Fowler Homes Southern Lakes Limited v Bose
[2017] NZHC 1707
•21 July 2017
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2017-425-000030 [2017] NZHC 1707
UNDER the Construction Contracts Act 2002 BETWEEN
FOWLER HOMES SOUTHERN LAKES LIMITED
Plaintiff
AND
MICHELLE NEETA BOSE AND ROBERT JAMES WOOD Defendants
Hearing: 18 July 2017 Appearances:
R S Cunliffe for Plaintiff/Applicant
M R Taylor for Defendants/RespondentsJudgment:
21 July 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
[ON PLAINTIFFʼS SUMMARY JUDGMENT APPLICATION]
Introduction
[1] The plaintiff, a builder, contracted to build a house for the defendants. The
Construction Contracts Act 2002 applies.1
[2] As the construction of the house proceeded, the plaintiff issued a number of payment claims which are not the subject of this litigation. This litigation relates to two particular payment claims:
1. payment claim (PC) 7C served 30 July 2016 for $42,572.92 (GST
inclusive) for variations;
1 The contract was signed on 23 May 2015. The provisions of the Construction Contracts Act
2002 apply as they existed before amendments to the Act which came into force on 1 December
2015: Construction Contracts Act 2002, s 11A.
FOWLER HOMES SOUTHERN LAKES LTD v BOSE and WOOD [2017] NZHC 1707 [21 July 2017]
2.PC 8 served 9 September 2016 for a final payment of $43,000 (GST inclusive); and a payment of $42,006.36 (GST inclusive) for prime cost (p.c.) sums and variations.
[3] The defendants sent responses to each of the payment claims on 8 August
2016 and 15 September 2016 respectively.
[4] The plaintiff claims $127,579.34 (GST inclusive) representing the two payment claims, together with compounding interest at the contractual rate and solicitor/client costs.
[5] The plaintiff applies for summary judgment. [6] The application is opposed.
The issues
[7] The defendants assert that the plaintiff’s payment claims do not comply with
the requirements of the Act. The plaintiff asserts that they comply.
[8] The plaintiff asserts that the defendants’ responses do not constitute payment schedules which comply with the requirements of the Act. The defendants assert that they comply.
[9] In the event the Court finds that the defendants failed to serve compliant payment schedules in response to valid payment claims, two consequential issues arise. They are as to the plaintiff’s entitlement to:
(1) interest; and
(2) costs.
Plaintiff ’s summary judgment principles
[10] The starting point for a plaintiff’s summary judgment application is r 12.2(1)
High Court Rules, which requires that the plaintiff satisfy the Court that the
defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.
[11] I summarise the general principles which I adopt in relation to this application:
(1) Commonsense, flexibility and a sense of justice are required.2
(2)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.3
(3)The Court will not hesitate to decide questions of law where appropriate.4
(4)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits.5
(5)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or
other statements, or inherently improbable.6
(6)In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is under an obligation to lay a proper foundation for the defence in the
affidavits filed in support of the Notice of Opposition.7
2 Haines v Carter [2001] 2 NZLR 167 (CA) at [97].
3 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
4 European Asian Bank AG v Punjab & Sind Bank [1983] 2 All ER 508 (CA) at 515.
5 Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21.
6 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).
7 Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA).
(7)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.8
(8)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required
for the protection of the integrity of the summary judgment process.9
(9)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.10
Statutory scheme for making and responding to payment claims
Purpose
[12] The necessary analysis of payment claims under the Act has been recognised by the Court of Appeal, in George Developments Ltd v Canam Construction Ltd, (Canam), as one which must be undertaken with the purpose of the Act in mind.11
Robertson J, delivering the judgment of the Court, noted that s 3 of the Act states that the Act’s purposes include the facilitation of regular and timely payments between the parties to a construction contract.
[13] That purpose and focus was amplified by Asher J in Marsden Villas Ltd v
Wooding Construction Ltd.12 His Honour there referred to the purposes outlined in s
3 of the Act.13 He referred to observations of the Law Commission as to a “quick
8 Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [28].
9 Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).
10 Pemberton v Chappell, above n 3.
11 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA).
12 Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807.
13 At [9].
and dirty” interim solution which prevents cashflow being held up for weeks, months and years.14 His Honour continued:
[16] The Act sets up a procedure whereby requests for payment are to be provided by contractors in a certain form. They must be responded to by the principal within a certain timeframe and in a certain form, failing which the amount claimed by the contractor will become due for payment and can be enforced in the Courts as a debt. At that point, if the principal has failed to provide the response within the necessary time frame, the payment claimed must be made. The substantive issues relating to the payment can still be argued at a later point and adjustments made later if it is shown that there was a set-off or other basis for reducing the contractor's claim. When there is a failure to pay the Act gives the contractor the right to give notice of intention to suspend work, and then if no payment is made, to suspend work. There is also a procedure set up for the adjudication of disputes.
[17] The Act therefore has a focus on a payment procedure, the results that arise from the observance or non-observance of those procedures, and the quick resolution of disputes. The processes that it sets up are designed to side-step immediate engagement on the substantive issues such as set-off for poor workmanship which were in the past so often used as tools for unscrupulous principals and head contractors to delay payments. As far as the principal is concerned, the regime set up is “sudden death”. Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits. In that way if a principal does not act in accordance with the quick procedures of the Act, that principal, rather than the contractor and sub-contractors, will have to bear the consequences of delay in terms of cashflow.
Payment claims
[14] The procedure for making and responding to payment claims is set out in
Subpart 3 of Part 2 of the Act (ss 19 – 24).
[15] The contract between the parties was signed on 23 May 2015 with the consequence that the provisions of the Act apply as they exist before it was amended with effect from 1 December 2015.15
[16] The following discussion is therefore of the Act’s provisions, as they previously stood which apply to this contract.
[17] Section 19 of the Act sets out definitions of terms used:
14 At [10] – [11].
15 Construction Contracts Act 2002, s 11A.
In this subpart, unless the context otherwise requires,—
claimed amount means an amount of progress payment specified in a payment claim that the payee claims to be due for construction work carried out
payee means the party to a construction contract who is entitled to a progress payment
payer means the party to a construction contract who is liable for that payment
scheduled amount means an amount of progress payment specified in a payment schedule that the payer proposes to pay to the payee in response to a payment claim.
[18] Section 20 then establishes the right of the payee to serve a payment claim and identifies necessary elements of a payment claim:
20 Payment claims
(1) A payee may serve a payment claim on the payer for each progress payment,—
(a) if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or
(b) if the contract does not provide for the matter, at the end of the relevant period referred to in section 17(2).
(2) A payment claim must—
(a) be in writing; and
(b) contain sufficient details to identify the construction contract to which the progress payment relates; and
(c) identify the construction work and the relevant period to which the progress payment relates; and
(d) indicate a claimed amount and the due date for payment; and
(e) indicate the manner in which the payee calculated the claimed amount; and
(f) state that it is made under this Act.
(3) If a payment claim is served on a residential occupier, it 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).
[19] While s 20(4) refers to “the prescribed form (if any)” for the matters referred
to s 20(3) of the Act, in fact no form has been prescribed.
[20] The Court of Appeal in Canam heard an appeal from the judgment of Associate Judge Christiansen granting Canam’s application for summary judgment on payment claims under s 20 of the Act.16 On appeal George Developments pursued arguments that there were defects in the payment claim which invalidated it. The Law Report head note accurately summarises an extended discussion in the Court of Appeal judgment:17
A claim for payment made by a contractor in respect of a construction contract governed by the Act was valid and enforceable, notwithstanding the fact that the contents of the payment claim did not strictly comply with the provisions set down in s 20(2) of the Act. Although the payment claim in dispute had not accurately identified the construction work or the period to which the payment related, and although it did not indicate the manner in which the amount was calculated, as required under paras (c) and (e) respectively of s 20(2), these defects did not invalidate the claim. The purpose of the Act in s 3 was “to facilitate regular and timely payments between the parties to a construction contract”. Technical defects in the form in which payment claims were presented should not be permitted to frustrate the intent of the Act which was to secure cash flow and to speed up the payments process in the construction industry. The Act was not to be interpreted in a restrictive manner, especially where the payment claims were fully understood by the parties and there was no prescribed form of claim laid down in the Act (see paras [41], [42], [43], [46], [47], [56], [68]).
[21] The Court’s analysis drew a distinction between “technical quibbles” (which
should not be allowed to vitiate a payment claim) on the one hand and defects which
do not “substantively comply with the requirements of the Act” and therefore “lack
16 George Developments Ltd v Canam Construction Ltd HC Auckland CIV-2004-404-3565, CIV-
2004-404-4770, 10 November 2004.
17 Above n 11, at 177.
legal efficacy” on the other hand.18 The Court of Appeal judgment indicates that there is a strong link between the “comprehensibility” of a payment claim and its “substantive compliance”.19
[22] In CJ Parker Construction Ltd (In Liq) v Ketan (Parker Construction), the Court of Appeal revisited the requirements for a payment claim.20 The case has parallels with the present in that the construction company applied for summary judgment upon the basis that the defendants had failed to provide a valid payment schedule in response to the plaintiff’s payment claim under s 20 of the Act. The payment claims were for construction progress and for variations. Because there was no proven contract price for the work, nor rates or prices set out in the contract, the value was required to be calculated under s 17(4) of the Act by reference to its
reasonable value. In the High Court, Woolford J had dismissed the plaintiff’s summary judgment application because the plaintiff’s invoice was not structured in such a way as to address the reasonable value of the work.21 The defendants could
therefore not respond to it effectively and in detail.22
[23] The Court of Appeal dismissed the appeal. Toogood J, delivering the judgment of the Court, recorded that the Court agreed with Woolford J’s conclusion, largely for the reasons he gave, that the invoice in question was not a valid payment claim under the Act.23 In reaching that decision, the Court identified the most basic requirement of a valid payment claim:24
A payment claim must be sufficiently detailed and comprehensible to enable a payer to understand the basis on which the claim is made. Only then can the payer can decide whether to accept it or to put the payee on notice of a dispute by providing a payment schedule in response which explains the payer’s reasons for disagreeing with the claim.
[24] The Court found the payment claim to be either incomprehensible or insufficiently detailed to inform the payer about how it was calculated.25 The Court
18 At [43] and [45].
19 At [43] – [46].
20 CJ Parker Construction Ltd (In Liq) v Ketan [2017] NZCA 3.
21 CJ Parker Construction Ltd (In Liq) v Ketan [2015] NZHC 2421.
22 At [24].
23 At [30].
24 At [26].
noted, for instance, the quoting of a single unit charged for labour costs which was described as insufficiently detailed to be capable of evaluation. The Court noted the need for a statement of total hours worked or hourly rates applied to provide an understanding of the calculation.
[25] The Court noted its previous observation in Canam that if a payer had not understood a payment claim “it could have obtained clarification by using the framework contained in the Act”.26 The Court expressed uncertainty as to what part of the “framework” the Court had in mind in Canam. It is apparent from the Court’s discussion that it doubted the validity of quoted observation from Canam. The Court (in Parker Construction) emphasised that a payer who has not been provided with sufficient information to understand the manner in which a claim has been calculated cannot reasonably be required to provide a payment schedule.27
[26] Following a reiteration that meritless, technical objections to payment claims will not succeed, the Court in Canam recognised that payment claims and payment schedules which otherwise substantially comply with the requirements of the Act will be upheld.28 The Court’s use of the concept of “substantial compliance”, repeated twice in the relevant paragraph, suggests that payment claims and payment schedules will not necessarily be treated as invalid for a modest breach or breaches
of the s 20 (and s 21) requirements. This would appear to sanction the upholding of a payment claim (or payment schedule) which faithfully complies with the statutory requirements in relation to most particulars of claim but fails to do so in isolated instances, provided the fundamental tests of reasonable detail and comprehensibility are met.
[27] An example of an error which did not invalidate a payment claim related to the requirement, under s 20(2)(d) of the Act, that a payment claim indicate the due date for payment. In CMP Construction Ltd v Aluminium Technology Ltd, a payment claim identified a date for payment which was incorrect in terms of the contract.29
Associate Judge Faire found that the error in the payment date did not invalidate the
26 Above n 11, at [46].
27 At [29].
28 At [43].
29 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.
payment claim.30 His Honour referred to previous decisions to the same effect. He also noted counsel’s submission that there had been no evidence that the payer had been misled by the error.
[28] This approach in CMP Construction “accords with the concept of substantial compliance” recognised by the Court of Appeal in Canam.
Payment schedules
[29] A payer is not required under the Act to respond to a payment claim but, if it does so, it must do so in a payment schedule which meets the requirements set out in s 21 which provides:
21 Payment schedules
(1) A payer may respond to a payment claim by providing a payment schedule to the payee.
(2) A payment schedule must—
(a) be in writing; and
(b) identify the payment claim to which it relates; and
(c) indicate a scheduled amount.
(3) If the scheduled amount is less than the claimed amount, the payment schedule must indicate—
(a) the manner in which the payer calculated the scheduled amount;
and
(b) the payer's reason or reasons for the difference between the scheduled amount and the claimed amount; and
(c) in a case where the difference is because the payer is withholding payment on any basis, the payer's reason or reasons for withholding payment.
As the judgment of the Court of Appeal in Parker Construction indicates, when considering a payment schedule the Court must conduct an assessment which is parallel to that to be conducted in relation to payment claims.
[30] The courts have repeatedly identified what s 21 of the Act requires of the payer beyond the wording of the section itself. Assistance is found in earlier decisions in New South Wales. The legislation there (the New South Wales Building and Construction Industry Security of Payment Act 1999) contains provisions as to payment schedules which are almost identical to those in the New Zealand Act. The New South Wales Supreme Court in the leading case of Multiplex Constructions Pty
Ltd v Luikens said:31
Section 14(3) of the Act, in requiring a respondent to “indicate” its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word “indicate” rather than “state”, “specify” or “set out”, conveys an impression that some want of precision and particularity is permissible as long as the essence of “the reason” for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication.
[31] In Westnorth Labour Hire Ltd v S B Properties Ltd,32 Rodney Hansen J adopted that formulation. He found it applicable to the payer’s response in that case notwithstanding that the response failed to specifically state a scheduled amount or the reasons for the difference between the scheduled amount and the claimed amount. His Honour observed of the payer’s lengthy letter of explanation:33
Although the letter does not adopt the terminology of the Act, is not stated to be a payment schedule and does not specify that the scheduled amount is nil, the essential message is clear and unequivocal.
Payment claim 7C
The payment claim
[32] The plaintiff issued PC 7C on 30 July 2016 as the house was nearing completion. The defendants were already in occupation of the house. The defendants were shortly to leave on an overseas holiday. Ms Bose had been seeking
a breakdown and up-to-date details of variations to the contract and the p.c. sums.
31 Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [78].
32 Westnorth Labour Hire Ltd v S B Properties Ltd HC Auckland CIV-2006-404-1858,
19 December 2006.
[33] On 30 July 2016 the plaintiff’s director, John Mansfield, sent Ms Bose PC
7C.
[34] PC 7C comprised a number of documents:
(a) A completed payment claim on a standard form;
(b) Information accompanying the payment claim pursuant to the
Regulations;34
(c) A one-page summary of the variations claimed (listed as variations “A”
to “U”; and
(d) Copies of supporting invoices for the variations marked “A” to “U”.
[35] By PC 7C the plaintiff claimed, on account of the variations, $42,572.97 (inclusive of GST).
[36] That figure comprised the total of the sums invoiced by suppliers and subcontractors plus (as provided in the contract) a 10 per cent markup.
[37] The plaintiff sent, at the same time as the PC 7C documents, an invoice/statement for the claimed sum.
Defendants’ grounds of opposition
[38] The defendants filed a notice of opposition to the plaintiff’s summary judgment application asserting that they had an arguable defence to the plaintiff’s claim because:
(a) The plaintiff’s invoices are not compliant payment claims; (b) The defendants’ payment schedules are compliant; and
(c) There is a valid dispute.
[39] The Court directed the provision of proper particulars of any defects alleged to exist in the payment claims, which counsel then provided. The defendants asserted:
(a) The payment claims do not comply with the requirements of s 17(4)(b) in that they exceed the fixed price for the contract and are not for authorised variations;
(b)The payment claims do not comply with s 20(1)(a) of the Act in that they were issued before the end of the relevant period specified in the contract;
(c) The payment claims do not comply with the requirements of s 20(2)(c) of the Act in that they fail to identify the construction work to which they relate; and
(d)The payment claims do not comply with the requirements of s 20(2)(e) of the Act in that they fail to indicate the manner in which the payee calculated the claimed amounts.
Section 17(4)(b) requirements
[40] Section 17 of the Act provides how progress payments must be calculated. By s 17(4)(b) the value of construction work must (where the contract does not expressly provide for the contract price for the work or set out other relevant rates or prices) be calculated with regard to the reasonable value of any variation to the construction work authorised under the contract.
[41] In this case, the contract provided for variations in clauses 41 – 43:
Variations
41 The Registered Master Builder shall give reasonable consideration to the Owner’s written request that a variation be agreed and undertaken, and shall not arbitrarily withhold agreement to undertaking that variation.
42 The Registered Master Builder shall be entitled to charge the Owner a reasonable additional fee based on the Registered Master Builder’s usual hourly rate (and expenses) for the Registered Master Builder’s
time and expenses in assessing and pricing any variation proposed by the Owner (and regardless of whether or not the Owner and the Registered Master Builder ultimately agree to the variation).
43 The Registered Master Builder may invoice for Variations separately.
However, payment for each variation shall be due in accordance with the usual invoicing or payment claim procedure in existence under this Building Contract (unless agreed otherwise).
[42] Mr Taylor developed, in relation to clause 43 of the contract, a submission which did not relate to a particular ground of opposition. He submitted that by virtue of clause 43 the contract requires claims for variations to be made only when the next stage payment is due for payment. As PC 7C was issued before the final stage payment fell due, Mr Taylor submitted that PC 7C was not authorised.
[43] I accept Mr Cunliffe’s submission that the point taken by Mr Taylor involves a misconstruction of the contract’s provisions. Under clause 43 of the contract the plaintiff expressly had the right to invoice for variations separately. It did so. The due date in accordance with the usual invoicing and payment claim procedure was seven working days after service of the payment claim. PC 7C (served on 30 July
2016) correctly identified 9 August 2016 as the due date for payment.
[44] I then turn to the identified grounds of opposition, by which the defendants asserted that the variations were not authorised.
[45] Whether or not the variations were authorised is a matter which could be ultimately resolved only through a substantive determination. By its nature, the payment claim issued under Subpart 3 of Part 2 of the Act is a claim. If the payer disputes any aspect of the claim, including the payee’s underlying entitlement to claim the variation, it is for the payer to raise that difference in explanation of its scheduled amount. If a dispute is identified at that point, it falls to be dealt with under the Act’s Part 3 provisions for adjudication disputes.
Section 20(1)(a) requirements
[46] The defendants’ second ground of opposition is that PC 7C was issued before the end of the relevant period specified in the contract.
[47] This ground of opposition fails for the same (first) reason as the earlier ground of opposition. The plaintiff was entitled to issue the variations payment claim separately from other invoices.
Section 20(2)(c) and (e) requirements
[48] It was on this and the next ground of opposition (relating to s 20(2)(c) and (e)
requirements) that Mr Taylor focused the majority of his submissions.
[49] Mr Taylor first criticised the format of PC 7C on a document by document basis. Taking the one-page form of payment claim itself, he noted that the single word “variations” (under “Description”) does not reference or identify particular construction work. He then noted that, while the reader is referred to “summary attached”, the summary itself identifies only the names of suppliers/subcontractors. Again the construction work carried out is not stated.
[50] To the extent that this analysis invited the Court to determine that PC 7C was thereby invalid, by reason of not identifying the construction work, I reject the submission. In relation to items such as variations, of which PC 7C claims for 21, the plaintiff’s approach to assembling a bundle of the relevant documents in orderly and cross-referenced form was sensible. The documents incorporated by reference into the one-page payment claim form are to be read as part of the payment claim.
[51] I reject the submission that the general format adopted was non-compliant.
[52] The defendants’ more substantial complaint relates to the content of the invoices which were attached. The complaint arises by virtue of the provisions of both s 20(2)(c) and (e). The complaint may be considered by asking two questions:
1. Do the invoices adequately identify the construction work involved?
2. Do the invoices adequately indicate the manner in which the payee calculated the sums claimed?
[53] Mr Taylor, before moving to specific examples of the invoices, introduced his submission on these issues as follows:
43Fowler submitted with Claim 7 C supporting invoices. There are 23 invoices from 11 separate suppliers. These suppliers were contracted by Fowler and were conducting both contract works and variation works. The invoices do not detail the variation work or the items of work conducted for which Fowler seeks payment. Some invoices have a reference “VA” on them. However, there is nothing else which identifies the variation work. It is submitted that while some of the invoices contain a description, it is insufficient information to properly identify the construction work actually carried out.
[54] The context is that the defendants are residential house owners. The plaintiff had no basis to treat them as people with in depth knowledge of the construction industry and construction terminology (although they had, as people very much involved in the design of their house, a good working knowledge of what had been designed and specified). A further matter of context relates to the potential for recall of detail. While PC 7C on its face states that the claim period for the variations was from 10 March 2016 to 30 July 2016, several of the invoices in fact date back to
2015 (the earliest dated 31 July 2015, one year earlier). In relation to those early invoices, the defendants were being required to recall relatively distant events.
[55] Against this background I turn to consider how some of the invoices identify the construction work and how the payee calculated the claimed amount:
(a) Two invoices from Carters dated 18 February 2016 and 14 March 2016 - These invoices identify four items of cost:
● 1537 x 810 x 35MM MDF FLUSH PANEL DOOR
● CUT DOWN & REBLOCK DOOR
● ON CHARGE INWARDS FREIGHT
● ATTIC CEILING HATCH AIRTIGHT 690 MM x 540MM
Beyond that wording, no explanation is provided as to what particular construction work these items relate or why they constitute a variation rather than work within the scope of the contract.
(b)An invoice from RMT Builders Limited (RMT) (being the subcontracted builder) dated 18 April 2016 for $29,048.04 –
This is the most significant invoice included in the variations claim. It accounts for 57 per cent of the claim.
The invoice identifies 12 items of cost.
Some of the invoiced items are apparently hardware and others construction work. In handwriting someone has ticked 10 of the 12 items, written the word “part” against one item and left one item unmarked. They have then handwritten on the invoice “Bose-$19,267 plus GST = $22,157.05) with that $19,267 figure then included in the accompanying variations summary.
The invoice suffers from a number of shortcomings in that it fails to clearly identify –
(i) which particular items in the invoice have been treated as variations;
(ii) why items so included have been treated as variations; and
(iii) how, in relation to significant construction items (e.g. one unit of “prl board installation”), a sum of $7,578 (exclusive of GST) is calculated when there is no reference to hours of work or the applicable rate applied).
(c) An invoice of Straightline Roofing Limited dated 23 June 2016 –
This invoice identifies “cap flashings for roof remodelling”.
No explanation is provided for the treatment of roofing work as a variation although the contract provides for roofing.
(d)An invoice of Bob Dennison Plumbing dated 31 July 2015 (being one of a number from this subcontractor) for $754.23 –
Ten items make up the total invoice sum. Someone has written on the invoice:
PB – $525.85 plus GST
VA – $130.00 plus GST
There is no explanation of the calculation of $130 or why (by inference) some item or items in the list are properly treated as variations.
[56] Mr Taylor submitted that the plaintiff, by the approach adopted in PC 7C, had thwarted the purpose of s 20(2)(c) and (e) of the Act in that PC 7C did not allow the defendants to properly assess the work done and to determine what was properly payable. Mr Taylor suggested that the plaintiff should have followed should have identified the variation in some way, such as by reference to “change from gib to PIR board”, “additional lining required in bedroom” or “extra plumbing work done to garage per your instructions”.
[57] Adopting the test identified by the Court of Appeal in Parker Construction, I ask myself whether PC 7C was sufficiently detailed and comprehensible to enable the defendants to understand the basis upon which the variations were claimed.35 In relation to variations, the further test under Parker Construction is whether PC 7C indicated to the defendants an objectively understandable basis upon which the value of the work claimed under the variations was said to be “reasonable”.36
[58] The RMT invoice (above at [55](b)) is important because it accounts for a significant proportion of the PC 7C claim. It also happens to contain a range of inadequacies which exemplify the plaintiff ’s failure in PC 7C to properly and comprehensively detail the basis upon which each variation was claimed.
[59] Responsibly, Mr Cunliffe for the plaintiff accepted that both payment claims (7C and 8) could have been supported by clearer detail. His submission remained that the claims were each “substantively complete”.
[60] Having regard to the invoices I have specifically discussed, I conclude that it is arguable that PC 7C did not substantially comply with the requirements of either s
35 At [26].
20(2)(c) or s 20(2)(e). In relation to several important invoices, there were areas of non-compliance including a failure to detail:
● the construction work to which the claim related;
● the rationale for treating it as a variation; and
● how the figures claimed were derived from the subcontractors’ and suppliers’ invoices.
[61] The inadequacies in PC 7C are all the more significant when one considers the particular facts relating to the payment claim (as the Court of Appeal in Parker Construction indicated is required).37 The work and supplies covered by the 21 invoices stretched back over a full year. The defendants were seeing the costing information for the first time. While it was presented in the form of a single payment claim, the reality was that the defendants were being required to respond to a large number of items of claim. The plaintiff’s director and its administrator were aware that the payment claim was being received by the defendants at the time of
their imminent departure overseas, when access to physical documents and records would be limited if at all possible. The situation cried out for the plaintiff to carefully detail its claim if the defendants were to be able to properly digest the information and respond within the seven working day period. Such careful detail was not provided. A realistic engagement, by way of payment schedule, was arguably not made possible.
[62] In these circumstances, the defendants arguably did not become liable to pay the amount claimed under PC 7C, there having not been a valid payment claim.
Payment schedule
[63] It is unnecessary, given the above findings, that I determine whether the payment schedule provided by the defendants in response to PC 7C would have complied with the requirements of s 21 of the Act. I therefore only briefly discuss that payment schedule.
[64] By an email issued in time (on 8 August 2016), the defendants provided their response to PC 7C. The response included:
The scheduled amount we agreed to pay on 9th August is $0.
We currently dispute the amounts claimed as follows in your variation sums either partially or wholly in sections A, B, C, E, F, G, N, O, P, T and U.
In addition there are outstanding sums owed as credits to us which are being disputed.
Despite numerous requests for financial information the delay in providing variation sums to us precluded our ability to discuss this in person.
[65] Had PC 7C been valid, I would likely have found the payment schedule did not comply with the requirements of s 21 of the Act. By simply stating the scheduled amount was “$0”, the defendants did not indicate the manner in which they had calculated the scheduled amount. With their reference to “partial or whole” disputes in relation to 11 of the 21 invoices, they did not indicate any basis upon which the difference (between $42,572.97 and $0) had been calculated. There is an equivocality in the reference to a “current dispute” over “part or the whole” of certain invoices which avoids properly identifying the defendants’ reasons for withholding payment.
[66] In the event, nothing turns on whether the defendants failed to provide a compliant payment schedule as PC 7C itself was arguably invalid.
Payment claim PC 8
PC 8
[67] On 9 September 2016 the plaintiff issued PC 8 to the defendants. The format of the documents comprising the claim followed that of PC 7C. The documents comprised:
(a) The payment claim form;
(b) The standard information relating to payment claims; (c) A summary of p.c. sums and variations;
(d) Invoice copies of the p.c. sums; and
(e) Invoice copies of the variations.
[68] PC 8 was accompanied by a tax invoice/statement claiming $127,579.34 (comprising the two figures in PC 7C and in PC 8).
[69] PC 8 itself claimed a total amount of $85,006.36. That sum comprised
$43,000 as the final payment claimed on the contract and a total of $42,006.36 for p.c. sums and variations.
Opposition grounds – payment claim exceeding contract fixed price
[70] Mr Taylor did not develop a submission in relation to this ground of opposition. As a ground of opposition it does not appear to be valid because the final payment claim of $43,000 equates to the final payment figure stipulated in the contract documents.
Opposition grounds – issue of payment claim before the end of the relevant period
[71] The contract provided for progress claims and progress payments of agreed sums at the point of substantial completion of various stages of the house. PC 8, in relation to the claim for $43,000, relies upon the contractual provision for a final payment of that sum “upon completion of the Works”.
[72] “Completion Date” is defined in the contract to mean the date on which “Practical Completion” is achieved. “Practical Completion” is defined to mean when the Works had been completed except for minor defects and minor omissions, which do not prevent the Works from being used for their intended purpose and which can be remedied in the defects period or at such other agreed time by the Registered Master Builder without causing unnecessary inconvenience to the Owner. The defects period under the contract was 12 months from Practical Completion.
[73] It is the plaintiff ’s position that practical completion was achieved on
9 September 2016. Mr Mansfield has deposed to that effect. Ms Bose has deposed that she does not consider that practical completion was achieved. She sets out in
four pages a list of outstanding items as indicating that practical completion was not achieved.
[74] The defendants responded to PC 8 in an email dated 15 September 2016. The email was clearly intended to be a payment schedule. They stated that they intended to pay $0. They explained in relation to the ($42,000) claim based on completion that:
1. The house is not yet complete. There are still a number of outstanding issues.
[75] I come below (from [86]) to consider whether that response complies with the requirements for a payment schedule under s 21 of the Act.
[76] The response indicates in relation to the payment claim for the $42,000 that the basis of the plaintiff’s claim was clearly understood by the defendants who were able to engage with it and respond. The fact that the plaintiff’s claim was based on a premise (as to practical completion) which is open to dispute does not invalidate PC
8. Rather, it is a matter on which payer and payee might disagree and which, upon completion of the payment claim/payment schedule procedure, might lead to an adjudication of the dispute under Part 3 of the Act.
[77] That aspect of PC 8 which claimed the final payment of $42,000 met the requirements of s 20 of the Act.
PC 8 – claim for p.c. sums
[78] Under the contract the parties had agreed on a number of p.c. sums for identified items. The plaintiff was entitled at completion to recover any additional costs beyond the p.c. sums. Equally it was to give credit for any saving of actual cost.
[79] In PC 8, the plaintiff claimed a net sum (excluding GST) of $5,776.37 on account of the total sum incurred beyond the p.c. allowances. An attached summary of p.c. sums and variations identified seven sets of invoices under various headings such as “consents, electrical and appliances”. Six items involved additional cost.
One item involved lower cost. To PC 8 there was attached a marked set of invoices identifying in relation to each p.c. sum. The invoices provided detail of the items invoiced. Responsibly Mr Taylor did not submit that any of the invoices relevant to the p.c. sums were inadequately detailed.
[80] Any criticism of the defendants of PC 8 in relation to the p.c. sums claimed can relate only to whether they should have been the subject of a payment claim given the dispute which has emerged as to practical completion. For the reasons I have identified above (at [76]), that is not a valid criticism.
[81] The second aspect of the plaintiff’s summary sheet, attached to PC 8, involves the claimed variations. There are 31 invoices identified (and attached) in the summary from 12 subcontractors or suppliers. The variation claims total
$27,955.36. With the plaintiff adding its mark-up of $2,795.54, the total claim for variations, p.c. sums and mark-up was $36,527.27 (exclusive of GST).
[82] In line with the defendants’ particulars of opposition, Mr Taylor submitted that the combined documentation comprising PC 8 (including the attached invoices) failed for the variations claims to meet the requirements of ss 20(2)(c) and 20(2)(e) of the Act. He submitted that numerous invoices failed to identify the construction work to which they related and some of the invoices failed to indicate the manner in which the plaintiff had calculated the claimed amount.
[83] One of the most significant variation claims under PC 8 is again an invoice of the building subcontractor, RMT. The RMT invoice is dated 24 January 2016 for a sum of $28,107.37. The single description in the invoice is “extras and cladding up
to 15/1/2015”. Below the invoiced details someone has handwritten the following:
VA – Bose 90 @ $48 = $4,320.00 EX – Fowler Homes 23 @ $48 =
$1,104.00
VA
PT- $400$ 400.00
EC - $18,617.19
$18,617.00
$24,441.19 (plus GST)
Below that handwriting there appears additional handwritten comments:
Bose-90 hours
Bose ducting 25
Loft Window 35
Stairs 30
90
In the summary of p.c. sums and variations, the claim made on this invoice is recorded $4,720.00.
[84] From the handwritten comments on the RMT invoice, it may be deduced that the plaintiff’s $4,720 figure represents the sum of the two handwritten “VA” items. It appears that someone has calculated from some other records hours spent on one of the “VA” tasks and has multiplied it by an hourly rate to arrive at the $4,320 figure. The handwritten comments would also appear to indicate that the 90 hours involved were devoted to the three particular areas of work recorded. In relation to the second “VA” ($400) there is no explanation at all. There is no explanation to link identified items (such as “Stairs”) to something which is outside the contract and represents a variation of the contract.
[85] In his submissions, Mr Taylor referred to other invoices to exemplify similar issues. The invoices of Straightline Roofing, as with its invoice claimed under PC
7C, do not carry any indication as to why the particular roofing in question is not treated as contract work. Invoices from Genesis Energy simply reflect that there had been charges for electricity, without explanation as to how the accounts relate to a variation or variations. Of nine invoices from Carters, four contain written notations indicating an allocation of part of the invoice to “VA” and the remainder to “HW”, without explanation of what aspect of construction (and thereby variation) the invoice relates to. Given these varying levels of inadequacy in the detailed explanation provided with PC 8, I find that the payment claim arguably failed to comply with both sections 20(2)(c) and 20(2)(e) of the Act for the same reason as PC
7C has arguably failed.
Payment schedule
[86] On 15 September 2016 the defendants sent their email as a payment schedule.
[87] It responded to the three subject matters of PC 8, being the final payment claim, the claim for p.c. sums and the claim for variations.
[88] I now consider those three matters.
(a) Final payment claim
The defendants’ response to the final payment claim was, as set out at [74] above, that the house was not yet complete, with a number of outstanding issues still.
Mr Cunliffe submitted that there are a number of deficiencies with that response.
First, he submitted that the reference to “not yet complete” was inadequate given that the trigger for final payment is practical completion. Although that may be the case on a full interpretation of the contract, the clause dealing with final payment itself being with a reference to “upon completion of the Works”. No criticism can be made of the defendants for employing that terminology. They were clearly disputing the plaintiff’s contractual right to render an invoice for final payment.
Secondly, Mr Cunliffe criticised the lack of particulars of “outstanding issues”. His suggestion was, having regard to the four pages of issues identified in Ms Bose’s affidavit, that particularisation of that kind could have been provided. I do not regard the simplicity of the assertion that the house was not yet complete as insufficiently identifying (in terms of s 21(3)(c)) the defendants’ reason for withholding payment. If the difference of view as to practical completion could not be resolved by discussion, it became a matter for resolution through the disputes procedure under Part 3 of the Act. The dispute itself had been sufficiently signalled and identified as the
defendants’ reason for withholding payment in the 15 September 2016
email.
To the extent that PC 8 includes the plaintiff’s final payment claim, that claim arguably did not become payable under s 23 as the defendants’ 15 September 2016 response arguably complied with s 21 of the Act.
(b) p.c. sums
The total claimed for p.c. sums under PC 8 is a modest $5,776.37 but it must
be considered as part of the plaintiff’s claim here.
In relation to the p.c. sums and the variations, the defendants in their
15 September 2016 email stated simply:
2. We dispute numerous items in both the variations and p.c. sums. Each variation needs to be clarified as many are unauthorised.
There then followed the scheduled sum of “$0”.
I have found that PC 8, so far as it related to the p.c. sums, complied with s 20 of the Act.
The defendants’ 15 September 2016 response failed to engage with the claim for any particular p.c. sum. Dispute is noted but not the reason for dispute. The email refers to clarification being required but that relates specifically to the variations.
Of the three claims dealt with in PC 8, only the claim of $5,776.37 for p.c. sums was apt to become payable through the combined provisions of ss 20 – 23 of the Act.
The complication in this case is that the plaintiff issued a payment claim for three different heads of claim and a payment schedule which validly identifies a scheduled amount and the reasons for withholding
payment in relation to one aspect of the claim but fails to do so in relation to others.
Counsel did not submit as to the appropriate outcome on this summary judgment application should the Court find that a modest part of the plaintiff’s claims, as included in its payment claim, could here be upheld. Given the finding I have reached in relation to the p.c. sums, one course might have been to refer this aspect back to counsel for further submissions but, given the sums involved, that course would likely be uneconomic. On reflection, I have concluded that it would be inappropriate in the circumstances of this case and in the context of a construction contract to enter judgment for a sum which represents such a modest aspect of a payment claim which for its largest part is a sum arguably not payable under the regime in Subpart 3 of Part 2 of the Act. If the large volume of documentation relating to variations which represents the most unsatisfactory aspect of PC 8 had not been delivered to the defendants with the need for response within the seven working day time limit, and their focus had been solely on a compliant payment claim for p.c. sums, a different outcome may have occurred. The summary judgment procedure could produce an injustice in such circumstances.
(c) Variations
Had PC 8 been compliant in relation to the claim for variations, the defendants’ payment schedule in that regard would arguably have been non-compliant for the same reasons I have identified in relation to their payment schedule to PC 7C. In the event, that matters not as the payment claim has been found to be arguably invalid.
Interest
[89] By reason of the failure of the plaintiff’s summary judgment application in
relation to the principal (alleged) debt, the application must also fail in relation to the
consequential claim for interest. The plaintiff claims interest at the contractual rate both up to and after judgment.
[90] For the defendants, Mr Taylor submitted that any claim for interest was premature because, had the Court entered judgment pursuant to the payment claims, there would have existed a “statutory debt” for cashflow purposes but not a determination that a “contractual debt” is due and owing. Mr Cunliffe submitted that the distinction is not valid. He referred to Suaniu v Hi-Qual Builders Ltd as a case in which the High Court (overruling the District Court judgment in this regard) awarded contractual interest up to the date of judgment on a sum owing pursuant to
the payment claim procedure.38
[91] Suaniu is also relevant in relation to post-judgment interest. Wylie J, applying the doctrine of merger, did not make an order in relation to the contractual rate of interest for the period after judgment.39 Mr Cunliffe submitted that Suaniu is distinguishable in that regard as the contractual provision in this case provides for interest to be paid at the contractual rate “until actual payment”.
[92] These matters will be for determination if required at a later point.
Costs
[93] The summary judgment application has failed. I will apply the practice recognised by the Court of Appeal in NZI Bank Ltd v Philpott.40 Costs will be reserved.
Further steps in the proceeding
[94] The defendants, having not previously filed a statement of defence, will now under the High Court Rules have 10 working days within which to file any defence. Through the evidence filed and submissions, I am aware that the parties are awaiting an imminent adjudicator’s determination which may have some relevance to how the
parties might achieve the ultimate resolution of the issues between them. In the
38 Suaniu v Hi-Qual Builders Ltd HC Auckland CIV-2008-404-1576, 26 June 2008 at [76] – [78].
39 At [77].
40 NZI Bank Ltd v Philpott [1990] 2 NZLR 403, (1990) 3 PRNZ 695 at 405.
event there is agreement as to a need for further time, I reserve leave to counsel to request by joint memorandum any appropriate extension of time for the filing of the defence. The Registrar will in due course fix a date for the first case management conference.
Orders
[95] I order:
1. The plaintiff’s summary judgment application is dismissed;
2. The costs and disbursements of the application are reserved; and
3. The proceeding is adjourned generally to a date to be allocated by the
Registrar as the first case management conference date.
Associate Judge Osborne
Solicitors:
Macalister Todd Phillips, Queenstown
(Counsel: R S Cunliffe, Queenstown)
Parlane Law (Angela Parlane), Auckland
(Counsel: M R Taylor, Barrister, Auckland)
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