Dem Home Ltd v New Gate Ltd
[2023] NZHC 2709
•4 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-000604
[2023] NZHC 2709
UNDER the Companies Act 1993 BETWEEN
DEM HOME LIMITED
Applicant
AND
NEW GATE LIMITED
Respondent
Hearing: 9 August 2023 Appearances:
K Sun for the Applicant
K Robinson for the Respondent
Judgment:
4 October 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 4 October 2023 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Capstone Law Ltd, Auckland Wynyard Wood, Auckland
DEM HOME LTD v NEW GATE LTD [2023] NZHC 2709 [4 October 2023]
Introduction
[1] Dem Home Limited (Dem Home) and New Gate Limited (New Gate) were parties to a construction contract by which Dem Home engaged New Gate to build five terrace houses at Taratoa Street, Point England.
[2] Dem Home purported to cancel the contract for breaches by New Gate before construction was complete. New Gate issued a payment claim for $242,500.50 which Dem Home did not respond to. New Gate then served a statutory demand on Dem Home based on the payment claim. Dem Home applies to set aside the statutory demand because there is a substantial dispute whether the debt demanded is owing and due. New Gate opposes the application.
[3] The central issue is whether there is a substantial dispute over whether the debt is owing and due, because arguably the payment claim was not a valid payment claim under the Construction Contracts Act 2002 (CCA).
[4]There are three threads to this issue:
(a)Is it reasonably arguable that the payment claim was not a valid payment claim under the CCA because it did not comply with the formal requirements?
(b)Is it reasonably arguable that the payment claim was not a valid payment claim under the CCA because New Gate was not entitled to issue the payment claim at that point in time?
(c)Is it reasonably arguable that the payment claim was not a valid payment claim under the CCA because it was issued after Dem Home cancelled the construction contract?
Facts
[5] On 15 March 2022, Dem Home and New Gate entered into a ‘Housing, Alterations and Small Building Contract’ (NZ3902:2004) (the Contract) for the
construction of five terraced houses at Taratoa Street, Point England, for a fixed price of $2,277,000 (inc GST).
[6] Item G, s 3 of the Contract set out the basis for payment. Under the heading “Payment Claims”, option B (claims when certain work is completed) was selected. Accordingly, the parties agreed that New Gate was able to issue payment claims when certain work was completed, as follows:
Payment claims Option B (claims when certain work is completed)
1. Substantial completion of the foundations and floor structure $ 227,700.00 (incl GST) 2. Substantial completion of all wall and roof framing $ 227,700.00 (incl GST) 3. Substantial completion of all exterior wall claddings and/or veneers, all exterior doors and windows $ 113,850.00 (incl GST) 4. Substantial completion of the roof $ 227,700.00 (incl GST) 5. Substantial completion of all external decoration and coatings $ 113,850.00 (incl GST) 6. Substantial completion of all internal linings and doors $ 227,700.00 (incl GST) 7. Substantial completion of all internal painting and wallpapering $ 227,700.00 (incl GST) 8. Substantial completion of all landscaping and external
works
$ 341,550.00 (incl GST) 9. Practical completion $ 150,282.00 (incl GST) 10. Upon acceptance and issue of Code Compliance Certificate $ 77,418.00 (incl GST) Total $ 1,935,450.00
(this amount does not
include the deposit)
(incl GST)
[7] On 7 October 2022 the agreed price was amended to $2,425,005 (inc GST) comprising the following changes:
(a)Progress Payment 2 – increased to $242,500.50 (inc GST); and
(b)Progress Payment 4 – increased to $242,500.50 (inc GST).
[8]Construction commenced on 10 October 2022.
[9] The deposit was paid by Dem Home in instalments between 3 February and 27 June 2022.
[10] In December 2022, New Gate issued Payment Claim 1 for substantial completion of the foundations and floor structure. Payment Claim 1 was paid over five instalments between 5 and 18 December 2022.
[11] On 24 February 2023, Dem Home, through its solicitors, purported to cancel the Contract pursuant to cl 15.2.1(e), and/or s 37 of the Contract and Commercial Law Act 2017 (CCLA). Dem Home stated that it was cancelling the Contract due to material breaches by New Gate including:
(a)making unauthorised variations to the development’s plans and specifications;
(b)failing to carry out the building work in accordance with applicable health and safety laws and regulations;
(c)requesting additional funds to reinstall scaffolding;
(d)failing to pay subcontractors;
(e)failing to progress the development; and
(f)failing to cooperate with Dem Home’s insurance assessors.
[12] Dem Home’s solicitors required New Gate to cease building work and remove its equipment from the site by 10 March 2023.
[13] On 3 March 2023, New Gate’s solicitors replied disputing that Dem Home was entitled to cancel the agreement and stating that by attempting to do so Dem Home had itself repudiated the agreement, giving New Gate the right to cancel and recover damages.
[14] Following Dem Home’s purported cancellation of the Contract, New Gate was not permitted to continue progressing the works.
[15] On 9 March 2023, New Gate issued Payment Claim 2 for substantial completion of the wall and roof framing in the amount of $242,500.50. The payment claim was sent to Dem Home’s solicitors by email.
[16]Dem Home did not respond to the payment claim with a payment schedule.
[17] On 23 March 2023, New Gate through its solicitors issued a statutory demand on Dem Home for the debt.
[18] On 30 March 2023, Dem Home applied to set aside the statutory demand on the basis that there is a substantial dispute whether the debt is due and owing, because Payment Claim 2 is not a valid payment claim under the CCA. It advances three reasons for why this is so, which I will discuss after reviewing the relevant legal principles.
Legal principles
Statutory demands
[19] Failure to comply with a statutory demand is one of the mechanisms by which insolvency is established under pt 16 of the Companies Act 1993 (Companies Act). A creditor may serve a statutory demand on a company in respect of any debt owed that is not less than the prescribed amount,1 currently $1,000.00.2 A company served with a statutory demand must apply to the Court within 10 working days of service for the statutory demand to be set aside.3
[20] Dem Home’s application to set aside is brought pursuant to s 290(4) of the Companies Act which states:
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—
1 Companies Act 1993, s 289.
2 Companies Act 1993 Liquidation Regulations 1994, reg 5.
3 Companies Act 1993, s 290.
(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.
[21] The Court of Appeal summarised the principles the Court should apply when exercising the s 290(4) discretion in Confident Trustee Limited v Garden and Trees Limited:4
The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court's task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)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.
(footnotes omitted)
[22] Statutory demands issued in respect of amounts owing under construction contracts must be considered in the context of the CCA provisions. Given s 79 of the CCA (which sets out the limited circumstances in which a counterclaim, set-off or cross demand can affect proceedings for recovery of a debt),5 the only subsections of s 290(4) that can be relied on by Dem Homes are subs (4)(a) and (c).
4 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
5 Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 at [63]– [64].
The CCA
[23] The CCA applies to all construction contracts entered into on or after 1 April 2003 (as well as to existing contracts renewed after that date).
[24]The purpose of the CCA is set out in s 3. That section provides:
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.
[25] The Court of Appeal has held that any analysis of the CCA “must be undertaken with the purpose of the Act in mind” and that a “technocratic” or “formalistic” interpretation would undercut Parliament’s intent that cashflow in the construction industry be maintained.6
[26] Part 2 of the CCA deals with payments under construction contracts. Conditional payment provisions in construction contracts are prohibited but otherwise the CCA provides that parties to a construction contract are free to agree on the payment provisions in their contract.7 Parties can expressly agree to a single payment. If parties fail to agree upon payment provisions, the default provisions in ss 16–18 of the CCA apply.
[27] Subpart 3 of pt 2 of the CCA deals with the procedure for making and responding to payment claims. Within sub-pt 3 of pt 2 the words “claimed amount” are defined to mean “an amount of a payment, specified in a payment claim, that the payee claims to be due.”8
6 Demasol v South Pacific Industrial Limited [2022] NZCA 480 at [31].
7 Construction Contracts Act 2002, ss 13 and 14.
8 Construction Contracts Act 2002, s 19.
[28]Section 20 deals with the making of payment claims. It provides:
20 Payment 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).
[29] Section 21 deals with responses by a party served with a payment claim. It 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) 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.
[30] Payers become liable to pay the claimed amount if they fail to serve a payment schedule on the payee within the time limit specified in the CCA. Section 22 provides:
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.
[31] Section 23 sets out the legal consequences of not paying a claimed amount where no payment schedule is provided. Relevantly, that section provides:
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
…
(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.
[32] Because a claimed amount may be claimed as a debt due, the party who did not issue a payment schedule cannot rely on a dispute over whether the amounts included in the payment claim are properly owing as a "substantial dispute" for the purposes of s 290(4)(a) of the Companies Act.
[33] The CCA also provides for the adjudication of disputes. Under s 25(1) of the CCA any party to a construction contract has the right to refer a dispute to adjudication and can exercise that right even though the dispute is the subject of proceedings between the same parties in a court or tribunal.
Is it reasonably arguable that Payment Claim 2 was not a valid payment claim under the CCA because it did not comply with the formal requirements?
[34] Chen Liao, Dem Home’s director, deposes that he did not realise that the invoice sent on 9 March 2023 was a payment claim under the CCA and therefore did not realise that to dispute the claim he needed to respond with a payment schedule
within five working days of receipt of the payment claim.9 He deposes that he only realised the invoice was a payment claim when New Gate filed its notice of opposition to Dem Home’s application to set aside the statutory demand.
[35] Mr Liao alleges that New Gate intentionally designed the claim to conceal that it was a payment claim under the CCA. He points to the title of the document as a “Tax invoice” rather than “Payment claim”. He emphasises that the statement at the foot of the document is in “fine print”. The statement reads:
This is a payment claim under the Construction Contracts Act 2002. Please read the notice under the Construction Contracts Regulation 2003 attached to this invoice.
[36] Mr Liao also contends that the required notice attached to the invoice was designed to look like fine print. Mr Liao has attached to his affidavit a copy of a standard payment claim template which he says he downloaded from the Building Disputes Tribunal. The top of the template states in caps and bold: “[t]his is a payment claim made under the Construction Contracts Act 2002”.
[37] It is difficult to understand how Mr Liao could not have appreciated that the payment claim was a payment claim under the CCA. The CCA applies to all construction contracts entered into after 1 April 2003. The Contract, which he signed, described the payment regime in terms of “Builder’s Payment Claims” and the owner’s obligation to “Pay or give Payment Schedule”. Clause 13.1 of the Contract summarises the requirements for payment claims consistent with s 20(2)(3) and (4) of the CCA. Clause 13.2 is explicit that the owner must respond to a payment claim within five working days and sets out the requirements of a payment schedule under s 21 of the CCA. Furthermore, the payment claim explicitly stated that it was a payment claim under the CCA (see [35] above).
[38] In any case, the fact that Mr Liao did not appreciate that Payment Claim 2 was a payment claim under the CCA does not in itself mean that it was not a valid payment claim. The relevant question is whether Payment Claim 2 complied with the requirements of ss 20(2)(3) and (4) of the CCA, reflected in cl 13.1 of the Contract. If
9 As provided for in cl 13.2 of the Contract.
it did not, the claim was not a valid payment claim under the CCA and the statutory consequences of Dem Home failing to provide a payment schedule do not follow.
[39] In those terms, Dem Home submits that the claim did not comply with s 20(2)(a) as it was not “in writing”; or s 20(2)(f) because it did not state that it was made under the CCA.
[40] I do not accept that submission. Plainly the claim is in writing (as opposed to being verbal). It identifies the contract to which the payment relates, describing the Contract. It identifies the construction work and relevant period to which it relates, stating that it is Payment Claim 2 for the “[s]ubstantial completion of all wall and roof framing”. It states the claimed amount and the due date for payment. It indicates the way New Gate has calculated the claimed amount, by referring to Payment Claim 2 under the terms of the Contract. Finally, it states that it is a payment claim under the CCA and attaches the required outline of the process for responding to the claim, and an explanation of the consequences of not responding and not paying the claimed amount, or a scheduled amount, in full. There is no merit to the submission that this statement is in small font. The font size is the same as that used for other key information in the claim.
[41] Payment Claim 2 complies with the formal requirements of ss 20(2)(3) and (4) of the CCA. It is not reasonably arguable that the claim was not a valid payment claim under the CCA because it does not meet those requirements.
Is it reasonably arguable that Payment Claim 2 was not a valid payment claim under the CCA because New Gate was not entitled to issue the claim at that point in time?
[42] Section 20(1) of the CCA deals with when a payee is entitled to serve a payment claim. If a construction contract provides for the matter, payment claims can be served at the end of the period specified in or determined in accordance with the contract. If not provided in the contract, a payment claim can be served at the end of the relevant period referred to in s 17(2) — that is, the period commencing on the day
of the month on which the construction work was first carried out and ending on the last day of that month, and each month thereafter.10
[43] As noted, Dem Home and New Gate agreed in the Contract that New Gate was entitled to issue payment claims when certain work was complete. Clause 13.1 of the Contract states that “[t]he builder may give Payment Claims to the Owner only at the times or at the stages stated in Box G.” Under ‘Box G’ of the Contract, New Gate was entitled to issue a second payment claim for $227,700.00 (later amended to
$242,500.50) when the building work had reached the stage of “[s]ubstantial completion of all work and roof framing”.
[44] It is undisputed that on 9 March 2023 when Payment Claim 2 was sent, only the first floor and second floor wall framing was erected. The third-floor wall and roof framing had not commenced. New Gate had not done any further work on the framing after Dem Home purported to cancel the Contract on 24 February 2023, because Dem Home prevented New Gate from entering the development site.
[45] Accordingly, Dem Home claims that the relevant period specified in the Contract for Payment Claim 2 was not complete when the claim was issued. Therefore, it submits, the claim was not a valid payment claim under the CCA and the consequences of it not providing a payment schedule in ss 22 and 23(2)(a) do not follow.
[46] Dem Home relies on a judgment of the High Court of Australia, Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd.11 The High Court found that the existence of a reference date under a construction contract is a precondition to the making of a valid payment claim.12
[47] Dem Home’s submission is not sustainable considering the Court of Appeal decision Demasol Ltd v South Pacific Industrial Ltd.13 South Pacific Industrial Ltd
10 Construction Contracts Act 2002, s 20(1)(b).
11 Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52, (2016) 260 CLR 340.
12 At [63].
13 Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480.
(SPI) applied under s 290(4)(a) of the Companies Act to set aside a statutory demand served on it by Demasol Ltd (Demasol) for amounts claimed under two payment claims. SPI argued that there was a genuinely arguable dispute as to whether it was liable to pay the amount claimed because the payment claim was not a valid payment claim under the CCA. SPI contended that they had agreed a single payment term, and therefore according to s 20(1) of the CCA Demasol was only entitled to serve a single payment claim on completion. SPI did not serve a payment schedule, and instead sought to raise the issue, along with others, when Demasol took steps to enforce the debt relying on s 23(2)(a) of the CCA.
[48] At first instance the High Court concluded that it was reasonably arguable that a single payment term was agreed and therefore both payment claims were invalid as they had not been issued accordingly. The High Court set aside the statutory demand.
[49] The Court of Appeal granted Demasol’s appeal. The Court considered that the High Court had erred by enquiring into whether Demasol was entitled to serve the payment claim.14 The Court held that if SPI wished to contend that Demasol was not entitled to serve a payment claim on it when Demasol did, that was a point it could and should have taken by way of a response in a payment schedule.15
[50] The Court of Appeal was clear that the only enquiries required in terms of the application to set aside the statutory demand were whether the payment claim complied with s 20 of the CCA, and whether SPI had provided a payment schedule contesting its liability to pay the amount claimed by the due date.16 The Court found that as the payment claim met each of the requirements in ss 20(2), (3) and (4) of the CCA, the payment claim complied with the statutory requirements.17
[51] It follows from Demasol that if a payer wishes to contest whether a payee is entitled to issue a payment claim they must do so through a payment schedule served within the required time. If they fail to do so, they cannot raise this issue as a basis
14 At [41].
15 At [42].
16 At [47].
17 At [43] and [45].
for a substantial dispute for the purpose of an application to set aside a statutory demand under s 290(4)(a) of the Companies Act.
[52] Applying Demasol, Dem Home’s failure to provide a payment schedule disputing New Gate’s entitlement to serve Payment Claim 2 is fatal. By that failure Dem Home became liable to pay the claimed amount under s 22 of the CCA. Having failed to pay the claimed amount the provisions of s 23(1) of the CCA apply, with the consequence that New Gate is entitled to recover from Dem Home, as a debt due to it, the claimed amount and its actual and reasonable costs of recovery (s 23(2)). In terms of s 290(4) of the Companies Act, there can be no substantial dispute regarding the debt.
[53] Dem Home makes three submissions in relation to Demasol. First, that it can be distinguished on the facts, because in Demasol the work had been completed, so the argument around entitlement to serve a payment claim was a technicality. Second, the decision involves requiring a payee to comply with ss 20(2), (3) and (4) of the CCA, but not the timing requirements in s 20(1), a result which Mr Sun submits Parliament could not have intended. Third, applying this principle to its logical extension, a rogue payee could issue a payment claim when no, or very little work was done, ignoring completely what the contract provides in terms of when payment claims can be issued.
[54] In terms of the first submission, I accept the facts of Demasol are different. But the Court of Appeal held, as a matter of principle, that any challenges to a payee’s entitlement to issue a payment claim must be raised by a payment schedule served within time; and that if a payee fails to do so they cannot then raise this issue as a substantial dispute when the payee takes steps to enforce the debt. That finding did not depend on the facts.
[55] I understand the point Dem Home makes in its second submission. Dem Home is focusing on the words “[a] payee may serve a payment claim on the payer for payment…”. The submission is that compliance with s 20 of the CCA requires compliance with s 20(1) as well as ss 20(2),(3) and (4). Therefore, if a payee serves a payment claim when they are not entitled to under s 20(1), the payment claim is not a
valid payment claim under the CCA and consequently a payer who does not respond with a payment schedule is not prevented from disputing the debt when enforcement steps are taken by the payee. That is, the payee does not even get past go, because the document served is not a payment claim to start with.
[56] The short point is that the Court of Appeal has decisively held that approach to be wrong. The issue of whether the payee (Demasol) was entitled to serve the two payment claims on the payer (SPI), as opposed to one payment claim once the work was complete, was squarely before the Court of Appeal. The Court held that if a payer wants to dispute a payee’s entitlement to serve a payment claim that must be done through a payment schedule and that if a payer does not do so they cannot then raise this issue in later proceedings to enforce the debt. Self-evidently the Court of Appeal considered issues related to a payee’s entitlement to serve a payment claim in terms of s 20(1) to be in a different category to issues related to compliance with the formal requirements for payment claims in ss 20(2), (3) and (4) of the CCA.
[57] This is reinforced by the Court’s rejection of the approach taken by this Court in Jamon Construction Ltd v Bricon Asbestos Ltd.18 This Court held that it was open to a payer in debt enforcement proceedings to seek to establish that no valid payment claim was issued (because no contract existed or in the alternative that any contract was a fixed sum contract) where the party had not responded to the purported payment claim with a payment schedule. The Court of Appeal said that approach was not sound.19
[58] As to Dem Home’s third submission, it does not follow from Demasol that a payee can ignore the terms of a construction contract and serve payment claims whenever it chooses. A payer can contest a payee’s entitlement to issue a payment claim, but it must do so through the scheme laid down by the CCA. If a payer does contest a payment claim on that basis through a payment schedule, and the dispute is not resolved, then s 23(2)(a) of the CCA will not apply and there will be a substantial dispute as to whether the amount claimed is owing or due. Section 290(4)(a) of the
18 Jamon Construction Ltd v Bricon Asbestos Ltd [2015] NZHC 1926.
19 Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [52] and [53].
Companies Act can then be invoked to set aside the statutory demand of the payment claim.
[59] Finally, Southern Han does not assist Dem Home given the clear authority on the issue from a New Zealand appellate court. I note also that in Southern Han the payer responded to the payment claim with a payment schedule and disputed the adjudicator’s jurisdiction based on issues with the validity and timing of the payment claim. As such, the issues were raised in accordance with the provisions of the scheme rather than later as a defence to a claim to enforce the debt.
Is it reasonably arguable that Payment Claim 2 was not a valid payment claim because it was issued after Dem Home purported to cancel the construction contract?
[60] Dem Home maintains that it validly cancelled the Contract on 24 February 2023 and that according to s 42(1)(a) of the CCLA New Gate was not obliged or entitled to perform the Contract after that date. Therefore, New Gate was not entitled to issue Payment Claim 2, because the end of the relevant period for that payment claim had not yet accrued when the Contract was cancelled. Equally, Dem Home submits, it was not obliged to respond with a payment schedule.
[61] Dem Home relies again on Southern Han. In Southern Han the High Court of Australia held that the payment claim was invalid because the construction contract was cancelled before the right to make the payment claim on the reference date had accrued under the contract.
[62] New Gate makes two submissions in response. First, it does not accept that the Contract was cancelled. Specific provisions governing a party’s ability to cancel the Contract were set out in cl 15. Relevantly, Dem Home could cancel the Contract on the basis that New Gate was persistently, flagrantly or wilfully neglecting to carry out its obligations under the contract and only with the agreement of the respondent. Otherwise, the Contract required any dispute to be resolved in accordance with cl 16 of the Contract, which required the parties to act in good faith and endeavour to resolve any dispute between them as soon as possible. New Gate submits that Dem Home did not follow that procedure.
[63] Second, New Gate submits that even if the Contract was cancelled, the payment claim and payment schedule regime in the CCA and provided for in the Contract continues to apply.
[64] In my view Demasol provides an absolute answer to Dem Home’s argument. New Gate has purported to serve a payment claim under cl 13.1 of the Contract. That clause entitled New Gate to give payment claims to Dem Home at the times or at the stages stated in Item G. Pursuant to Item G, New Gate was entitled to serve the second payment claim upon substantial completion of all wall and roof framing.
[65] Dem Home’s argument is that this second payment claim was invalid because the wall and roof framing was not substantially complete when the Contract was cancelled and therefore New Gate did not have the right to serve the payment claim at the point of cancellation point (or thereafter). In doing so, Dem Home is raising a dispute about New Gate’s entitlement to serve the payment claim.
[66] The Court of Appeal in Demasol was clear that if a payer wishes to contend that a payee was not entitled to serve a payment claim, that point must be taken by way of a response in a payment schedule. Moreover, where a payer has not taken this point in a payment schedule served within time, they cannot then raise this issue as a basis for a substantial dispute for the purpose of setting aside the statutory demand.
[67] Consistent with that, if Dem Home wanted to contend that New Gate was not entitled to serve the purported Payment Claim 2 because Dem Home had cancelled the Contract before New Gate’s right to serve the payment claim had accrued, it needed to take that point by way of response in a payment schedule. As Dem Home did not do so, it cannot now raise this issue as a basis for a substantial dispute for the purpose of setting aside the statutory demand.
[68] As noted earlier, Southern Han was decided in a different context. The payer responded to the payment claim with a payment schedule and disputed the jurisdiction of the adjudicator on the basis that the payment claim was invalid because the construction contract was cancelled before the reference date arose. The appeal before the High Court of Australia concerned the payer’s application for a declaration that the
adjudicator’s determination was void, or for an order quashing the determination, because the payment claim was invalid. The High Court inquired into the validity of the payment claim in that context, rather than in debt enforcement proceedings where the issue had not been raised by the payer according to the correct procedure.
A further issue
[69] During Dem Home’s oral submissions in reply, Mr Sun contended that the payment claim was not served properly. This allegation had not previously been made, either in the application to set aside the statutory demand or in Dem Home’s written or oral submissions. As an indulgence I heard Mr Sun and gave Mr Robinson leave to file written submissions on the issue.
[70] I understand Dem Home’s submission to be that service of the payment claim by email was invalid because it was contrary to the provisions of the Contract concerning “Notices”, and not in compliance with the requirements of s 80 of the CCA, or the associated regulations — regs 9 and 10 of the Construction Contracts Regulations 2003 (CCR).
Service of notices?
[71] Dem Home submits that service of the payment claim via email was contrary to cl 17.2 of the Contract which relates to “Notices” and provides:
Communications which are required to be in the form of Notices must be in writing addressed to the other party and delivered by hand, by receipted delivery system or sent by fax supported by a successful transmission report. Notices must not be given by email.
[72] Notice is defined in cl 2.1 of the Contract as “a notice required to be given in accordance with 17.2.”
[73] Relevantly, cl 13.1 of the Contract does not require that payment claims are to be in the form of a “Notice”. Further, in cl 2.1 “Payment Claim” is defined separately to “Notice”. Under cl 2.1 a “Payment Claim is a statement issued by the Builder to the Owner in accordance with Section 13 and the CC Act.”
[74] The CCA does not define “notice”, although the concept is used in various places including:
(a)defining a “notice of adjudication”; and
(b)providing for a payee to serve a notice of intention to suspend construction work under a contract as one of the consequences of a payer failing to comply with a payment claim.
[75] Accordingly, I find that the requirements for service of “Notices” in the Contract do not apply to payment claims.
Service of payment claims according to the CCA and Regulations
[76] Section 80 of the CCA provides that any notice or other document required to be served is considered sufficiently served if it is served in accordance with the methods set out in that section. Those methods include if the document is:
(a)delivered to that person;20 or
(b)sent in a manner prescribed in the regulations.21
[77] Regulations 9 and 10 of the CCR relate to, among other things, service via email:
(a)Reg 9(1)(b) extends the methods under s 80 to include that a notice or document required to be served is sufficiently served via email if the requirements of regulation 10 are met.
(b)Reg 9(3) goes on to provide that a document sent by email is, in the absence of proof to the contrary, regarded as having been served when the email enters the addressee’s information system (as defined in reg 9(4)) or comes to the attention of the addressee.
20 Construction Contracts Act 2002, s 80(a).
21 Section 80(d).
(c)Reg 10 provides that a notice of document may be sent by email under regulation 9(1)(b) only if the information in the document is readily accessible and the person consents to the information being given in electronic means.
(d)Reg 10(2) provides that a person can consent to accept information in an electronic form and consent may be inferred from a person’s conduct.
[78] As noted in Melbourne Ltd v Bartlett Concrete Placing Ltd22 this Court has held that the methods of service in s 80 are not mandatory or exclusionary. Rather, if the serving party can show that the document came to the recipient party’s attention by another means of service, that will suffice.23
[79] There is no issue that Dem Home received Payment Claim 2. Mr Liao, who has filed four affidavits, does not dispute that he received the payment claim on 9 March 2023. In his fourth affidavit he expressly acknowledges receiving Payment Claim 2 when complaining that the claim was designed to mislead him.
[80] In any case, I am satisfied that Payment Claim 2 was validly served under s 80(a) or (d). Dem Home’s solicitors had written to New Gate’s solicitors by email advising that they acted for Dem Home and purporting to cancel the contract. New Gate emailed Payment Claim 2 to those solicitors with a letter. That can be considered to be a method of delivery to Dem Home. Alternatively, it can be reasonably inferred from Dem Home’s conduct of authorising its solicitors to communicate with New Gate in this way that it consented to service by email. Again, there is no suggestion by Dem Home that Payment Claim 2 did not come to its attention after being emailed to its solicitors.
Result
[81]I order:
22 Melbourne Ltd v Bartlett Concrete Placing Ltd [2022] NZHC 1786.
23 At [31][34].
(a)Dem Home’s application to set aside the statutory demand is dismissed.
(b)The time for complying with the statutory demand is extended. The statutory time period of 20 working days is to commence on the day following release of this judgment.
[82] As to costs I am of the preliminary view that, having succeeded, New Gate is entitled to 2B costs, and its reasonable disbursements. If costs cannot be agreed, then the parties are to file written submissions within 20 working days.
Associate Judge Gardiner
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