Herbert Construction Co Ltd v Reinforcing Steel & Mesh Ltd
[2013] NZHC 376
•8 March 2013
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2012-441-602 [2013] NZHC 376
BETWEEN HERBERT CONSTRUCTION COMPANY LIMITED
Applicant
ANDREINFORCING STEEL & MESH LIMITED
Respondent
Hearing: 21 February 2013 (Heard at Napier)
Counsel: D. O'Connor - Counsel for Applicant
S. Smith - Counsel for Respondent
Judgment: 8 March 2013
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by me on 8 March 2013 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ..................................
Solicitors: Lunn & Associates, Solicitors, PO Box 846, Napier 4140
Lawson Robinson, Solicitors, PO Box 45, Napier 4140
HERBERT CONSTRUCTION COMPANY LIMITED V REINFORCING STEEL & MESH LIMITED HC NAP CIV-2012-441-602 [8 March 2013]
Introduction
[1] Before the Court is an opposed application by Herbert Construction Company Limited (Herbert) to set-aside a statutory demand issued by the respondent Reinforcing Steel & Mesh Limited (Reinforcing). The statutory demand was served on the applicant Herbert on 4 September 2012 and claimed the sum of $52,409.76, said to be due and owing to Reinforcing on a number of invoices pursuant to contracts for the supply of steel and mesh.
[2] Herbert’s grounds for setting aside the statutory demand are that a genuine and substantial dispute exists as to whether there is a debt owing or due, and that it has a valid set-off or counterclaim against the debt in terms of s 290(4)(a) and (b) of the Companies Act 1993.
Background Facts
[3] Herbert is a construction company which was working on a number of commercial construction projects at the relevant times. It entered into contracts with Reinforcing, a steel and mesh manufacturer, to provide customised components of steel for these projects. There are three projects of relevance.
[4] On the first, a project known as the Taradale Pump Road Station contract (the Taradale contract), on 11 April 2011 Herbert asked Reinforcing to provide a quote for the required steel for this project. On 16 August 2011, Reinforcing provided this quote and it was subsequently accepted by Herbert.
[5] In the course of work for this project, Reinforcing issued seven invoices. Herbert has paid three of them. The amount outstanding on the remaining invoices is
$85,713.73. This amount is not disputed.
[6] The second project was one known as the Pause Holdings contract. Again, Herbert invited Reinforcing to quote for this project, which involved the construction of a commercial building for Pause Holdings Ltd in Queen Street, Hastings. On 3
June 2011, Reinforcing submitted a tender and this was accepted by Herbert on 9
August 2011.
[7] Seven invoices were issued by Reinforcing to Herbert for the supply of steel and mesh for this project. Herbert has paid three of them. The amount outstanding on the unpaid invoices is $8,553.24. Again, this amount is not in dispute.
[8] In the meantime, on 29 March 2012, Herbert had made a further payment to Reinforcing of $20,000 generally on account of outstanding invoices. It was not specified which contract this was for. This led to an outstanding debt of $74,266.97 said to be owing on the Taradale and the Pause Holdings contracts.
[9] The third project was one in which Herbert was carrying out construction work for the fertiliser company, Ravensdown (the Ravensdown project). The present dispute between the parties effectively arose from circumstances surrounding this third project. For the Ravensdown project, Reinforcing agreed to supply steel and mesh for a canopy and the rockstore building Herbert was constructing for Ravensdown. By agreement and to obtain a discount, Herbert paid in advance for all the steel to be supplied. However, mid-project, the design of the construction work that Herbert was to undertake changed, and not all the materials Reinforcing had agreed to supply were needed. Reinforcing then agreed to give Herbert a credit for the steel that was not supplied.
[10] The amount of that credit, however is now in dispute. To this end, Herbert engaged Mr David Richards, an independent quantity surveyor, to measure both the steel supplied and that which was not required and to calculate the credit owing. In doing so, Mr Richards measured the weight of the steel in question and calculated Herbert was due a credit of $68,673.20 (including GST). This meant Herbert believed it was only liable to pay Reinforcing a small balance of about $5,600.00 on the outstanding $74,266.97 due under the Taradale and Pause Holdings contracts.
[11] In response, Reinforcing contended that a reduced credit of only $21,857.21 (including GST) was due, meaning that Herbert continued to owe it the $52,409.76 claimed. Reinforcing calculates this credit amount as I understand it on the value of
the work done on the steel that was supplied to Herbert as a percentage of the total contract. Reinforcing argues that a weight alone method, as adopted by Mr Richards, is far too simplistic and wrong here, and does not take into account the quality, design, and fabrication of the steel in question.
[12] In response, Mr Richards in his affidavit evidence contends that a measurement made on a weight alone basis complies with standard industry practice, meaning that the variables Reinforcing refers to such as quality and design should have already been included in the tendered rate. He relies he says on an industry handbook known as “Rawlinson’s Handbook” in making these measurements.
[13] As a result of this dispute, Herbert refused to pay Reinforcing the outstanding invoice amounts for the Taradale contract and the Pause Holdings project (apart from the $20,000 referred to at [8] above). Reinforcing thus issued the statutory demand in question. Herbert now applies to set that aside.
Counsel’s arguments and my decision
[14] Herbert brings the present application pursuant to s 290(4)(a) and (b) Companies Act 1993. These provide that the Court may grant an application to set- aside a statutory demand if it is satisfied first, that there is a substantial dispute whether or not the debt in question is owing or is due or secondly, that the company appears to have a counterclaim, set-off or cross-demand that exceeds the debt. The principles relating to s 290(4) Companies Act 1993 are well settled. The authors of Brookers Insolvency Law & Practice provide the following succinct summary at para
CA290.02:1
CA290.02 Setting aside a statutory demand
(1) General principles
The general principles applicable to applications under s 290(4) are now well established. These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR
1 Insolvency Law and Practice (online looseleaf ed, Brookers) at [CA290.02]; adopted in North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007 at [17]; Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd HC Auckland CIV-2008-404-4725, 19
January 2009 at [4] and Trinity Hills Retreat Ltd v Kroehl HC Nelson CIV-2010-442-101, 12 August
2010 at [5].
447; (2001) 9 NZCLC 262,605 (CA); Fletcher Homes Ltd v Ellis
23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd 3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; (1989) 1 PRNZ 390 (CA), are as follows:
(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).
(b) The mere assertion that a dispute exists is not sufficient.
Material, short of proof, is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application.
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[15] In its initial application to set-aside the statutory demand, Herbert alleges that the debts claimed were simply for the supply of basic materials and the invoices sent by Reinforcing therefore were wrongly issued under the Construction Contracts Act
2002 (the CCA). It maintains that supplies of materials are excluded from the definition of “construction work” under the CCA. The importance of this aspect in the present case will become clear as I outline at [16] and [17] below.
[16] The reason Herbert in this case seeks to escape the reach of the CCA is because of s 79, which provides:
In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross- demand raised by any party to those proceedings other than a set-off of a liquidated amount if—
(a) judgment has been entered for that amount; or
(b) there is not in fact any dispute between the parties in relation to the claim for that amount.
[17] This section only allows a Court, in the recovery of a construction contract debt, to give effect to a set off of a liquidated amount if either (a) or (b) is satisfied. In the present case, judgment has not been entered for the amount of Herbert’s set off claims, and the amount of set off is clearly in dispute. Thus, if the CCA does apply here, and the proper processes under the Act have been observed, Herbert cannot rely on the credit from the Ravensdown contract to set aside the statutory demand, and must pay the debt claimed.
[18] With these aspects in mind, I now turn back to consider the three essential issues to be considered in this case involving the CCA:
(a) Does the CCA apply in this case?
(b) If so, are the invoices valid payment claims?
(c) And, did Herbert then respond with valid payment schedules?
Does the CCA apply?
[19] As I have noted above, initially before me Herbert submitted that the CCA does not apply to these contracts. On this aspect, it is useful first to consider the general purposes of the CCA and to traverse the essential provisions of the Act. The CCA has been discussed by the Court of Appeal in George Developments Ltd v Canam Construction Ltd in the following way:2
The purpose provision of the Act includes the fact that the Act was “to facilitate regular and timely payments between the parties to a construction contract”. The importance of such regular and timely payments is well recognised. Lord Denning (quoted in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689; [1973] 3 All ER 195 (HL) Lord Diplock) said: “There must be a ‘cashflow’ in the building trade. It is the very life blood of the enterprise”.
[20] The overall scheme of the procedures under the CCA involves:
(a) A payment claim is made by the payee (here Reinforcing) - s 20(1).
2 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [41].
(b) The payment claim must contain certain information - s 20(2).
(c) Upon service on the payer (here Herbert) the payer may respond by way of a payment schedule - s 21(1).
(d) That payment schedule must in turn contain certain information - s
21(2) and (3).
(e) The payer must serve such payment schedule on the payee on a default basis within 20 working days after the payment claim is served - s 22(b)(ii).
(f) If the payer fails to do so, the payer becomes liable to pay the amount claimed on the due date in the payment claim - s 22.
(g) If unpaid, the payee may recover that sum and reasonable recovery costs from the payer as “a debt due” in any Court - s 23(2).
[21] As to the initial question whether the CCA may apply here, it is clear that the Act applies to every construction contract, being a contract that relates to carrying out “construction work” in New Zealand, entered into after the commencement date of the Act.3
[22] The issue here therefore is whether the Taradale and Pause Holdings contracts were for carrying out “construction work”. Section 6 CCA in part defines “construction work” as:
(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):
.................................................
(f) any operation that forms an integral part of, or is preparatory to or is for rendering complete, work of the kind referred to in paragraphs (a) to (d); including—
3 Section 9.
(i) site clearance, earthmoving, excavation, tunnelling, and boring; and
(ii) laying foundations; and
(iii) erecting, maintaining, or dismantling scaffolding or cranes; and
(iv) prefabricating customised components of any building or structure, whether carried out on the construction site or elsewhere; and
(v) site restoration, landscaping, and the provision of roadways and other access works:
(g) the painting or decorating of the internal or external surfaces of any building or structure.
(2) Despite subsection (1), construction work does not include any of the following work:
(a) drilling for or extracting oil or natural gas:
(b) extracting (whether by underground or surface working) minerals, including tunnelling or boring, or constructing underground works, for that purpose.
[23] In evidence before the Court, the General Manager of Reinforcing, Peter Rodney Kitson (Mr Kitson), described the work Reinforcing undertook here as cutting a specified piece of steel to an exact length, and in many cases bending it into a required shape or joining it to another bar. The steel elements were then tagged to identify where they would be placed, and transported to the work site for others to assemble.
[24] Reinforcing thus submitted that this type of work came within the definition of “construction work” in s 6(1)(f)(iv) – the prefabrication of customised components. And, as to this, “customised components” are themselves defined in s 5 of the CCA as:
.... in relation to a building or structure, means components that are specifically designed or modified for that particular building or structure.
[25] In response, Herbert submitted that some of the items Reinforcing supplied did not require customisation, so therefore could not fall within this definition. Counsel referred to stock items that could be obtained through a retailer, and thus were not customised. Mr O’Connor for Herbert gave the example of a coil of wire and “655 mesh” which were both included in invoices. He pointed out that these can be obtained from retailers such as Placemakers.
[26] However, as submitted by Reinforcing, if the supply of one or two small items under a contract could mean the entire contract would be excluded from the scope of s 6, this would lead to an absurd result. I agree that it would result in most contracts for construction matters not being covered by the CCA. Furthermore, I am satisfied that the parties in this case clearly proceeded under the basis that these contracts were construction contracts under the CCA. Herbert itself required that payment claims were to be formatted in accordance with the CCA. All the invoices issued by Reinforcing, some of which were paid without question by Herbert, stated specifically that they were payment claims under the CCA, and the correspondence between the parties throughout used the language of the CCA.
[27] I have no doubt that the Taradale and Pause Holdings contracts here were “construction contracts” being contracts for carrying out “construction work” in terms of the CCA and thus the Act applies. In fact, counsel for Herbert effectively conceded as much at the close of the hearing before me. The consequence of this is that, if the proper processes under the CCA have been observed then, unless Herbert can show there is a substantial dispute as to whether or not the alleged debt is due, the statutory demand cannot be set aside because of the claimed set off, in terms of s
79 Construction Contracts Act 2002 – Laywood v Homes Construction Wellington [2009] NZCA 35 and Macennovy Trust Ltd v Sefton Construction Ltd (In Liquidation), HC, Auckland, CIV-2009-404-7659, 28 April 2010.
Are the invoices valid payment claims?
[28] On this aspect, Herbert submitted that the invoices in question issued by Reinforcing for the Taradale contract and the Pause Holdings Contract were not valid payment claims, and thus the alleged debt did not become due under the CCA.
[29] The relevant parts of s 20 of the CCA deal with payment claims and provide:
(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 27(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.
[30] Herbert’s argument here is a simple one. It contends that the invoices issued failed the requirements of subsections (2)(c), (d), and possibly (e) of s 20.
[31] The invoices in issue here all take the same form. All have a tax invoice number, and all those for the Taradale contract have an order number – a combination of a name and date. For example: JOHN 17/10/11. Presumably, this means “John” made the order for the goods referred to in the invoice on 17 October
2011.
[32] All invoices have a description of the specific job Reinforcing did, and most stipulate in this description as to what number payment claim the invoice relates. One invoice uses the words “as quoted” after the description of the job. All of the invoices (except the one relating to coil wire referred to above) say “as per D/S X”, where X is a number. It is unclear to what this is referring however. The invoices also include a quantity (which apart from the invoice for the coil wire referred to above, was always “1”), the rate, GST and the final amount claimed. They include a date the invoice was issued and bank account and contact details of Reinforcing. At the foot they have the words in capitals “This is a Payment Claim under the Construction Contracts Act 2002.”
[33] The invoices however, do not seem to identify the relevant period to which the progress payment relates, nor more particularly do they specify a due date for payment. Also they do not appear to specifically indicate the manner in which the claimed amount is calculated, except insofar as setting out in a general way the quantity of services, the rate, and the GST.
[34] At this point I do need to note and bear in mind, however, that a range of authorities of this and higher courts are clear that technical quibbles about compliance with the CCA and s 20 in particular will not invalidate a payment claim that substantially complies with the requirements of the Act.4
The due date for payment
[35] Although the invoices do not prescribe a due date for payment, the terms of the original quotes Reinforcing provided for the contracts in question did seem to state the basis upon which payment was to be made – i.e. by the 20th of the month in which the material was supplied. In addition, before me, Reinforcing argued that further relevant information was contained in Herbert’s acceptance of the Pause Holdings tender. In bold on this acceptance letter, Herbert stipulated that in order for their progress claims to be submitted to the quantity surveyor for the individual
project by the beginning of each month, Reinforcing’s claims had to be received by the 25th of each month. Claims received after this date would be held over until the following month.
[36] Perhaps somewhat surprisingly, the terms of Reinforcing’s original quotes noted above at [35] do not adopt the common position that payment is due by the
20th of the following month. Instead the quotes say payment is due by the 20th of the
month in which the material is supplied, which would itself create a problem if material is supplied after the 20th of a particular month.
[37] Furthermore, the due date for payment in each case was clearly not specified on the payment claims, as required by s 20(2) CCA. As to this aspect, the High Court in Winslow Properties Ltd v Wooding Construction Ltd did hold that a letter and attachments can be read together to comprise a payment claim.5 However, to apply this to the present situation in my view would require a significant extension of that principle – in the present case the quotes concerned were provided over two months
before the invoices began to be issued.
4 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 at [42].
5 Winslow Properties Ltd v Wooding Construction Ltd [2007] DCR 408.
[38] On the other hand, in the present case there was no evidence that Herbert has been misled in any way by the lack of a due date on the payment claim, nor does it seem it was in any doubt as to what was intended.6 Indeed, Herbert had already made several payments on prior invoices without complaint. And, in addition, Herbert could have looked to the default provisions of the CCA if it took the view that the parties had not contracted as to the due date for payment. Section 18 provides that, presumably where there is no express term stipulated, a progress payment becomes due and payable 20 working days after a payment claim is served.
And, s 22 provides that a payer becomes liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates if—
(a) a payee serves a payment claim on a payer; and
(b) the payer does not provide a payment schedule to the payee within—
(i) the time required by the relevant construction contract; or
(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.
[39] On this issue as to the due date for payment, it is useful to consider certain recent authorities where similar situations to the present have been encountered. In Suaniu v Hi-Qual Builders Ltd, unlike the present case, a due date was specified on a payment claim as 5 days after delivery of the payment claim. This was not stipulated in the contract however. The contract did not provide a workable provision detailing the time when payments would be due. The Court found that in the absence of a workable contractual provision, the default provisions of the Act applied. The Court
said:7
Here the construction contract between the parties did not stipulate a workable time with which a claim became payable or a payment schedule had to be provided. It follows in my view that the appellants had 20 working days from the date of service of the payment claim by the respondent to respond by way of a payment schedule, or to pay.
6 Welsh v Gunac South Auckland Ltd HC Auckland CIV-2006-404-7877, 11 February 2008 at [22].
7 Suaniu v Hi-Qual Builders Ltd HC Auckland CIV-2008-404-1576, 26 June 2008 at [54].
and it concluded that this minor difficulty with the payment claim did not invalidate it.
[40] By way of contrast, however, I turn now to consider a recent decision of this Court (albeit on a summary judgment application) in Loveridge Limited v Watson Construction Ltd which again dealt with a similar situation. In Loveridge Limited a payment claim (like the payment claim in the present case) had not specified a due date for payment at all. In that case, although Associate Judge Doogue accepted that generally a Court will ask whether there has been compliance in substance, the Court found that when there has been no compliance at all concerning one of the elements of s 20(2), the position cannot be salvaged by invoking the principle that the Court is only generally to look to matters of substance. At [17] in his judgment the Associate Judge noted:
The requirement that the notice of claim must indicate “the due date for payment” could hardly be more obvious and there can be little argument that the wording of the legislation is mandatory.
However, the Associate Judge did go on to say at [22] that, if a reasonable reading of the payment claim document as a whole would convey the required information, differences in terminology will not be important.
[41] The Associate Judge then went on to consider whether s 18 could solve the difficulty of no due date being specified. As to this aspect, s 18 provides:
18. Due date for Payment
A progress payment under a construction contract becomes due and payable on the date occurring 20 working days after a payment claim is served under s 20 in relation to the payment.
On this, Associate Judge Doogue said:8
[15] My conclusion, briefly, is that the purpose of s 18 is to make provision for when the debt which has been established by use of the mechanisms in the Act has to be paid. While the terminology is perhaps confusingly similar to that used in s 20 I consider that the part of the Act in which s 18 appears is concerned with something different from the part of the Act in which s 20 appears. The purpose of the part of the Act in which s 18 appears as to enact “Default provisions for progress payments in the absence of the express terms”. The provisions of that part only apply where the parties to a construction contract failed to agree on the mechanism to regulate when
8Loveridge Ltd v Watts & Hughes Construction Ltd HC Tauranga CIV-2011-470-275, 29 September
2011 at [15] and [16].
progress payments became due. This part of the Act is therefore concerned with the content of the parties contract. The payment claim regime in the CCA does not create debts which are owed by one party to another that would otherwise not be owed, rather, it is concerned with procedures for assisting in the recovery of debts in circumstance where payment ought not to be delayed.
[16] The payment claim regime in Subpart Three of Part Two of the Act provides for an enforcement process and as part of that objective provides details as to the procedures by which a party seeking to enforce a debt and the party who has resisted payment on the grounds that there is a defence to the claim, must follow. One of its purposes is to require payment notices which define with reasonable precision what is required of the debtor to be served on the debtor. This informs the debtor what is required. So the requirement of s 20 which mandates the insertion of a date when payment is due in a notice is different from the provisions of s 18 which deal with the content of the parties' contract.
[42] And further:
[23] The consequences of the service of an unanswered payment claim are set out in s 24 [sic]. They entitle the claimant to obtain judgment. They are dependent upon the steps specified in the Act having been taken. Those steps include the requirement that the payee has served a payment claim. That term is defined in s 5 of the Act in these terms:
“payment claim is the claim referred to in section 20. ”
The Court is directed that it “must not” enter judgment in favour of the payee “unless it is satisfied that the circumstances referred to in subsection (1) exist”. That is to say, unless the Court is satisfied that a payment claim has been served, amongst other things.
[24] At this point in the statutory process under the Act, the function of specifying the date that enables the parties served to decide whether or not they agree that all or part of the amount claimed is in fact owing. The payer, for example, may consider that while the claimant has certainly done some work that will in due course entitle it to payment, the point when payment for all or part of that work has not yet been reached. Further, an accurate notice will provide information to the payee about when its obligations under the Act accrue, including the payment, will be required.
[25] Unfortunately the payment claim here does not satisfy even that test because there has been a complete omission.
[43] I remind myself at this point that the application before me is one to set aside a statutory demand pursuant to s 290(4) Companies Act 1993 on which Herbert is required to show that there is arguably a genuine and substantial dispute as to the existence of the debt claimed. If Herbert is able to do this, then on the authorities it has been seen as unfair to allow a dispute such as the present one to be “resolved” by the Companies’ Court in a proceeding, like the present, (a pre-cursor to the serious step of liquidation), rather than by an action commenced in the usual way.
[44] That said, on the question of whether Reinforcing’s invoices here as payment claims under the Construction Contracts Act 2002, contained due dates for payment as s 20(2)(d) CCA required, there can be little argument that the invoices themselves on their face do not contain such dates. Given this, and in light of the decision of Associate Judge Dooge in rather similar circumstances in Loveridge Limited v Watts
& Hughes Construction Limited noted above, it is difficult to escape the conclusion that Herbert has shown there is arguably a genuine and substantial dispute as to the validity of Reinforcing’s payment claims in terms of their non-compliance with the CCA, and therefore whether the debts claimed are due under the CCA and the statutory demand procedure here is properly invoked. I say this also bearing in mind first, that there is a substantial dispute between the parties over the amount of the set- off for the Ravensdown contract and secondly, that the only possibly independent evidence before the Court with respect to this credit dispute aspect is that of Mr Richards which supports Herbert’s position here.
[45] Under these circumstances I conclude that Reinforcing’s invoices at issue here, although constituting payment claims under the Construction Contracts Act
2002, did not comply with s 20(2)(d), in that they do not specify a due date for payment and thus importantly, delineating the time by which Herbert was required to respond with a payment schedule. Nor, in my view, is this omission able to be remedied by a reasonable reading of the payment claim document as a whole. As such, the provisions of s 79 CCA do not assist Reinforcing here and accordingly, Herbert has done enough to show there is arguably a genuine and substantial dispute as to the existence of the total debt claimed in the statutory demand.
[46] For these reasons the application to set-aside the statutory demand must succeed and an order to this effect is to follow. This, however, is subject to the comments I will make in paragraph [47] below.
[47] Before me, as I have noted at para [10] above, Mr O’Connor for Herbert conceded that, notwithstanding Herbert’s arguments as to set-off, there is in any event a final amount of about $5,600.00 which is due and outstanding to Reinforcing on either the Taradale contract or the Pause Holdings Contract. That said, the order which is to follow setting aside Reinforcing’s statutory demand is to be entirely
conditional upon Herbert, within 5 working days of the date of this judgment paying to Reinforcing that undisputed sum of about $5,600.00. Clearly the Court is entitled to make an order setting aside a statutory demand subject to a condition such as this
– UCC (2001) Ltd v Dell Computer Limited, HC, Auckland, M1524-IM02, 28
February 2003 and Provida Foods Ltd v Foodfirst Ltd [2012] NZCA 326.
[48] And, given this conclusion, it will be apparent that it is sufficient to dispose of the present application before me, which must succeed. For the sake of completeness, however, I will now go on to briefly consider the other arguments advanced before me here on behalf of Herbert the applicant. These relate to allegations as to further errors and omissions said to exist in the various payment claims which are before the Court.
The relevant period to which the progress payment relates
[49] The only dates Reinforcing’s respective invoices contained were in each case the dates the invoices were issued. All those for the Taradale contract it seems had added an order number and name, but as stated above, the meaning of that can only be guessed.
[50] However, no invoice appeared to directly specify the period of time to which it related. In fact, sometimes there had been 2 invoices issued on the same date, relating to different work.
[51] In McAlpine Hussman Ltd v Cooke Industries Ltd, the period to which the progress payment related was also not stipulated in the payment claim. But, in that case, Associate Judge Faire said:9
As to the second issue raised, the relevant period, this was a single-supply contract. There is no question of progress payments or payments on a periodic basis. A single supply was required and was called for by the contract. The description in the invoice therefore, in my view, fits within what is required for s 20(2)(c).
9 McAlpine Hussman Ltd v Cooke Industries Ltd HC Auckland CIV-2011-404-5663, 16 March 2012 at [44]
[52] In the present case, the materials to be supplied and the work completed might on one view be seen as a series of single supply contracts, where a period of time to which the particular payment relates did not need to be stipulated. By itself, if required to decide this particular matter here, I would accept this view, and conclude that the “error” or omission of the “relevant period to which the progress payment relates” would not make the payment claims in question here invalid. The componentry material was simply supplied to Herbert pursuant to the original contract no doubt as and when requested by it. It was then installed into the project by Herbert or its contractors. It is arguable here that Herbert would have been well aware when material was requested, arrived on site and then was invoiced.
The manner in which the payee calculated the claimed amount
[53] This is required in terms of s 20(2)(e) CCA but was not a matter pursued in argument before me in any real way. The invoices, as stated above, do make reference to “DS X”, but it is unclear to what this refers. It could perhaps be the original quote, which might break down a calculation of the amounts owing. But there has been no evidence produced before me of that. Again, however, as a componentry materials supply contract, Reinforcing might attempt to suggest that, under all the circumstances, Herbert as head contractor would have known which materials were delivered and invoiced here. But, as I see it, there is an alternative argument open here that this does does not really answer in a definitive way the progress claim requirement noted in s 20(2)(e), which on its face might be seen as not having been properly met here.
Conclusion on validity of payment claims
[54] As I have noted above, Reinforcing’s payment claims clearly do not comply with s 20(2)(d) CCA, in that they do not specify due dates for payment. In addition, my tentative conclusion at [53] above is that they also may not properly comply with s 20(2)(e) CCA.
[55] The payment claim invoices are significantly deficient. One of the “errors”
or omissions alone it might possibly have been suggested could be considered to be a
mere “technical quibble”, but on balance the combination must also count against Reinforcing’s claim here. I say this bearing in mind too that this is a claim that must justify the major decision Reinforcing has chosen to take to issue the statutory demand in question.
[56] No doubt Reinforcing made this decision when it did out of some degree of frustration in seeking payment of what were in themselves longstanding and generally undisputed invoices on completed contracts. Reinforcing noted too that many of its prior invoices on these contracts had already been paid by Herbert, it seems without question. Also, what is clear here is that Herbert was far from being an inexperienced and vulnerable residential occupier in property and construction matters. It is an experienced and long established commercial construction company. It should be, and clearly was familiar with the CCA and its processes for debt collection. On this particular aspect, the Court of Appeal in George
Developments Ltd v Canam Construction said:10
If George could not understand the claim it could have obtained clarification by using the framework contained in the Act. It is not without significance, in assessing the reality of this challenge, that George had not complained about the comprehensibility of previous payment claims that were made in a way that mirrored the form of PC-15. The Associate Judge commented at para 68 “In any event it is clear from PC-15 and other progress claims previously submitted that this process was not only identified but well understood by the parties”.
[57] These are matters which, in my view, do not fully swing the balance on the substantive application before me in favour of Reinforcing, but as I see it, they must go to the question of costs to be dealt with later. The ultimate conclusion here setting aside Reinforcing’s statutory demand, which is made for the specific reasons I have outlined earlier, must remain.
[58] In case I am wrong in this conclusion, however, and for the sake of completeness, I will now go on to consider the next question. This is to the effect that, if Reinforcing’s payment claims had both been validly issued and complied in
all respects with the CCA, did Herbert respond here with valid payment schedules?
10 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 at [42] at [46].
Did Herbert respond with valid payment schedules?
[59] Herbert contends that even if the invoices were valid payment claims, it responded with valid payment schedules, through email correspondence. Herbert submits these were in response to 3 invoices, all for the Taradale project. The emails Herbert seeks to rely on, as I see it however, broadly discuss the amount of credit Herbert should have received for the Ravensdown contract. Herbert then went on to agree to pay $20,000 and as noted above it did so. In summary, these emails sent by
Herbert and received by Reinforcing were:
An email of 4 November 2011 requesting information on the
Ravensdown contract credit Reinforcing was going to provide to
Herbert.
An email of 17 November 2011 saying Herbert needed to raise a payment schedule to Reinforcing for the difference to be credited. Herbert said it could offset this credit against the current Taradale contract, and asked Reinforcing to raise a credit variation as soon as
possible.
Emails on 18 November 2011 and 22 November 2011 saying the offer
of $20,000 credit was not enough, asking Reinforcing to elaborate.
An email on 2 March 2012 attaching a reconciliation of Herbert’s account to date with Reinforcing completed by Mr Richards. Herbert said the credit was $51,926.80 plus GST. Applying this credit to the
outstanding balance left an amount of $4,288.41 owing.
Anemail on 15 March 2012 saying again Herbert did not think $20,000 was owing, but in fact less than $5,000 was owing, and could Reinforcing please advise if they would still supply materials for the Taradale contract.
Anemail on 23 March 2012, responding to an email from Reinforcing, demanding payment of $44,000 ($64,000 less the $20,000 credit until such time as that amount was changed). Herbert suggested paying cash on delivery for the Taradale contract, and being treated as cash sales
with favourable rates.
An email on 28 March 2012 where Herbert agreed to pay $20,000 for
the Taradale contract whilst waiting for detail sheets of Reinforcing’s
credit calculations.
An email on 4 April 2012 where Herbert again queried the amount of
credit to be granted.
[60] Section 21 CCA deals with payment schedules and provides:
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.
[61] Herbert contended here that the requirements of a payment schedule are much less onerous than those for a payment claim. Mr O’Connor for Herbert argued that Reinforcing was fully aware throughout that the payment claims were disputed and the reasons for this. In support, he pointed to the decision of Rodney Hansen J in
Westnorth Labour Hire Ltd v S B Properties Ltd.11 There, a letter from the payer
11 Westnorth Labour Hire Ltd v S B Properties Ltd HC AK 19 December 2006 CIV-2006-404-1858.
explained that he doubted the amount claimed, as the payee's timesheets appeared to contain errors, and the payer had been charged for materials which had been returned and the costs refunded. The payer stated in this letter that he would not pay the invoices claimed until the payee provided full particulars of what work the contracted labour had completed. Rodney Hansen J stated at [29]:12
The relevant provisions of the New South Wales Building and Construction Industries Security of Payment Act 1999 are almost identical to the provisions of the New Zealand Act governing payment schedules. In the leading case of Multiplex Constructions Pty Limited v Luikens [2003] NSWSC 1140, the Court said at para [78]:
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.
In my judgment, the letter meets these basic requirements. Westnorth was given all the information it needed to understand S B Properties' position, to decide whether to pursue its claim and the case it would be required to meet at adjudication. I am satisfied the Judge was right to conclude that the letter was a payment schedule which complied with s 21 of the Act.
[62] In response, Mr Smith, counsel for Reinforcing submitted that the emails in question do not meet the requirements of s 21 because:
it is unclear what contract the payment was for;
some of the payment schedules are out of time;
theemails do not indicate the manner in which the payer calculated the scheduled amount;
the emails do not indicate the reasons for the difference ; and
the emails do not say when the remainder of the debts were to be paid.
[63] On all these aspects, the High Court in Canam Construction Ltd v George
Developments Ltd held that “the requirements for a payment schedule are cumulative
12 At [29].
such that if any is absent there will not be a payment schedule that complies with the
CCA”.13
[64] And, Justice Asher in Marsden Villas Ltd v Wooding Construction Ltd said:14
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.
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.
The Court in Seating Systems Ltd v Kidson Construction Ltd15 examined whether an email, containing questions that required further clarification, would constitute a payment schedule for the purposes of s 21. The Court found, at [28], that the purpose of s 21(3) of the CCA was to “give the contractor full and unequivocal notice of all areas of difference or dispute in order to enable it to properly assess its future options.” This is achieved by meeting the requirements in s 21(3). The Court was not satisfied the email met this requirement as it asked various questions but failed to give full and unequivocal notice of all areas of difference to enable the contractor to properly assess its future options.
[65] Although for the reasons noted above, I do not need to decide this aspect in the present case, it is my preliminary view here that the emails in question do not constitute payment schedules. They do not identify the payment claim to which they relate. Even if particular emails were able to be matched up with particular invoices, most of them are outside the time frame required by the Act to be valid.16 The emails are wholly lacking in detail and do not give Reinforcing full and unequivocal notice
of all areas of dispute. In fact, as I see it, there is even a possible argument open here
13 Canam Construction Ltd v George Developments Ltd HC Auckland CIV-2004-404-3565, 10
November 2004.
14 Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 at [16] – [17].
15 Seating Systems Ltd v Kidson Construction Ltd [2012] NZHC 2217.16 Section 22(b)
that the emails simply display a behaviour on the part of Herbert of delaying payment until its set-off is resolved - the very thing the CCA attempts to avoid through s 79.
Conclusion
[66] As I have noted above at [46] the present application to set-aside the statutory demand succeeds.
[67] An order is now made setting-aside the statutory demand dated 4 September
2012 issued by Reinforcing against Herbert.
[68] This order, however, is conditional upon Herbert within 5 working days of the date of this judgment paying to Reinforcing the undisputed amount due under the demand, which counsel have advised amounts to approximately $5,600.00. The present order is not to be sealed until such time as that payment is made and this is confirmed to the Court.
[69] Leave is reserved in the meantime for any party to approach the Court on 48 hours notice if additional directions may be required and in particular, if the payment referred to at para [68] above is not made.
Costs
[70] Although on the face of this judgment, Herbert has succeeded in its application to have the statutory demand set-aside, it has acknowledged throughout that, even on its view of the situation, approximately $5,600.00 was properly due and payable to Reinforcing. Herbert nevertheless has not paid this sum. It might be said therefore that Reinforcing has itself succeeded partially here (with respect to the payment condition I have imposed at [68] above), and that also, it had little choice under all the circumstances but to take some enforcement action against Herbert.
[71] Costs on each case where a statutory demand is set-aside must be determined on the particular facts of that case – International Airline Trading (New Zealand) Ltd v Rohlig New Zealand Ltd HC, Auckland, CIV-2003-404-3464, 23 February 2004.
Although there always needs to be good reason for departing from the general principle that the party who fails should pay costs to the party who succeeds, in the present case in my judgment, such a good reason does exist. First, as noted above it could be said that Reinforcing has partly succeeded here. And secondly, in issuing the statutory demand, I am of the view that Reinforcing might be seen as not acting unreasonably under the circumstances prevailing in this case, in that it had a reasonable argument under the CCA that it had issued a proper payment claim which was not adequately responded to by Herbert, and thus in terms of s 79 the invoices on the Taradale and Pause Holdings contracts were unable to be disputed.
[72] As it has transpired, this judgment has concluded otherwise, but only by a reasonably fine margin. For what might be seen as reasonably technical reasons relating to compliance with the CCA, the statutory demand in question here has been set-aside. The dispute between the parties in this case is to be resolved elsewhere rather than here in the Companies’ Court. But for the reasons I have noted above, this is a case in my view where costs should lie where they fall.
[73] There is to be no order made as to costs.
‘Associate Judge D.I. Gendall’
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