Floorman Waikato Limited v McRae
[2017] NZHC 1063
•22 May 2017
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2017-419-4 [2017] NZHC 1063
UNDER The Construction Contracts Act 2002 IN THE MATTER OF
an unpaid debt which is due and owing pursuant to s 23 of the Construction Contracts Act 2002
BETWEEN
FLOORMAN WAIKATO LIMITED Appellant
AND
JONATHAN MCRAE Respondent
Hearing: 26 April 2017 Appearances:
F B Collins for Appellant
Respondent in personJudgment:
22 May 2017
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 22 May 2017 at 2pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Gibson Sheat, Wellington
FLOORMAN WAIKATO LTD v MCRAE [2017] NZHC 1063 [22 May 2017]
Introduction
[1] This is an appeal by Floorman Waikato Limited from a decision of Judge Ingram in the Hamilton District Court refusing an application for summary judgment against Mr Jonathan McRae.1
[2] Floorman’s claim relates to floor sanding and coating work undertaken at Mr McRae’s residence, and seeks judgment in the sum of $6,872.50. Two alternative causes of action are pleaded: debt due under the Construction Contracts Act 2002 (CCA); alternatively, breach of contract.
Background
[3] Floorman is a flooring contractor company based in Hamilton. Mr Jamie
Pirrit is a director of Floorman.
[4] The respondent, Mr McRae, lives in Waharoa where he is involved in the equine industry.
[5] In early May 2016, Mr McRae contacted Floorman to enquire about the cost of having the floors at his residential property in Waharoa sanded and coated as he was planning on selling the property. The floor area to be sanded and coated was
123m2. He spoke on the phone to Mr Pirrit. There are differing accounts from the
two men as to what was discussed during the phone call. Mr Pirrit says that he explained the options for the different types of coating that could be used. He says that he explained to Mr McRae that the cost for solvent based polyurethane was
$5,535 exclusive of GST and the cost for water based polyurethane was $6,150 exclusive of GST. He says that he told Mr McRae that as he had not seen the floor, he could not say which type of coating would be more appropriate. He says he explained to Mr McRae that although solvent based polyurethane is the cheaper option, it can react with foreign material such as oil, wax and paint. Mr Pirrit, who swore an affidavit in support of the appellant’s application for summary judgment,
produced his handwritten notes which he says he made during the initial telephone
1 Floorman Waikato Ltd v McRae [2016] NZDC 23770.
conversation with Mr McRae. The handwritten note records Mr McRae’s name, address, the floor area and the respective prices for solvent and water based polyurethane. The handwritten note is made on a work diary page for Monday 30
May 2016.
[6] Mr McRae in his first affidavit in opposition says that when he first spoke by telephone to Mr Pirrit in early May 2016, Mr Pirrit quoted him a price of $5,500 on the basis of the floor area of 123m2. He says that there was no mention of any additional expenses or that GST was excluded from the quote. He says that Mr Pirrit told him that he would come to the house prior to undertaking the work to meet with Mr McRae and his partner, Ms Dayle Pike, as well as to discuss the requirements and assess the job.
[7] Mr McRae says that Mr Pirrit did not in fact meet with Ms Pike and himself before the work commenced. He says that on Thursday evening 26 May 2016, Mr Pirrit telephoned Mr McRae to say that Floorman had some spare time and one of their staff would be there in the morning to start the job. Mr Pirrit in his affidavit says that Floorman commenced sanding work on or around 27 May 2016.
[8] Mr McRae in his second affidavit says that on Monday 30 May 2016, Mr Pirrit telephoned him and said that he had visited the house while Mr McRae was absent, and that he had seen that there was glue between the floorboards which he said would cause a reaction with a solvent based polyurethane, and meaning that a water based polyurethane would be appropriate.
[9] In the course of his submissions to the Court, Mr McRae said that Mr Pirrit did not mention a price for using the water based polyurethane, saying he would try and keep it about the same. Mr McRae said that he responded by telling Mr Pirrit to go ahead with the work.
[10] Having regard to the sequence of events described in Mr McRae’s second affidavit, it would appear that Mr Pirrit did view the house and floor before the polyurethaning was commenced, as he explained that he had done so and that his inspection of the floors was the basis for his advice that the glue would cause a
reaction to a solvent based polyurethane, and that consequently a water based polyurethane would be more appropriate. According to Mr McRae’s own account as set out in his second affidavit, this telephone conversation took place on Monday 30
May 2016, which is the same date as Mr Pirrit’s handwritten diary page note.
[11] From this affidavit evidence, it appears that the sanding work had already commenced, but not the polyurethaning, when Mr Pirrit went and inspected the floors on or around Monday 30 May, and that being the case his handwritten note on a diary page for 30 May would be consistent with him recording details relevant to a conversation with Mr McRae that day.
[12] Mr McRae says that he was satisfied with the sanding of the floors in the first room which was a bedroom. However he became concerned about some areas of woodworm markings which the floor sanding had exposed on the lounge floor. These markings gave channel-like appearances in the flooring. Mr McRae thought that the marks were aesthetically unattractive and could cause the timber to chip if caught by someone’s foot or by furniture. Mr McRae and Ms Pike asked for them to be filled, but Mr McRae says he was told by Bradley Ward, one of Floorman’s staff working at the house, that filling the cavities was not necessary.
[13] Mr Pirrit says that he also told Ms Pike that it was not normal to fill the wood worm markings as, although it filled the gaps, it would create an unattractive finish. He says that he explained to Ms Pike that the time to fill any holes and cracks was during the sanding process, which had already been completed. Mr Pirrit says that despite that advice, Ms Pike was adamant that someone might catch their foot and trip, and she wanted the woodworm marking filled. Mr Pirrit says that he told Ms Pike that they would continue to finish the floor but would return the next day to treat the floor with water based filler. The following day, Mr Ward returned and applied a water based filler, and applied another coat of polyurethane over the majority of the lounge. This was done at no cost to Mr McRae. Mr Pirrit says that the job was finished on or around 1 June 2016.
[14] Mr McRae says that on 2 June 2016 he and Ms Pike made a quick inspection of the floors and were disappointed with the overall finished appearance, although he
took no immediate steps to communicate his dissatisfaction to Mr Pirrit or his company. In particular Mr McRae claims that his inspection showed that:
(a) the woodworm channels had not been filled in the lounge;
(b)there was an unfilled cavity between the floorboards and tiles beside the fireplace;
(c) there were gaps between some of the timber flooring which contained glue or white paint;
(d) some areas of skirting had been damaged by the sander;
(e) there were visible scratches under the polyurethane in the bathroom and spare bedroom; and
(f) there was uneven application of the polyurethane leaving overlap marks on the floor.
[15] On 7 June 2016 Floorman issued a tax invoice addressed to Mr McRae which he received in the mail on Saturday 11 June. The tax invoice contains a brief description of the work undertaken at the McRae residence and sought payment of the sum of $6,150.00 plus GST of $922.50 totalling $7,072.50. The invoice was dated 7 June 2016 and stated that payment was due by 14 June 2016.
[16] The description of work done stated:
To sand, fine sand, punch and fill nails and apply 1 x primer and 2 coats of
Bona Traffic WB urethane to all house floor areas as discussed.
Return to fill wood worm and borer tracks, buff part room and re-coat floor. No charge.
[17] The tax invoice also set out the basis of the calculation of the $6,150.00 as being 123 units at $50 per unit - plus GST.
[18] At the foot of the tax invoice is a heading, “Notes” which relevantly reads:
Notes
Project : McCrae [sic] Period from: 1/6/16
Period to: 30/6/16
This is a payment claim under the Construction Contracts Act 2003 [sic]. Please refer to the attached notice (form 1, of the Construction Contracts regulation [sic] 2003)
[19] As mentioned in the notes, attached to the tax invoice was a document in terms of form 1 of the CCA Regulations 2003, entitled: “Information that must accompany all payment claims” (the notice), which reads as follows:
Important notice
What is this?
This notice is attached to a claim for a payment (a payment claim) under the
Construction Contracts Act 2002 (the Act). The person who sent this payment claim (the claimant) is claiming to be entitled to a payment for, or in relation to, the construction work carried out to date under a construction contract.
Whether that person is entitled to a payment, and how much they are entitled to, will depend on whether you have a construction contract and what you have agreed between yourselves about payments. If you haven’t agreed on payments, there are default provisions in the Act.
What should I do with this payment claim?
You can either –
· pay the amount claimed in the payment claim (in full) on or before the due date for payment; or
· if you dispute the payment claim, send the claimant a written payment schedule that complies with section 21 of the Act (a payment schedule)
stating the amount you are prepared to pay instead (which could be
nothing).
The due date for a payment is the date agreed between you and the claimant. That due date must be set out in the payment claim. If you haven’t agreed on a due date, then the Act says that a payment is due within 20 working days after the payment claim is served on you. (For the purposes of this Act, a working day is any day other than a Saturday, a Sunday, a public holiday, or any day from 24 December to 5 January.)
When do I have to act?
You should act promptly. Otherwise, you may lose the right to object.
What if I do nothing?
If you don’t pay the amount claimed by the due date for payment or send a
payment schedule indicating what you will pay instead, the claimant can go to court to recover [the unpaid] amount from you as a debt owed. In
addition, the court may decide that you have to pay the claimant’s costs for
bringing the court case.
Can I say that I will not pay, or pay less than, the claimed amount?
Yes, by sending a written payment schedule.
Note: If you do not send a written payment schedule, the claimant can bring court proceedings against you or refer the matter to adjudication (or both).
How do I say I will not pay, or pay less than, the claimed amount?
To say that you will pay nothing or indicate what you will pay instead, you must send the claimant a written payment schedule.
You must indicate the amount that you are prepared to pay, which could be nothing. This amount is called the scheduled amount. If the scheduled
amount is less than the claimed amount, you must explain in the payments
schedule –
· how you calculated the scheduled amount; and
· why the scheduled amount is less than the claimed amount; and
· your reason or reasons for not paying the full amount claimed.
Note: The written payment schedule must also state which payment claim the payment schedule relates to.
Note: If you state in the payment schedule that you will pay less than the claimed amount or pay nothing at all, the claimant may refer the dispute about how much is owing for adjudication.
How long do I have?
You must send a payment schedule by the date agreed in the contract or, if no date was agreed, within 20 working days after the payment claim was
served on you.
If I say I will pay another amount instead, when do I have to pay it?
You must still pay the scheduled amount by the due date for payment.
What if I don’t pay the scheduled amount when I say I will?
If you send a payment schedule but do not pay the scheduled amount by the
due date, the claimant can go to court to recover the unpaid amount from you as a debt owed or refer the matter to adjudication (or both).
Note: A court may also require you to pay the claimant’s costs.
Advice
Important: If there is anything in this notice that you do not understand or if
you want advice about what to do, you should consult a lawyer immediately.
[20] Of particular relevance are the sections headed: What should I do with this payment claim? which advises that a recipient can either pay the amount claimed in the payment claim in full on or before the due date for payment, or if the payment claim is disputed, send the claimant a written payment schedule stating the amount that the recipient is prepared to pay instead, which could be nothing. The notice also advises that the due date for payment where there has been no agreement as to a due
date is, in accordance with the CCA, within 20 working days after a payment claim is served.
[21] Also of relevance here is the information provided under the heading: What if I do nothing? Here the notice explains that if the amount claimed is not paid by the due date, and no payment schedule is sent to the claimant, the claimant can go to court to recover the amount as a debt owed and the court may decide that the recipient must pay the claimant’s costs for taking the matter to court.2
[22] Although Mr McRae confirms that he received the tax invoice/payment claim on Saturday 11 June 2016, he took no steps in accordance with the notice, and has explained that he did not read or pay any attention to the notice attached to the tax invoice.
[23] Again there is a disagreement as to what happened next. Mr McRae says that on Wednesday 15 June 2016, Mr Pirrit telephoned him and asked him if he had received the invoice. He says that Mr Pirrit told him that the invoice was covered by the CCA, although he had not previously mentioned that prior to his firm undertaking the work. Mr McRae says that he told Mr Pirrit that he was dissatisfied with the finished job and also with the increased amount charged, which he claimed was more than the original sum quoted. Mr McRae says that he told Mr Pirrit that he required the floors to be repaired before any payment would be made. He says that Mr Pirrit appeared to be more concerned about receiving payment of the amount claimed, saying that Mr McRae was bound by the provisions of the CCA, and that pursuant to the CCA there was a contract between them. Mr McRae says that he told Mr Pirrit that he had not been aware that there was a contract under the CCA. He says that early the following week, either 20 or 21 June, Mr Ward returned to remedy the complaints. When Mr McRae viewed the work after Mr Ward had left, he
remained dissatisfied with the work.
2 There is an error in the notice issued by the appellant under the heading, What if I do nothing? which omits the words the unpaid in the phrase: the claimant can go to court to recover the unpaid amount from you as a debt owed. I consider that this omission is not material to the issues involved in this matter as the overall sense and meaning of the explanatory paragraph clearly informed the recipient of the notice that failure to either pay or send the claimant a payment schedule by the due date for payment would enable the claimant to claim the amount as a debt and seek the costs of taking the matter to court.
[24] Mr McRae says that on 23 July 2016 Mr Pirrit left him a voicemail message, which he did not respond to, and then on Monday 25 July Mr Pirrit arrived at their residence, and was taken inside to inspect the floors and the defects pointed out to him. He says that Mr Pirrit was not receptive to Mr McRae’s complaints about the workmanship and was aggressive. In his first affidavit, Mr McRae says: “I also indicated that a payment was due but not the amount Mr Pirrit was charging. Mr Pirrit was not receptive to my requests of repair and a payment schedule on my behalf was not forthcoming at that present stage”.
[25] Mr Pirrit has a different account of what happened. Mr Pirrit says that he phoned Mr McRae on or about 20 June 2016 to confirm that Mr McRae had received the payment claim and to tell him that the payment was due in seven days. He says that Mr McRae asked if he could have until 20 July 2016 to make a payment on the basis that payment on the 20th of the month following receipt of an invoice was standard business practice. Mr Pirrit says he agreed. However, when no payment was received on 20 July, he tried unsuccessfully to make telephone contact with Mr McRae, but he could not get through to him and his voicemail messages went
unanswered. He says that on 21 July, he visited Mr McRae and Ms Pike at their home and that they told him for the first time that they were unhappy with the work done. He says that he told them that in his view there was nothing wrong with the quality of the work or the floors, and suggested to them that they get a second opinion. He further says that he asked Mr McRae to enter into a payment agreement, and make payment for the work over time, suggesting that Floorman would reduce the charge for the water based polyurethane, but that Mr McRae and Ms Pike were unwilling to accept or discuss his proposals.
[26] On 27 August 2016, Mr McRae deposited $200 into Floorman’s bank account. There was no correspondence or communication relating to or explaining any basis of the payment.
[27] By a letter dated 28 July 2016, Floorman’s solicitors, Gibson Sheat, issued a demand for payment of the sum of $6,872.50 (crediting the $200 payment received) and adding legal costs of $300. The letter stated that the 20 working day period for
payment or issuing a payment schedule had passed and referenced the relevant parts of the CCA.
[28] Mr McRae responded by email on 3 August 2016, agreeing that some amount was due but saying that he was dissatisfied with the work and with Floorman’s response to his concerns.
[29] Mr McRae has exhibited photographs as annexures to his first affidavit which he says show the defects and substandard aspects of Floorman’s workmanship.
District Court
[30] Floorman filed a statement of claim and an application for summary judgment in the Hamilton District Court in early September 2016. The statement of claim contains two alternative causes of action. Firstly, debt due under the CCA. Secondly, breach of contract.
[31] The application for summary judgment was based on the first cause of action and on the basis that Mr McRae had no defence to Floorman’s claim, as Mr McRae had accepted the verbal quote for the work, had been issued a payment claim under the CCA, and had failed to pay or to issue a payment schedule within the required statutory timeframe.
[32] Mr McRae filed a notice of opposition to the application for summary judgment together with two supporting affidavits. Mr McRae also filed a request for transfer of the proceeding to the Disputes Tribunal pursuant to s 37 of the Disputes Tribunal Act 1988.
[33] Judge Ingram heard and declined the application for summary judgment on
23 November 2016, on two bases. First, the Judge was not satisfied that Mr McRae did not have a defence to the claim. In particular, the Judge considered that it was
arguable that there was no concluded contract, saying:3
3 Floorman Waikato Ltd v McRae, above n 1, at [8].
If the parties were not ad idem as to the price it seems to me there is a very real question as to whether indeed there was a contract. It seems to me that it is at least arguable on Mr McRae’s behalf that the parties never were ad idem as to an essential matter of the job which is the price. In a case of this kind involving something between five and a half thousand dollars worth of floor sanding and polyurethaning and perhaps just over $7000 worth it seems to me that firstly, Mr McRae has every right to be mystified that he found himself after the event involved in the Construction Contracts Act 2002 but secondly, it is more than open to him to say “well actually I thought we had an agreed price and unless we did have an agreed price then we didn’t have a contract at all”; and what Floorman Waikato Limited are entitled to is a quantum meruit assessment of the value of the work that has been done. Given the relatively small size of the contract it seems to me that the quantum meruit argument cannot be dismissed in its entirety.
[34] The Judge then proceeded to consider whether he should exercise his discretion to enter summary judgment. Although not stated as such, I consider that this must have been undertaken on an, “and if I am wrong” basis, as his Honour had already concluded that he was not satisfied that Mr McRae had no defence. In this context the Judge stated that he had “serious concerns” about the application of the CCA in relation to a job of this kind, observing that Mr McRae appeared mystified as to why that Act applied, and was unsurprisingly referring to the Consumer Guarantees Act 1993 and the Fair Trading Act 1986. The Judge stated:
[13] If the plaintiff is right, the practical affect is for a defendant who has got nothing to do with the construction industry and he has never heard of the Construction Contracts Act 2002, can be handed a bill after the job has been done together with a sheet of paper saying that it is a claim under the Construction Contracts Act 2002 and requiring the matter to be dealt with under the provisions of an Act which they had never heard of. That, it seems to me, is fundamentally unfair. I can well understand that many people use the Construction Contracts Act 2002 routinely and if it was a construction job I would have no difficulty with that.
[14] Certainly it is not clear to me that a floor sanding contract on a 50 year old house necessarily falls within the purview of the Construction Contracts Act 2002, because on its face there was simply no construction of any kind involved. There was a refurbishment and that is the most that can be said about it. But in any event my sense of justice is very palpably infringed by the resort to this stratagem of making a claim under the Construction Contracts Act 2002 and bringing a summary judgment application in circumstances such as this.
[35] The Judge then outlined the residual discretion not to award summary judgment under the provisions of r 12.2 of the District Court Rules and said:
[16] The residual discretion has been examined by appellate Courts on a number of occasions. The leading authority would appear to be Sudfeldt v
UDC Finance. There the Court said …. “Once it has been established that there is no defence there are few situations where the discretion could be exercised, unless it could be shown that summary judgment could cause injustice.” I am completely satisfied that in this case that summary judgment would cause injustice and substantial injustice. This is a matter which should have been dealt with in the Disputes Tribunal where a fee of $180 would be payable. Already over $5000 worth of fees have been expended on a completely unnecessary application to this Court, when the matter is well within the jurisdiction of the Disputes Tribunal. I am not prepared to sit idly by and simply apply the black letter of the Construction Contracts Act 2002 when I consider that there has been a substantial injustice or could be a substantial injustice when the application is for summary judgment in respect of which I have a discretion to prevent that injustice from occurring.
…
[19] In so saying I do not overlook the mandatory nature of the payments regime set out in the Construction Contracts Act 2002. What I say in relation to that is that is manifestly unfair that it be called into operation in the way that it has been in a case of this kind involving these amounts where the defendant if he was unsuccessful today would be expected to pay costs in excess of $5000 in relation to a job which he believed would not exceed
$5500 in total. In short the manifest financial penalty which must attach to the operation of the Construction Contracts Act 2002, is offensive to my
sense of justice in the circumstances of this particular case, and I do not
accept that it can fairly be brought within the terms of r 12.2, and I am not
satisfied that there is no defence to the plaintiff’s claim.
[20] For the benefit of those who might be interested in the precedent value of this judgment I have this to say. It seems to me that invocation of the Construction Contracts Act 2002 in circumstances where the claim is well within the Disputes Tribunal jurisdiction is inappropriate if the contract involves a layperson and he has no prior knowledge of the provisions which operate in the Construction Contracts Act 2002 in relation to payment disputes about workmanship and the like. Had this been a case involving people used to the construction industry I would have had no difficulty with it, but I do have a difficulty and a very substantial difficulty with a layman being dragged into a web of which they had no knowledge of, little ability to figure out and which will cost them a whole lot of money to get appropriate advice and to act appropriately if they want to argue the toss about what has gone on. With the sums involved in this particular case in my view it would be impossible for either party to get this case fully argued in the District Court for anything like the sum in dispute. Both parties are going to end up vastly out of pocket if this matter goes on to a full hearing in due course. The injustice of that seems to me to be extremely obvious. To the extent that it might be regarded as a precedent, I do not shrink from the view that I have expressed that people should be careful about invoking the Construction Contracts Act 2002 in matters of genuine dispute where the Disputes Tribunal Act 1988 can operate at vastly lower cost to resolve issues of a nature that the Disputes Tribunal is well capable of dealing with.
[36] The Judge then noted that he would transfer the application to the Disputes Tribunal if he could but that he could not do so unless or until either party filed a claim in the Disputes Tribunal.
Appellant’s submissions
[37] Floorman raises three issues to be determined on appeal. First, is it reasonably arguable that there was no construction contract?
[38] Floorman’s submission is that there was a concluded contract within the scope and terms of the CCA. Mr Collins points to s 9 of the Act which provides that the CCA applies to every construction contract that is written or oral, or partly written and partly oral. He also refers to s 17 of the Act which although it deals with progress payments, recognises that the CCA provides for how progress payments are to be managed in circumstances where the parties have not agreed on the contract price or amount to be paid for work that has been done. The section provides:
17 Amount of progress payment
(1) The amount of a progress payment must be calculated by reference to—
(a) the relevant period for that payment; and
(b) the value of the construction work carried out, or to be carried out, during that period; and
(c) any relevant provisions in the construction contract (including, without limitation, provisions relating to the retention of money or liquidated damages).
…
(3) For the purposes of subsection (1)(b), the value of construction work must be calculated with regard to—
(a) the contract price for the work; and
(b) any other rates or prices set out in the contract; and
(c) any variation to the construction work authorised under the contract; and
(d) if any work is defective, the estimated cost of rectifying the defect.
(4) If the contract does not expressly provide for the matters referred to in subsection (3)(a) and (b), the value of construction work must be calculated with regard to—
(a) the reasonable value of the work; and
(b) the reasonable value of any variation to the construction work authorised under the contract; and
(c) if any work is defective, the estimated cost of rectifying the defect.
(Emphasis added)
[39] Floorman accepts that there is a factual dispute as to price but submits that this does not mean that there is no construction contract. It submits that “this informal type of contract is still a ‘contractual quantum meruit’”. To support this submission, Mr Collins relies on ACT Construction Ltd v E Clarke & Sons (Coaches) Ltd.4 In that case, Ward LJ outlined the trial Judge’s finding that the relationship between the parties was not a contractual one, with the consequence that the value of the work carried out could be recovered and paid for on the basis of a quantum meruit “a restitutionary basis in fact”. Ward LJ then stated:5
I cannot accept that finding by the judge. As Henry L.J. observed when granting permission to appeal, the decision that there was no contract came as a surprise. In my view, the proper conclusion was to find that there was, as Mr Munro for Clarke submits, “a contractual quantum meruit”. In focusing on the essential ingredients for “a building contract of some complexity” the judge may have lost sight of the fact that even if there is no entire contract, and especially even if there is no “formal” contract, there may still be an agreement to carry out work, the entire scope of which was not yet agreed, even if a price has not been agreed. Provided there is an instruction to do work and an acceptance of that instruction, then there is a contract and the law will imply into it an obligation to pay a reasonable sum for that work. That is what happened here.
[40] Floorman raises as its second issue whether floor sanding and polyurethaning is within the jurisdiction of the Act. Floorman submits that the work it carried out is clearly within the definition of “construction work” contained in s 6 of the CCA. That section provides that construction work includes alteration, restoration, and renewal of flooring structures as well as “painting and decorating of the internal or
external surfaces of any building or structure”.
4 ACT Construction Ltd v E Clarke & Son (Coaches) Ltd [2002] EWCA Civ 972.
[41] Finally, Floorman raises a question as its third issue: is it appropriate for the Court to exercise discretion to decline entering summary judgment if there is no defence to the Act’s “pay now, argue later” statutory payment regime? Floorman submits that an appeal against the exercise of a discretion falls to be determined on the basis set out in May v May, that is that the Court on appeal should only intervene if it can be shown that the Judge acted on a wrong principle, failed to take into account some relevant matter, took into account some irrelevant matter, or was
plainly wrong.6
[42] Floorman refers to the decision of Duffy J in Auckland Waterproofing Ltd v TPS Consulting Ltd.7 In that case, the District Court Judge had awarded summary judgment under the CCA but had refused to award costs on the basis that the matter could have been dealt with using a cheaper form of recovery action. Section 23 of the CCA provides that the payee can recover from the payer the actual and reasonable costs of recovery. Duffy J stated:
[68] If Parliament had considered that recovery of some payee's debts could not justify the cost of court process, I would expect Parliament to have made provision for some alternative, cheaper means of recovery in the Act. It has certainly made such provision in regard to the adjudication of disputes under the Act.
[69] When I take into account the Act's policy and purpose, I am driven to conclude that Parliament intended all payees to be able to pursue recovery of s 23 debts through court process and, provided the quantum of those costs was reasonable and not excessively high, to obtain the actual cost of doing so.
[43] Mr Collins submits that, in light of the reasoning above, whilst the Judge’s concerns would have merit in other circumstances, it was not a situation where it was appropriate to exercise any residual discretion given the appellant had a statutory entitlement to payment.
[44] Floorman submits that the District Court judgment should be set aside and that judgment be entered for the appellant for the full amount claimed, and with costs
incurred in the District Court proceedings to be fixed and determined either by this
6 May v May (1982) 1 NZFLR 165 (CA).
Court in exercising its inherent jurisdiction, or by the District Court Judge. The appellant does not seek an award of costs on the appeal itself.
Respondent’s submissions
[45] Mr McRae in his submissions raises the Consumer Guarantees Act 1993, the
Fair Trading Act 1986, and the New Zealand Bill of Rights Act 1990.
[46] Mr McRae submits that a contract did not exist under the CCA as:
A contract is a mutually acceptable agreement between two parties and can not [sic] exist if one party is oblivious to it’s [sic] existence. If a specific contract is to be proposed to be implemented and specific conditions are intended to be enforced, then full disclosure of the binding conditions should be made known and agreed to by both parties prior to the inception of any forthcoming work.
[47] In relation to the second issue, whether floor sanding and polyurethaning is within the jurisdiction of the Act, Mr McRae poses a question in opposition – is floor sanding and polyurethaning within the jurisdiction of the Fair Trading Act or the Consumer Guarantees Act?
[48] In relation to the third issue, of whether the Judge erred in exercising his discretion not to enter judgment, Mr McRae submits that as no price for the work had been agreed, the amount sought by Floorman could not be established.
[49] Other submissions made by Mr McRae are that the payment claim was not sufficiently itemised and that he was not told that a payment schedule must be in writing or that any complaints must be in writing. He submits that it is unfair that the parties could enter into a contract verbally but that he could not raise a complaint verbally.
Evaluation
Did the Judge err in finding that there was no concluded contract?
[50] As summarised above, Floorman submits that the Act does not require that the price be determined in order to have a concluded contract and, in any case, a claim in quantum meruit is based in contract.
[51] Section 17, cited by Floorman, relates to the amount of progress payments, which is not directly on point here. However, the section does appear to envisage that a contract could be entered into which does not expressly provide for the price of the work.
[52] In support of his submission that the appellant could rely on contractual quantum meruit as the foundation of its claim despite the absence of a concluded agreement on the final price for the work, Mr Collins relies on ACT Contruction Ltd v E Clarke & Sons (Coaches) Ltd in which Ward LJ referred to “a contractual quantum meruit”.8
[53] In Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction
Ltd Arnold J said:9
Historically, a quantum meruit claim was treated as being based upon an implied contract. Today a quantum meruit claim is generally seen as being a restitutionary claim. As such, it is said to be based upon unjust enrichment principles. So Winkelmann J in VONZ at [76] said:
I am also of the view that it is to cast the cause of action in quantum meruit too narrowly to require evidence of a clear request for services. The insistence upon evidence of a request is out of step with a recognition that the quantum meruit cause of action like other claims for restitution at common law, is solidly based upon principles of unjust enrichment, rather than upon a notion of implied contract. The implied contract theory for claims for restitution at common law has now been laid to rest. In Westdeutsche Landesbank Girozentrale v Islington Borough Council [1996] UKHL 12;[1996] AC 669, Lord Browne Wilkinson said :
8 At [29].
9 Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/05, 8 August
2006 at [40].
Subsequent developments in the law of restitution demonstrate that this reasoning is no longer sound. The common law restitutionary claim is based not on implied contract but on unjust enrichment: in the circumstances the law imposes an obligation to repay rather than implying an entirely fictitious agreement to repay ... In my judgment, your Lordships should now unequivocally and finally reject the concept that the claim for moneys had and received is based on an implied contract. I would overrule Sinclair v Brougham on this point.
[54] Here the concept of a claim based on quantum meruit is recognised in s 17(4) of the Act in the context of determining the amount of progress payments. However, I do not consider that the appellant needs to have recourse on a quantum meruit basis to succeed in its claim against the respondent.
[55] Although Mr Pirrit and Mr McRae disagree as to some of the details of what was said between them during their 30 May 2016 telephone conversation, they both say that Mr McRae instructed Mr Pirrit to go ahead and carry out the work. I find that this amounted to a clear request for services by Mr McRae for Floorman to carry out work to the floors at his residence. Accordingly, I am satisfied that a contract did exist between the parties and that they both proceeded upon the basis that the cost and price for the work would be determined by the type of product used. In the context of this appeal it is not possible or necessary to determine or decide which of the two accounts of the 30 May 2016 telephone conversation is to be preferred. Certainly Mr Pirrit’s account is supported by his handwritten note, but in any event it is clear that their conversation was concluded upon the basis of Mr McRae engaging Floorman and instructing Mr Pirrit to go ahead and undertake the work. For present purposes it is unnecessary for the Court to determine the terms of this engagement. What is required to be established by the appellant is that there was a contract in place between the two parties pursuant to which Floorman had been requested by Mr McRae to undertake floor sanding and polyurethane coating of the wood floor at Mr McRae’s residence. I am satisfied that the appellant has established that such a contract was entered into.
Does the Act apply to the work in question?
[56] I agree with Mr Collins for Floorman that it is clear that the Act does apply to the work done, contrary to the Judge’s observation that the CCA may only apply to construction of new works. Section 6 of the CCA provides:
Meaning of construction work
(1) In this Act, unless the context otherwise requires, construction work means any of the following work:
(a) the construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling of any building, erection, edifice, or structure forming, or to form, part of land (whether permanent or not and whether constructed wholly or partly on, above, or below ground level):
…
(g) the painting or decorating of the internal or external surfaces of any building or structure.
[57] There is nothing in the CCA to suggest that the CCA only applies to the construction of new work, to jobs worth over a certain amount, or to jobs involving professional trades people. In 2015 the Construction Contracts Amendment Act 2015 was passed which removed many of the distinctions in the Act between residential and commercial contracts.
Could Mr McRae have another defence to the claim?
[58] I now consider whether Mr McRae could have some other defence to the claim other than the two discussed above. In his written submissions, Mr McRae submits that the claim was not sufficiently itemised. He has filed two invoices from other companies which he says shows the correct method of itemising an invoice. These invoices itemise materials and labour separately. In contrast, Floorman’s invoice used m2 as the unit by which they charged and did not differentiate between the different materials used and labour costs.
[59] Section 20 of the CCA requires that a payment claim indicate the manner in which the payee calculated the claimed amount. In this case, Floorman has
calculated the amount based on m2. In the description, the invoice lists the processes and work done for each unit. I consider that this adequately describes the method by which Floorman has calculated the amount in the claim.
[60] The second issue raised by Mr McRae is that he was never told that a payment schedule must be issued in writing. However, the payment claim produced to the Court does contain all the required information and the tax invoice/payment claim itself states, “please refer to the attached notice, (form 1 of the Construction Contracts regulation 2003 [sic]).” Mr McRae has acknowledged to this Court that he did not read the notice attached to the tax invoice/payment claim. Had he done so he would have seen the requirement for a written payment schedule to be sent to the claimant where the sum claimed is disputed.
Did the Judge err in exercising his discretion not to award summary judgment?
[61] As stated above, it appears that the Judge included this part of his judgment for completeness, as he had already concluded that he considered that Mr McRae could have a defence to the claim, and having regard to that conclusion the application for summary judgment would fail.
[62] However I agree with Mr Collins’ submission that, as this was the exercise of a discretion, Floorman must show that the Judge:10
(a) acted on a wrong principle;
(b) failed to take into account some relevant matter; (c) took into account some irrelevant matter; or
(d) was plainly wrong.
[63] In this case, I consider that the Judge was plainly wrong as the result of taking an irrelevant matter into account in declining to enter summary judgment. In
declining summary judgment the Judge expressed the view that the CCA should not
10 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 ( SC), at [32].
apply to residential renovations involving homeowners. This view is contrary to the clear legislative intention which provides for the CCA to apply to both commercial and residential construction contracts. Further, the form which is attached to the tax invoice/payment claim clearly sets out what must be done to dispute the claim in a manner easily able to be understood by a lay person. I also agree with counsel for Floorman, that the reasoning of Duffy J in Auckland Waterproofing should equally apply in the present context. The CCA provides that a plaintiff can recover the debt
owed in any Court, meaning the District or High Court.11 As Duffy J stated:12
[68] If Parliament had considered that recovery of some payee's debts could not justify the cost of court process, I would expect Parliament to have made provision for some alternative, cheaper means of recovery in the Act. It has certainly made such provision in regard to the adjudication of disputes under the Act.
[69] When I take into account the Act’s policy and purpose, I am driven to conclude that Parliament intended all payees to be able to pursue recovery of s 23 debts through Court process and, provided the quantum of those costs was reasonable and not excessively high, to obtain the actual cost of doing so. It follows that “reasonable” in s 23 can only relate to an assessment of the quantum of the legal fees incurred in obtaining summary judgment for the purpose of seeing if they are within the range of fees that are reasonably charged for work of that type. Once the recovery costs are seen to come within the range of amounts usually charged for work of that type they are recoverable under s 23.
[64] I also consider that the Judge incorrectly considered that by declining summary judgment, Mr McRae would be able to raise his grievances as defences in the current proceedings. However as Duffy J said:13
Once the specified time limit in s 22 has expired, the claim becomes a provable and recoverable debt under s 23. Once this point is reached, any dispute the payer may have about liability to pay can only be resolved by the payer issuing separate legal proceedings based on whatever cause of action it considers it can establish against the payee. Any money awarded under this cause of action would then be available to the payer and would go to offset the debt it had been obliged to pay pursuant to the Construction Contracts Act.
[65] Although I agree with the Judge’s view that the costs of recovery are substantial in comparison to the quantum of the debt claimed, that situation is one
that Parliament must be taken to have considered. There is no threshold amount
11 Section 23(2)(a); see the definition of ‘court’ in s 6.
12 Auckland Waterproofing Ltd v TPS Consulting Ltd, above n 7.
13 At [17].
provided for by the CCA which would restrict or prevent recourse to the provisions of the CCA where comparatively small amounts are involved.
[66] I consider that the Judge was wrong to decline to enter summary judgment when the appellant had fully complied with the requirements of the CCA, and the respondent had failed to take the steps to communicate and detail his basis for disputing the amount claimed required by the CCA. The Judge’s decision to exercise the discretion to decline to enter summary judgment was founded upon his Honour’s view that the entry of judgment would result in an injustice principally because of the disproportionate amount of recovery costs added onto the original sum claimed. However the scheme of the CCA includes a process whereby a party from whom payment is claimed, is also informed in writing in clear terms what they must do to dispute the claim. The legislative purpose of the CCA is to ensure that construction contractors who have performed work are not frustrated in recovering payment for the work by the raising of genuine or tactical grounds of dispute. The CCA provides that where a payment claim is issued, and no steps are taken by the party from whom payment is sought, the amount claimed is recoverable as a debt due. That is what happened here, and I am satisfied that the Judge erred in declining Floorman’s application for the entry of summary judgment.
Result
[67] The appeal is allowed, and the judgment of Judge Ingram dated 23 November
2016 is set aside.
[68] The appellant’s application for summary judgment dated 1 September 2016 is granted and judgment is entered in favour of the appellant against the respondent in the sum of $6,872.50 (inclusive of GST).
[69] The appellant is entitled to costs in relation to the summary judgment application in the District Court. I direct that the appellant’s costs in relation to the District Court proceedings and hearing be fixed by the District Court. The appellant is entitled to recover its actual and reasonable costs of recovery of the sum claimed pursuant to s 23(2)(a)(ii) of the Act.
[70] Although the appellant has succeeded in its appeal, as it does not seek an award of costs in connection with the appeal, I make no order for costs in relation to
this appeal.
Paul Davison J
1