ground alleges that the payment claims could not be validly issued before the contract documentation was signed. The evidence is that the contract documentation was sent to the respondent in November 2011. An email was sent by the applicant to the respondent on 14 March 2012.  It provided:

Before we issue any cheques, we need both subcontracts signed for Lovell and Target Courts which were sent in November 2011.

10     George  Developments  Ltd  v  Canam  Construction  Ltd  [2006] 1 NZLR 177 (CA), (2005) 18 PRNZ 84

11    Invent Solutions Ltd v Chan Developments Trustee Ltd (HC) Wellington CIV-2008-485-2834, 1 April 2009, Associate Judge Gendall, [2009] NZCCLR 37; Suaniu v Hi-Qual Builders Ltd HC Auckland CIV-2008-404-1576, 26 June 2008.

That email resulted in both subcontracts being returned having been executed by the respondent on or about 22 March 2012.

[32] In support of this ground, Mr Grove relies on clause 8.4 of the contract which provides:

No progress claim shall be paid to the subcontractor until the subcontract document is fully executed, the relative schedules therein completed and evidence of insurances, applicable guarantees, health and safety and taxation compliance has been provided to CMP.

[33] Mr Hunter referred me to a similar provision which was considered by the court in Chow Group Ltd v Walton.12 In that case the contract required a bond to be delivered to the principal. The principal argued that payment claims issued before the bond had been provided were invalid. The court rejected that submission. The court specifically drew a distinction between a claim falling due for payment and actually being payable. The court held that the principal incurred liability for the amount of a payment claim that was issued before the bond had been provided in a

situation where it did not serve a payment schedule in response within the required time. The decision clarified the position, however, that the amount of the claim itself would not actually be payable until the bond had been provided.

[34]  That case, in my view, has direct application to the facts of this case and is the reason why clause 8.4 of the contract does not provide a basis for the applicant’s submission that the payment claim is invalid.

[35] Accordingly, the third ground advanced in support of the proposition that the payment claim was invalid is rejected.

[36] The fourth ground advanced was that no valid payment claim could be made until 10 April 2012 because of clause 8.1 of the contract. Clause 8.1 of the contract provided:

Subcontract progress claims must be with CMP’s quantity surveyor before the tenth of each month to which the claim is applicable.

12      Chow Group Ltd v Walton [2011] NZAR 747.

[37] Mr Hunter referred to Marsden Villas Ltd v Wooding Construction Ltd.13 Asher J there considered a construction contract that contained a requirement that payment claims “shall be submitted in respect of work carried out during periods of not less than one month”. The submission advanced was that the payment claim had been submitted for a period of less than one month, and therefore it was invalid. The court rejected that argument. The court concluded that a failure to comply with that clause of the contract did not prevent a payment claim from being valid, but simply provided a ground on which the payer could object to the payment claim within a payment schedule. As his Honour said in that case, there is in this case no suggestion  that  there  is  any  substantive  problem  caused  to  the  applicant  as  a

consequence of the claim being made when it was.  His Honour observed:14

There is nothing in the Act to indicate that a failure to observe the Contract in calculating a progress payment is fatal to a claim.

There is nothing in the evidence before me to suggest that there was any particular prejudice to the applicant concerning the timing of the issue of the payment claim.

[38] In this case I accept the respondent’s submission that the applicant had 20 working days from the date it received the payment claim to serve a payment schedule.  It did not with the consequence that s 23 applies.

[39] Accordingly, I conclude that there are no grounds justifying my conclusion that the payment claim is invalid. The result is that the sum of $20,039.56 is due pursuant to s 22 of the Construction Contracts Act 2002. Further, such sum may be the subject of a statutory demand. As I have already observed, there is no justification for applying s 290(4)(b) and the counterclaim/set-off provisions in relation to this claim.  There is no justification for applying the matters set out in s 290(4)(c).

[40] The result is that there is no justification setting aside  that  part  of  the statutory demand that relates to the Target Court subcontract and the revised claim of

$20,039.56.

13      Marsden Villas Ltd v Wooding Construction Ltd, above n 6.

14 Ibid, at [34].

The Lovell Court subcontract

[41]   The respondent claims that there were four payment claims issued in respect of the subcontract as follows, namely:

25 January 2012      $9,263.25 in respect of which no payment was made 27 February 2012     $41,151.60 in respect of which $32,382.79 was paid 26 March 2013 $25,792.20 in respect of which $30,617.31 was paid 26 April 2013      $4,059.27 in respect of which no payment was made.

[42] There is, on the evidence before me, a dispute as to when a payment schedule was provided to the respondent in respect of the payment claim served on 26 April 2013. Because of that dispute, Mr Hunter recognised that I could not, in this proceeding, resolve the matter relating to the amount outstanding in respect of the 26 April 2013 payment claim. The Act deals with service matters in s 80 as does Reg 9 of the Construction Contracts Regulations 2003. He was therefore content that I deal with the Lovell Court claims as being claims in the sum of $18,032.06, being the first two claims referred to in [41].

[43] The first ground advanced by Mr Grove for the proposition that the payment claims are invalid in this subcontract, is because they do not correctly identify the due date for payment. Mr Hunter accepted that the payment claims that were issued by the respondent to the applicant did not correctly set out the due dates for payment. The reason that that is the case is because the due dates on the claims are specified as 20 working days after the date of the claim. Clause 5.15 of the contract states that the payment will be due on the last working day of the month after the date on which the payment claim has been issued.

[44] However, for the reasons analysed in the Target Court subcontract, I do not regard this as a ground for holding that the payment claim is invalid. The point could well have been taken in the payment schedule. By contrast, under the contract by clause 5.1.6, the payment schedule must be made within 20 working days of the date of service of the payment claim.

[45] The next ground advanced alleging that the payment claims are invalid is that they did not comply with clause 5.1.1.  Clause 5.1.1 of the subcontract provides:

The subcontractor shall submit its first payment claim for the cost of the subcontract works on the 26th day of each month after the commencement of the subcontract works and each subsequent time on the 29th day of each succeeding month.

[46] I accept Mr Hunter’s submission that the failure by the respondent to issue its payment claims on the exact dates prescribed in clause 5.1.1 of the subcontract does not invalidate those payment claims for the particular reasons that are set out in my analysis of the Target Court subcontract. If, in fact, the applicant objected, that objection could have been made in the payment schedule.  It was not.

[47] Accordingly, I reject this basis for the proposition that the payment claims are invalid.

[48] The next ground advanced is that the payment claims fail to comply with another part of clause 5.1.1 of the subcontract. That part of clause 5.1.1 of the provides:

Each payment claim (1) shall be prepared in accordance with section 20 of the Construction Contracts Act 2002, (2), shall in respect of each item of work, refer to a specific clause in the subcontract or item reference on a schedule of works, and shall be described in sufficient detail to permit verification.

[49] Mr Hunter referred me to Cambria Commercial 2009 Ltd v Pedley,15 In that case the contractor had submitted a payment claim that had an invoice attached to it evidencing the amount due. The principal sought to argue that the payment claim did not sufficiently identify the work to which it related. In dealing with that submission the court said:16

In the present case, invoices headed “Cambria Commercial 2009  Ltd”, which specified that the work for which payment was claimed was work to the defendants’ property were attached to the payment claim. In those circumstances, the work identified was sufficiently specified and further, I do not understand the defendants to be unaware of what work was being

15      Cambria Commercial 2009 Ltd v Pedley HC Palmerston North CIV-2011-454-457, 7 December 2011, Associate Judge Gendall.

16 Ibid, at [51].

claimed. Where there is no error in substance or confusion created by a mistake and that error or mistake is taken up in defence of a payment, that is the encapsulation of a technical quibble.

[50] There is no evidence that the applicant has previously  objected  to  the payment claim on the basis that they did not properly identify the work to which it related. At best the deficiency falls into the technical quibble category and does not justify finding the payment claim invalid.

[51] The final matter advanced in support of the proposition that the payment claims in this contract were invalid relies on clause 5.1.2 of the subcontract.  Clause

5.1.2provides:

Notwithstanding subclause 5.1.1 above, the Subcontractor shall not submit any payment claim to the Contractor until –

(a)The Subcontractor has executed this agreement and any other relevant subcontract documentation requiring its execution;

(b)The subcontractor has provided evidence that the  insurances required under this agreement are validly in place; and

(c)The Subcontractor has submitted its Health and Safety policy, provided a signed acceptance of a copy of the Contractor’s Health and Safety policy, and provided the health and safety information requested by the Contractor.

[52] On the strength of this clause, the payment claims are invalid. However, it is necessary to consider whether clause 5.1.2 infringes s 12 of the Construction Contracts Act 2002 and, if so, what are the consequences that follow.

[53]     Section 12 provides:

12       No contracting out of Act

This Act has effect despite any provision to the contrary in any agreement or contract.

[54]    Section 9 sets out when the Construction Contracts Act 2002 applies.  Section 9 provides:

9        When Act applies: general

Subject to sections 10 and 11, this Act applies to every construction contract (whether or not governed by New Zealand law) that—

(a)relates to carrying out construction work in New Zealand; and

(b)is either—

(i)entered into on or after the date of commencement of this Act; or

(ii))      (ii)      entered into before the date of  commencement of this Act and that is renewed for a further term on or after that date (except that this Act  has  effect  only in relation to obligations that are incurred or  undertaken on or after that date); and

(c)is written or oral, or partly written and partly oral.

[55] A provision that effectively amounts to a contract having to be written and executed is inconsistent with the scheme of the Act. The policy of the Act is reflected in s 16 which is directed towards payees receiving payment promptly. Section 16 provides:

16       Right to progress payments

A party who has agreed to carry out construction work under a construction contract has the right to progress payments calculated in accordance with section 17.

[56]  I do not overlook s 14.  That enables the parties to agree between themselves on a mechanism for determining:

(a)The number of progress payments under the contract;

(b)The interval between those payments;

(c)The amount of each of those payments; and

(d)The date when each of those payments becomes due.

I accept Mr Hunter’s submission that deferring the right to issue a payment claim until certain documentary formalities have been attended to is not a matter that the parties are free to agree  upon  under  the  terms  of  the  Construction  Contracts Act 2002.

[57] The Construction Contracts Act 2002 does not specify the consequences that follow. Accordingly, there is an invalidity that arises in relation to one of the terms of the contract. There would seem to be no reason why the other contractual obligations are rendered unenforceable or invalid. I adopt and approve the passage in Law of Contract in New Zealand, where the authors say:17

The legal effects of a void contract

Where a contract is void, but not illegal, any legal effect it has will be determined largely by the reasons for which it is to be considered void. If the invalidity arises from statute, the consequences may be determined by statutory provisions or may depend upon the common law rules which apply to contracts which are void as being against public policy. In general it may be said that the common law would not deny any legal effect to such transactions.

Where the invalidity arises only in relation to one of the promises made in the contract, other contractual obligations may be enforceable and valid. There may also be cases where it is possible for the courts to sever from the contract one or more provisions which create the invalidity, thus leaving a valid contract. There are a few statutes which state that a contract is only void to the extent that it contravenes the particular statute. In the absence of authority on the point, logic would indicate that the contract is to be taken as being necessarily modified to accord with the statute and, presumably, may be enforced as so modified.  [Citations omitted]

[58] Accordingly, I conclude that it is appropriate that I sever clause 15.1.2. On that basis, I conclude that the payment claims are not invalid with the result that there is no defence to that part of the claim under the Lovell Court subcontract of

$18,032.06.

Conclusions

[59] The result is that I conclude that there is no proper basis for setting aside the statutory demand in respect of the sums due for the Target Court subcontract of

$20,039.56 and in respect of the Lovell Court subcontract in the sum of $18,032.06, making a total of $38,071.62. When I apply s 290(5) and (6) of the Companies Act 1993,  it  is  appropriate  that  I  not  set  aside  the  statutory  demand  in  respect  of

$38,071.62.

17      Burrows, Finn & Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [13.3.5].

[60] It is appropriate that I next consider the application of s 291 to the findings I have made in this case. Because there will be further considerations beyond those considered when s 290 of the Companies Act 1993 is considered, I conclude that the first option contained in s 291(1)(a) is appropriate in this case.

Orders

[61] Accordingly I order that if the applicant does not pay the sum of $38,071.62 within ten working days of the release of this judgment, the respondent may make application to put the applicant into liquidation.

Costs

[62] At the conclusion of the hearing I discussed the  question  of  costs  with counsel. They both agreed that I should allow time for counsel to agree on the appropriate position in relation to costs. Accordingly, costs are reserved. If counsel are unable to agree, memoranda in support, opposition and reply to any application for costs shall be filed and served at seven-day intervals. The file shall then be referred to me for the determination of the appropriate order for costs.

JA Faire Associate Judge