Complete Construction Limited v Lyon Electrical Limited
[2014] NZHC 3116
•8 December 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2014-404-002709 [2014] NZHC 3116
BETWEEN COMPLETE CONSTRUCTION
LIMITED Applicant
AND
LYON ELECTRICAL LIMITED Respondent
Hearing: 4 December 2014 Appearances:
S R Houliston for the Applicant
M Taylor for the RespondentJudgment:
8 December 2014
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
08.12.14 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
COMPLETE CONSTRUCTION LIMITED v LYON ELECTRICAL LIMITED [2014] NZHC 3116 [8 December
2014]
Background
[1] The applicant Complete Construction Limited (Complete) is a construction company which provides construction and projection management services for residential and commercial construction projects.
[2] The respondent Lyon Electrical Limited (Lyon) is an electrical contractor that was engaged by Complete to provide electrical work and services in relation to various building projects:
(a) Charlie and George Café, Stonefields
(b) Good Home, Howick
(c) Wainui Road, Silverdale
(d) Victoria Park Market
(e) ASB North Wharf, Auckland City
Charlie and George Café
[3] Lyon’s tender price was accepted and the works commenced. Notification of acceptance included the provision by Complete of a subcontract agreement. The letter of acceptance noted:
By commencing work on the Project, you accept all of the terms and conditions contained in the commercial subcontract agreement. In addition, we reserve the right to withhold payment until an executed copy of the commercial subcontract agreement is received. Each copy of these documents needs to be signed, completed and returned to us for execution BEFORE your first progress claim. We will then send one copy back to you for your records.
[4] A term of the agreement required variations work to have been authorised by
Complete in writing.
[5] The sub-contract agreement was not executed by Lyon or indeed by
Complete.
[6] Lyon submitted its payment claim for works performed to 31 August 2014. Complete has paid this in full.
[7] On 6 October 2013 and following completion of the electrical work, Lyon submitted a further claim for $5,644.67. Complete paid this in full. Likewise in December 2013 Lyon submitted a payment claim for $2,319.54 which Complete paid. However around 24 July 2014 Complete purported to deduct the sum of
$2,319.54 from a payment made to Lyon on unrelated projects. Lyon says no explanation was received for this.
[8] Complete’s position is that Lyon charged for variations which were not agreed, although Complete had already paid on invoices submitted for payment in relation to those variations.
Good Home Howick
[9] Lyon’s tender for this project was accepted. Mr Hughes of Complete emailed Lyon attaching ‘contract acceptance’, including a copy of the same subcontract agreement sent earlier in regard to the Charlie and George Café project. It too was not signed by either party although its terms were, by Complete’s acceptance letter, expressed to be binding.
[10] On 23 March 2014 Lyon submitted a payment claim for $19,163.07 together with supporting documentation including variation submittal forms for each variation claimed.
[11] Lyon paid this claim in full.
[12] On 22 April 2014 a payment claim for $6,734.09 was submitted. On 9
October 2014 a part-payment upon this claim was made in the sum of $3,757.22. No payment schedule was provided by Complete. But, on 30 June 2014 Complete emailed Lyon requesting copies of the variation submittal forms. Lyon says it had previously provided these but responded by doing so again.
[13] The parties are in dispute about whether sufficient information of the variation claims has been provided. Although Mr Hughes for Complete says Lyon agreed to provide further information Mr Lyon of Lyon denies this and maintains all documentation had previously been supplied. References to variations on the payment claim are backed up by copies of variation submittal forms containing full detail of the extra work charged for.
Wainui Road, Silverdale
[14] The project related to the fit-out of an existing bar in Silverdale. Complete
accepted Lyon’s price. There was no written contract between the parties.
[15] Lyon says that during the course of the project it was asked to do additional work, or variation work; that in some cases the request was provided verbally by Complete’s representatives or by Complete’s client. In other cases variation requests were provided by written instruction.
[16] On 25 May 2014 Lyon submitted payment claim 1 for work performed to 31
May 2014, in the sum of $28,732.89. Lyon says it received no payment schedule in response until almost two months later when Complete sent a document entitled
‘Subcontractor Progress Claim’. That recorded a ‘payment due’ of $16,956.75 – an amount that was later paid by Complete. Lyon says that amount was $11,776.14 less than claimed by its payment claim 1. Lyon says no explanation was given for withholding that balance, but, the document purported to make deductions from the amount claimed by Lyon in payment claim 2 with the note ‘contract value incorrect’ and ‘variations not yet approved’.
[17] Lyon says no further details have been provided.
[18] On 22 July Lyon submitted payment claim 3 for $46,321.41. That day
Complete emailed Lyon with a response which attached a document entitled
‘Subcontract Progress Claim’. That document records that the ‘payment due’ is nil. Under the heading ‘Reason for Variance to Submitted Claim’ it states ‘variation figures not yet approved, Ben is revising’.
[19] Lyon complains it has insufficient information or explanation available to understand what variation claims by Lyon were not approved, and why.
[20] On 8 October 2014 Lyon received from Complete a part payment of
$3,053.11 in relation to payment claim 3. Lyon claims the balance due to it under the payment claim 3 is $43,268.30.
Victoria Park Market
[21] Lyon’s payment claims have been paid in full by Complete.
ASB North Wharf
[22] This project related to the interior fit-out of a bar. Lyon says the arrangement required Complete to pay it on a charge-up or cost reimbursement basis for work performed. There were no plans or drawings for the job and no written contract between the parties.
[23] Lyon submitted two payment claims on 4 September 2014, the first dated 23
June 2014 for $71,899.62 and the second dated 24 August 2014 for $35,215.04.
[24] Complete says the claims were primarily for variations due to significant changes in the scope of the project. Lyon’s original quote on 16 January 2014 was for $15,184. A revised quote tendered on 24 March 2014 was for $30,510. A further revised estimate provided on 6 July 2014 was for $50,000.
[25] Lyon says on 24 July 2014 it submitted by email its payment claim 2 for
$43,347.50. Lyon says it received no response to that email, or any payment schedule, or indeed any payment on account.
[26] Lyon says on 4 September it then emailed a payment claim for the aforementioned sum of $71,899.62, it having been requested by Complete to render revised invoices to include extra work done to that time.
[27] Lyon says it received no response nor any payment schedule or indeed any payment.
[28] Mr Hughes for Complete deposes that in July 2014 issues arose with its client wanting to know what had happened with the electrical work for the project; that Complete had experienced issues with that client previously refusing to pay for electrical work in previous claims. That is the reason why he says on 2 July 2014 he sent Lyon an email setting out issues raised by Complete’s client. By his email Mr Hughes requested Lyon to provide an analysis and breakdown of electrical costs on the project.
[29] Mr Hughes states that the original payment claimed by invoice 2148 did not state clearly the dates on which the work was completed. The first page of the invoice stated that the works were for “fit off for june and july”.
[30] Mr Hughes says it’s not clear to Complete which period that invoice relates to although it clearly appears from the invoice that works had been claimed for July, and after the date of the invoice.
[31] Mr Lyon’s account is that when he submitted the revised version of invoice
2148 on 4 September 2014 it included all work performed by Lyon to that date; that the version submitted on 4 September 2014 is simply a revised version of the invoice submitted on 27 August 2014.
[32] Lyon says no payment schedule has been received in response. Indeed no payment at all.
[33] Also on 4 September 2014 Lyon submitted the aforesaid invoice 2209 for
$35,215.04. Lyon says it has received no payment schedule in response or indeed any payment at all.
[34] Mr Lyon agrees with Mr Hughes that the original version of invoice 2209 submitted on 27 August 2014 was for a larger sum of $49,828.66. However when
asked to revisit an amended claim he did so and resubmitted a revised version for work performance to 4 September 2014.
[35] Again Lyon says it received no payment schedule or any payment.
[36] Mr Lyon says that when Mr Hughes asked him to provide documentation to support claims for payment he responded by email by providing, he says, a substantial amount of documentation including timesheets and diary notes.
[37] Mr Hughes notes that both invoices required payment seven days after the date of the invoice; that both invoices were served on 4 September 2014 after the alleged due date for payment has passed; that there was no agreement that invoices or payment claims would be paid within seven days. Mr Hughes said the situation had become overly confusing through no fault of Complete.
[38] Mr Hughes says that when the invoices received on 27 August 2014 were distributed to its client, the following day the client responded in respect of those saying it disputed the invoices on the basis that they did not appear to be a fair representation of work carried out on site. It was then, Mr Hughes said he put Lyon on notice that he was not in a position to pay the invoices for its client was unsatisfied in respect of the large amount of variations claimed. He says there is also an issue because Lyon have not sought and received written confirmation and authorisation from Complete to complete the variation works claimed in advance.
Setting aside application
[39] On 2 October 2014 Lyon served a statutory demand to recover the shortfall of payments made upon its payment claims.
[40] In response Complete has applied to set aside that demand. Complete says:
(a) There is a substantial dispute as to whether or not the debt is owing or due.
(b)There is a substantial defect or irregularity in the payment demands issued.
The respondent’s position
[41] By its notice of opposition to the setting aside application Lyon argues:
(a) There is no genuine dispute as to whether or not the demand is owing or due.
(b) There is no valid counterclaim, set-off or cross-demand available. (c) It is just and equitable that Complete be put into liquidation.
[42] In his affidavit in opposition Mr Lyon deposes having several meetings to assist Mr Hughes to explain to clients the extent of electrical work that had been performed and why. Mr Lyon says it was apparent to him from those meetings that Complete had not explained to the clients the extent of the additional electrical work required from the initial plans and drawings; that Mr Hughes had not provided Lyon’s payment claims to clients, and had made little prior attempt to explain to those clients the nature and extent of the electrical work done and the reasons for the additional costs.
[43] Mr Lyon believes that all payment claims were submitted in accordance with the Construction Contracts Act 2002 (the Act). He understands that because Complete failed to properly respond to those payment claims within the 20 working day provided by the Act Lyon has a debt due for the amounts claimed.
[44] Notwithstanding his belief in the legal position, Mr Lyon believes Lyon has performed a substantial amount of work across a number of projects for which there is still a significant sum owed; that Lyon is coming under increasing financial pressure from its suppliers because of Complete’s default in making payment to it.
[45] Mr Lyon perceives that Mr Hughes’ complaint largely relates to an allegation
that any variation work ought to have been authorised in writing in advance. Mr
Lyon says there was no such agreement between the parties and in practice that does not happen on projects such as those Lyon attended.
[46] Mr Lyon says that whilst Lyon had some variations requested in writing the vast majority of variations were requested verbally by Complete’s representatives onsite and/or by the client direct or their architect, with Complete present.
[47] Mr Lyon says verbal instructions were issued by Val Ager, Complete’s director who was overseeing the ASB North Wharf, Good Home Howick, and Wainui Silverdale projects, all of which were performed under time constraints. He said upon receiving verbal requests for instructions to perform additional work, Lyon simply proceeded with the work it was asked to perform.
[48] Regarding complaints by clients to Complete Mr Lyon says it has nothing to do with Lyon and that Lyon should not bear the consequences where Complete is unable to obtain timely payment or approval from its client.
[49] Mr Lyon believes there is no defective work performed by Lyon and there is no remedial works required on any project that he is aware of.
The applicant’s position
[50] In a reply affidavit Mr Hughes says it is not disputed that subcontractor agreements have been provided to Lyon in advance of Lyon performing construction works. Further, he says, it is clear from the tender acceptance letter, that by commencing work for Complete, Lyon was deemed to have accepted the terms of its subcontractor agreement.
[51] He challenges the adequacy of information provided by Lyon in support of variation claims and in some cases he says there is clearly no proof of compliance with the requirement to obtain authorisation and approval in advance of the works being completed.
Good Home Howick
[52] Regarding the payment claim for $6,734.09 Mr Hughes complains there is no description of the work the claim relates to; that he says there is a computation error between that payment claim and the previous one. In fact the evidence discloses full details of variations were provided.
Wainui Road Silverdale
[53] Mr Hughes complains that Mr Lyon did not include all relevant information about variation costs. He said the payment claim was immediately disputed. An email was sent acknowledging the scope of the contract had changed, and by a document entitled ‘Subcontractor Progress Claim’ Complete set out its challenge to the variations contained in the payment claim stating that “contract value incorrect” and “variations not yet approved”.
ASB North Wharf
[54] Mr Hughes confirms Lyon had received plans for the purpose of quoting upon the electrical works required. He says there was no agreement for Lyon to be paid on a reimbursement basis; that in fact Lyon submitted two quotes, as Mr Lyon has acknowledged. Mr Hughes said the sum eventually claimed by Lyon totalled
$112,361.61 +GST, that although there was an increase in the scope of works Lyon’s
charges were extremely large and a disportionate increase.
[55] Mr Hughes said despite their request Lyon has failed to provide a satisfactory justification to permit verification of its claims.
[56] Mr Hughes says Mr Lyon has failed to account for the fact that Complete has already paid $18,306 +GST in respect of payment claim 1 of this contract.
[57] Mr Hughes says despite his request Lyon has failed to provide its material invoices to satisfy Complete and the client that all work claimed for was completed and that the costs claimed are reasonable. Mr Hughes refers also to suggestions that
time has been claimed for hours of work for staff who were not on the job at the time.
[58] Mr Hughes challenges claims that in practice variations are not sought in writing. Standard contracts all require variations to be obtained in writing and in advance of works being completed. Complete’s position is that it has no obligation to pay Lyon for work claims authorised by a third party. He considers the statutory demand is an attempt to use the Act to extract payments from Complete that it has no contractual entitlement to claim.
Review
[59] It is Complete’s position that the terms of the subcontract agreements provided that “unless and until approved in writing by Complete, no variation may be effected to the subcontract”.
[60] Complete disputes that Lyon’s payment claims are debts due under the Act and on the grounds that the payment claims are either defective and/or invalid, or have been responded to with a valid payment schedule.
[61] Complete argues that because there was no express mechanism in the parties written and verbal contracts for determining progress payments that those payment claims are determined by ss 16 to 18, and 19 to 25 of the Act.
[62] Section 5 of the Act defines the term “progress payment” to mean:
… a payment for construction work carried out under a construction contract that is in the nature of an instalment (whether or not of equal value) of the contract price for the contract (other than an amount that is, or is in the nature of, a deposit under the contract)…
[63] In respect of the requirements of payment claims, s 20(2) provides that each payment claim must:
(a) be in writing;
(b) contain sufficient detail to identify the construction contract to which the progress payment relates;
(c) identify the construction work in the relevant period to which the progress payment relates; and
(d) indicate a claimed amount and the due date for payment;
(e) indicate the manner in which the payee calculated the claimed amount;
(f) stated that it is made under this Act.
[64] Whilst (a) and (f) must be strictly complied with those other requirements are satisfied if substantially complied with.
[65] It is Complete’s position that the Good Home, Howick variation work was not work carried out under the construction contract; that it is unclear how the amounts claimed for variations are calculated and what the variations relate to; and the relevant invoice does not comply with the Act and is therefore invalid as the variation works had not been identified at all.
[66] Notwithstanding, Complete says it did pay part of the claim “in good faith”.
[67] Likewise with the Wainui Road, Silverdale project it is claimed the variations were not approved at any time in writing by Complete; that Complete issued a payment schedule stating it would pay a nil balance, and on the basis the variation had not been approved and because Complete says Lyon had agreed to provide a revised variation request in due course for Complete’s consideration.
[68] Complete says its payment schedule fully complied with the Act.
[69] In relation to the ASB North Wharf development there are two payment claims in issue. Regarding the first dated 23 June 2014 purporting to make claim for “fit-off for june and july” Complete says Lyon cannot claim payment as a matter of contract, nor under the CCA for works that had not been performed or which were to be performed in the future. Therefore it says the payment invoice was invalid.
[70] The second invoice was for “August work”.
[71] With regard to the fact that both invoices were re-served on 4 September
2014 Complete says there may be only one payment claim relating to each progress payment and in the circumstances there has not been sufficient compliance with statutory requirements.
[72] Finally Lyon’s calculations failed to take into account the fact that $18,306
plus GST was paid by Complete to Lyon in respect of those works.
Considerations
[73] The purpose of the Act is to promote and facilitate regular and timely payments between parties to a Construction Contract; to provide for the speedy resolution of disputes arising; and to provide remedies for the recovery of payments. The procedure is aptly described by Courts as a “pay now, argue later” regime. The purpose is to ensure the availability of cash flow in the construction industry.
[74] Accordingly if a payee serves a payment claim on a payor and the payor fails to respond with a payment schedule within the time prescribed in the contract (or as prescribed in the Act then the amount claimed becomes a statutory debt due and owing.
[75] Section 79 of the Act prevents the raising of any counterclaim, cross-demand or set off in response. In George Developments Limited1 the Court took the view that:
… technical quibble should not be allowed to vitiate a payment claimed that
substantially complies with the requirements of the Act.
[76] The Court has earlier noted the statutory requirements of a compliant payment schedule and where if a lesser sum is to be paid there is a requirement to indicate the calculation and the reasons for the difference with the amount claimed. These are required to enable a payee to decide on available options and to identify
any differences so that both parties can be aware of the extent of the issues involved.
1 George Developments Limited v Canam Construction Limited [2006] 1 NZLR 177.
[77] Claims that remedial works are required, or of defective workmanship are insufficient unless quantified. Likewise claims of delays may give rise to a counterclaim but are not sufficient to qualify as a reason for paying less than has been demanded.
[78] As noted by Asher J in Marsden Villas2:
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.
[79] As Mr Taylor notes the Court of Appeal in Laywood v Homes Construction Wellington3 has accepted that a statutory demand is a “proceeding for the recovery of a debt” and therefore s 79 will operate to prevent the debtor from raising a dispute in relation to the debt pursuant to the CCA.
[80] In this case the Court has in significant detail reviewed the elements of all five construction projects, which are the subject of the parties’ dispute. The Court has clear views regarding Complete’s claims of non-compliance or irregularity regarding payment claims.
Charlie and George Café
[81] After Complete had paid Lyon upon payment claim 3 it then purported to deduct the amount in question from payments made to Lyon on an unrelated project.
[82] The Court is of the view that the payment claim is compliant with s 20 and
sufficiently identifies the variations concerned. At best Complete’s challenge
amounts to a technical quibble and is insufficient to invalidate the claim.
2 Marsden Villas Limited v Wooding Construction Limited [2007] 1 NZLR 807 at [16].
3
[83] In relation to payment claim 3 Complete provided no payment schedule. Instead it made a part payment. Complete now complains that the payment claim is non-compliant.
[84] The Court disagrees. The claim identifies the construction work to which it relates and sets out the value of those and the variations including details of the variations being claimed.
[85] The Court agrees that Complete’s complaint is of a “technical quibble” and
does not invalidate the claim.
[86] Mr Lyon provided a detailed explanation of variations claimed and indeed responded with further requests for more details. The Court is satisfied that there is a sufficient detailed calculation of the amount claimed.
Wainui Road, Silverdale
[87] Two separate claims are involved. Regarding the first Complete’s document response was provided late, and therefore it does not comply and the payment claim amount is due and owing.
[88] Regarding the second (payment claim 3) submitted on 22 July 2014
Complete responded that same day. In the Court’s view that response does not comply because it simply states that nil is owing and there is no calculation or attempt to calculate how that figure was derived, and, as Mr Taylor submits, it does not provide sufficient information to enable Lyon to make an assessment as to the merits of the position that Complete has adopted. The document merely states “Variation figures not yet approved, Ben is revising”.
[89] Notably, although Lyons payment claim was paid in full it included a claim for variations which Mr Taylor observes had been undertaken in the same manner as the variations claimed on other projects.
ASB North Wharf
[90] No payment schedule was provided to payment claim 2 dated 24 July 2014. Therefore that payment claim sum is owing. The payment claim submitted on 4
September likewise did not attract a payment schedule. Therefore that sum too is due and owing.
[91] Issue was taken by Complete because the invoice is dated 23 June 2014 and claims for work done in July. The Court agrees that is a “technical quibble” and does not invalid the payment claim. It was submitted on 4 September 2014 subsequent to submission of a previous version for which payment was not made.
[92] Also on 4 September Lyon issued another invoice for which no payment schedule was provided. The Court is satisfied the claim was compliant and therefore there is a debt due and owing in respect of the amount claimed. Although it is dated
24 August 2014 and seeks payment to the end of August it is insufficient to invalidate the claim.
[93] There is sufficient proof that Lyon was indeed paid $18,306 on account of that project work that has been invoiced.
General
[94] Overall it is Complete’s position that because the variation work was not
agreed to in writing, there is no obligation to make payment for variation claims.
[95] Complete relies on two subcontract agreements that were not signed by the parties but which Complete claims were deemed to have been accepted because the letter confirming acceptance of Lyon’s tender also enclosed a copy of a subcontract
agreement which claimed that by working on the project Lyon accepted all the terms and conditions contained in it, one term of which was to require variations to be confirmed in writing.
[96] Mr Taylor’s submission is that the term is onerous and would have required
Complete to put Lyon on notice and obtain express agreement.
[97] It appears there were no such written agreements for the Wainui Road, Victoria Park or ASB North Wharf projects.
[98] The evidence strongly suggests that Complete instructed Lyon to perform extra or variation works verbally onsite. In that case, as Mr Taylor submits, Complete has waived any requirement that may have existed for variations to be in writing and therefore Lyon is entitled to claim and be paid.
[99] Further also it is clear that Lyon has previously claimed for and been paid for variations carried out on other projects for Complete in the absence of written instructions. The Court accepts Mr Taylor’s submission that in making payment for variation work on these projects without requiring strict compliance with any purported contractual terms of variations to be in writing, Complete has waived any rights it may have had to rely on the terms of the contract.
[100] It seems the issue regarding variations being in writing has only surfaced
since Lyon’s statutory duty was served.
Conclusions
[101] There is no substantial dispute that the debt claimed by the statutory demand is owing, except in relation to the sum of $18,306 which clearly should be deducted from the amount Lyon claims.
[102] The Court’s view is that the payment claims have been compliant whilst payment schedules have not been. Issues concerning variation claims have not been managed appropriately and if these are to be pursued then other processes are prescribed for the purpose by the Act.
Judgment
[103] The application to set aside is dismissed.
[104] The applicant seeks an order that the time limit for compliance of the statutory demand be extended. In the circumstances that is not unreasonable and the Court orders accordingly by extending the date for compliance to 4:00pm 19
December 2014.
[105] Costs are awarded to the respondent on a 2B basis together with disbursements approved by the Registrar.
Associate Judge Christiansen
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