Keith Bullock Contracting Limited v Genesis Residential Limited
[2023] NZHC 2887
•16 October 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-125
[2023] NZHC 2887
BETWEEN KEITH BULLOCK CONTRACTING LIMITED
Plaintiff
AND
GENESIS RESIDENTIAL LIMITED
Defendant
Hearing: 9 August 2023
Further submissions: 16 and 23 August 2023
Appearances:
J T Wollerman and S F Barnao for Plaintiff J Long and L Hebden for Defendant
Judgment:
16 October 2023
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] Genesis Residential Ltd (GRL) engaged Keith Bullock Contracting Ltd (KBC) under a construction contract to carry out bulk earthworks at a residential development in Lower Hutt. Issues arose between the parties. Both parties sought to cancel the contract. KBC has commenced proceedings against GRL seeking to recover amounts allegedly owed to KBC under the contract and damages for GRL’s alleged repudiation of the contract.
[2] Before me now is KBC’s application for summary judgment in respect of three payment claims and an invoice for retentions issued for work undertaken under the contract. GRL opposes the summary judgment application.
KEITH BULLOCK CONTRACTING LIMITED v GENESIS RESIDENTIAL LIMITED [2023] NZHC 2887
[16 October 2023]
Background
[3] GRL and KBC entered into the construction contract on or about 26 November 2021. The contract comprised NZS3910: 2013 standard conditions with special conditions. The engineer to the contract was Trishn Nand.
[4] As at 12 October 2022, KBC says that it was ahead of schedule in completing the construction work. It requested further instructions, but no instructions were received from Mr Nand or GRL.
[5] GRL says that KBC had been months behind schedule for most of the time the contract was on foot. On 19 October 2021, GRL issued KBC with a notice to rectify in respect of the delay under s 5 of the special conditions of contract, requiring the default to be rectified within 14 days. On 26 October 2022, KBC responded to the notice setting out why it considered the notice to be invalid.
[6] On 4 November 2022, GRL gave notice terminating the contract on the basis that the default in the notice to rectify had not been rectified.
[7] KBC disputed the termination and advised that it was ready, willing and able to perform the contract.
[8] On 1 December 2022, KBC observed another contractor had begun undertaking work on the site and sought clarification from GRL. GRL did not respond. On 14 December 2022, KBC notified GRL that it cancelled the contract.
[9] KBC commenced these proceedings and applied for summary judgment on or about 14 March 2023.
Relevant law – summary judgment
[10]Rule 12.2 of High Court Rules 2016 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[11] The principles that govern summary judgment are now very well settled. In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the principles as follows:1
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A of the High Court Rules the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[12] Other ways of expressing the notion of “no defence” are: no bona fide defence, no reasonable ground of defence, and no fairly arguable defence.2
[13] The Court will deal with questions of law on a summary judgment application,3 and this includes issues of contractual interpretation.4 This is so even where the question of law is difficult and requires argument (including reference to authority).5
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].
2 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
3 At 4.
4 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 at [37].
5 At [37] citing International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd [1987] 1 NZLR 9 (CA) at 16.
Matters for determination
[14] During the course of the hearing, Mr Wollerman, for the plaintiff, clarified that the plaintiff is seeking summary judgment in respect of the following causes of action in its statement of claim dated 14 March 2003:
(a)the first cause of action, being a claim for breach of contract in respect of payment claim 14 issued on 4 October 2022 in the sum of
$110,277.35 including GST;
(b)the second cause of action, being a claim for breach of contract in respect of a retentions invoice dated 4 October 2022 in the sum of
$43,870.26 including GST;
(c)the third cause of action, being a claim for a claim for breach of contract in respect of payment claim 15 issued on 4 November 2022 in the sum of $95,218.18 including GST;
(d)the fourth cause of action, being a claim for a debt due pursuant to s 24 of the Construction Contracts Act 2002 (CCA) in the sum of
$773,758.11 including GST, in respect of payment claim 16 issued on 25 November 2022.
[15]Mr Wollerman submits that there are no overlaps between any of these claims.
[16] I now turn to deal with these claims. It is convenient to first consider the issues between the parties with regard to GRL’s purported termination of the contract and then to consider the claims in the following order:
(a)Payment claim 15;
(b)Payment claim 14;
(c)Retentions invoice; and
(d)Payment claim 16.
GRL’s alleged termination of the contract
[17] GRL relies on cl 5 of the special conditions of contract which provides as follows:
5.Performance
The timing of the works and quality of works are essential terms of this contract. The contractor acknowledges that timing and quality performance are essential to the profitability of the contract for the client.
Notwithstanding anything to the contrary in the general conditions of contract (including the Time for completion section), In the event the contractor (in the reasonable opinion of the client and Engineer) determines:
(a)The contractor is more than 4 weeks behind schedule, and/or
(b)the quality of work carried out by the contractor is not of acceptable quality and is not approved by the engineer
The client may serve a notice to rectify on the contractor and if they have not rectified such default within 14 days of receipt of such notice the client ma[y] terminate the contract, engage another contractor to complete the work and recover liquidated damages and any losses suffered as a result of the contractors breach.
This Performance clause is not subject to the disputes section of the general conditions of contract.
[18] In my view, there are material conflicts of evidence with regard to whether or not GRL validly terminated the contract under cl 5 of the special conditions and whether GRL has a substantial claim for liquidated damages and other losses against KBC.
[19] There is a conflict of evidence as to whether there was a reasonable basis for forming an opinion that KBC was four weeks behind schedule. Christopher Mason, sole director of GRL, states in his affidavit evidence that it was agreed that all of Stage 2 of the earthworks was to be completed by June 2022. Mr Mason says that he made it clear to KBC at a meeting on 28 February 2022 that Stage 2 of the earthworks had to be completed by June 2022. Glenn Bullock, managing director of KBC, states in his affidavit evidence that a final schedule for completion of the earthworks was not
agreed at that meeting. Mr Nand states in his affidavit that it was agreed “in principle” that the completion of part of the Stage 2 earthworks (Earthwall 04) would occur by June 2022 and that “any goals or development objectives for the project were always orally agreed in principle between all the relevant parties, however these were never agreed contractually in writing due to all the external factors with the project”. In reply, Mr Mason reiterates that the parties reached “firm agreement on the schedule” for earthworks at the 28 February 2022 meeting and “we all left on exactly the same page”.
[20] There is a conflict of evidence as to whether Mr Nand was consulted in relation to the notice to rectify and was of the opinion that KBC was more than four weeks behind schedule. Mr Nand states that he was not fully consulted on the alleged delays and did not form an opinion or come to a conclusion on the delays when he discussed the issues with Mr Mason. However, Mr Mason, states that Mr Nand “never expressed any hesitation about concluding that KBC was behind schedule” and “explicitly said to me words to the effect that KBC was more than four weeks behind schedule”. Mr Mason states that it was Mr Nand who “suggested we issue a notice to rectify” and Mr Nand “went about organising the notice to rectify” to be issued by GRL’s solicitor, Mr Eugene Collins. In his affidavit, Mr Collins states that in preparing the notice to rectify, he was “totally reliant on Mr Nand to provide me not only with the relevant documents but also his view on the delays and the reasons for them”. He states that Mr Nand “was adamant that the Plaintiff knew the timelines agreed and that they failed to meet them”.
[21] A further conflict in the affidavit evidence is whether GRL was itself ready willing and able to perform the contract at the time of the purported termination. For example, it is contended by KBC that GRL failed to respond to payment claims 14 and
15. Mr Nand states that he was instructed not to process the claims as GRL had no funds at that time and that payments would be made once titles for Stage 1 of the project were issued. However, Mr Mason states that is not true and that Mr Nand simply neglected to process the claims. He says that it was Mr Nand’s job as engineer to the contract to process the payments claims and he (Mr Mason) could not and did not stop him from doing that.
[22] There are also conflicts of evidence raised in the affidavit evidence as to whether the progress of the earthworks was prevented by various factors beyond KBC’s control, such as a requirement for further resource consents, and a requirement for further surveying and design work, and whether GRL made it impossible for KBC to comply with the notice to rectify by instructing Mr Nand not to respond to KBC’s request for further instructions in October 2022.
[23] There is also a conflict of evidence as to the losses which GRL says it has suffered as a result of the delays by KBC which led to the alleged termination. Mr Mason states that GRL has incurred losses in the sum of $218,825.45 due to increases in costs as a consequence of KBC’s failure to complete Stage 2 of the earthworks by June 2022. Mr Mason also states that the delay has put GRL in breach of its obligations to Kelson Heights (the landowner) under a “Services Agreement” between GRL and Kelson Heights. He states that cl 6.1 of that agreement requires GRL to indemnify Kelson Heights for any loss or damage directly or indirectly resulting from breaches of the agreement. Mr Mason states Kelson Heights has not at this stage quantified its losses, but he understands that the cost of delay in completing the subdivision and getting houses to market could be in the region of $11–15 million. He states that GRL has also been removed as developer by Kelson Heights and is no longer receiving the service fee (which included a margin of 7.5 percent added to the cost of the development – estimated to be $87.5 million) to which it was entitled under cl 4.1 of the agreement.
[24]Mr Mason states that there is also an overpayment to KBC in the sum of
$32,263.62 in relation to payment claim 12, and that KBC holds 90 rolls of Geogrid for the construction of Earthwall 05, for which GRL had already paid $66,992. He states that KBC had refused to return the Geogrid.
[25] Mr Bullock takes issue with these matters in his reply affidavit. He states that the basis for Mr Mason’s calculation of alleged increased costs is not clear and has never previously been raised by GRL. Mr Bullock denies the overpayment in relation to payment claim 12. With regard to the Geogrid, Mr Bullock says that this was being held by KBC pending instructions to proceed with the work. He states that KBC would be happy for GRL to collect the Geogrid but considers that payment of the
outstanding amounts should be made first. Mr Bullock states that he is not aware of the arrangements between GRL and Kelson Heights, but he understands that Kelson Heights is associated with Mr Mason, and he denies the allegation that delays by KBC caused GRL not to meet obligations to complete the work in certain timeframes.
[26] Having reviewed the evidence, it is my view that there is a sufficient degree of credibility in the affidavit evidence on behalf of GRL such that the issues as to whether GRL validly terminated the contract under cl 5 of the special conditions, and whether GRL has a substantial claim for damages against KBC, can only properly be resolved at trial, with the benefit of full discovery and oral evidence, including, potentially, expert evidence and cross-examination of witnesses. The requirement that these matters go to trial seems to be acknowledged by KBC, as it has not sought summary judgment in respect of its sixth cause of action for repudiation by GRL.
Payment claim 15
[27] Payment claim 15 (PC15), for $95,218.18 including GST, was served on 4 November 2022, this being the date of GRL’s alleged termination of the contract. The invoice stated that the due date for payment was 20 November 2022. GRL contends that the actual due date for payment was 29 November 2022, being 17 working days after the claim was issued.6
[28] There is a factual dispute as to whether PC15 was served before or after GRL’s purported termination. GRL’s process server states that he served the notice of cancellation at 10.33am, but his watch was running approximately one minute fast. KBC contends that PC15 was served at 10:31am, just before the purported termination.
[29] GRL did not provide a payment schedule for PC15 within the required period under the contract. On 25 November 2022, KBC notified GRL and Mr Nand of this failure. On 19 December 2022, GRL, through Mr Nand, raised some deductions to PC15.
6 Clause 12.1.3(c) of the general conditions of contract.
[30] Importantly, PC15 was not a claim made under the CCA because it did not comply with all the requirements of s 20 of that Act. The claim, as pleaded by KBC, is a claim for breach of contract because no payment schedule was provided in response to the payment claim and GRL failed to pay the amount claimed by the due date for payment. KBC claims that it is entitled to payment of the full amount of PC15.
[31] GRL contends that it has an arguable defence to payment claim 15 based on its termination of the contract being effective from the point in time that the notice of termination was served on 4 November 2022.
[32] Mr Long, for GRL, refers to s 42(1)(a) of the Contract and Commercial Law Act 2017, and submits that the relevant question is whether the contractual obligation to pay the invoice for PC15 had accrued unconditionally before termination.7 Mr Long submits that the Court of Appeal in Garratt v Ikeda clarified that the word “unconditionally” is used in the sense that:8
(i) there must have been no impediment, by unfulfilled condition or otherwise, to the enforcement of the right at the point of cancellation; and (ii) enforcement must not have been subject to any reciprocal obligation on the part of the enforcing party.
[33] Mr Long submits that the obligation to pay PC15 had not accrued unconditionally as at 4 November 2022. He submits that PC15 had not been served prior to the time of termination. He submits that, in any event, the invoice was not due for payment until 29 November 2022 which was well after the termination; therefore the invoice was not “overdue” on 4 November 2022 giving rise to a cause of action for failure to pay it.
[34] GRL contends that it also has an arguable defence on the basis that termination of the contract under cl 5 of the special conditions brings into play the “wash-up” process in cls 14.2.4–14.2.5 of the general conditions of contract. GRL contends that the effect of these provisions is that KBC is not entitled to any further payment until the works have been completed by the replacement contractor, and it has been
7 Brown v Langwoods Photo Stores Ltd [1991] 1 NZLR 173 (CA) at 176.
8 Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [20].
determined whether any amounts are due to KBC taking into account the liquidated damages and losses suffered by GRL as a result of KBC’s breach.
[35] Mr Wollerman, for KBC, submits that KBC had a right to issue PC15 on 4 November 2022 for work which had been completed under the contract prior to the end of October 2022, and that an entitlement to payment had accrued and was unconditional prior to the purported cancellation on 4 November 2022. He submits that there was no impediment to the enforcement of the right to payment of the payment claim at the point of the purported cancellation. Mr Wollerman also submits that the “wash-up” provisions in cl 14.2 of the general conditions are not engaged by the alleged termination under cl 5 of the special conditions.
[36] In response, Mr Long submits that it does not matter whether the work had been completed by KBC prior to termination. He submits that there needs to have been a cause of action accrued unconditionally before termination. He submits that a cause of action for breach of contract in respect of PC15 did not accrue when the work which is the subject of the payment claim was completed, and could only have accrued when there was a breach of a contractual obligation. He submits that KBC’s pleadings allege that the breach of contract occurred when no payment schedule was provided in response to PC15 and GRL failed to make payment. Both of these events occurred after the point of termination.
Discussion
[37] In my view, for the purposes of this summary judgment application, it is not necessary to determine the issue of whether KBC had an unconditionally accrued right to payment of PC15 as at the time of the alleged termination on 4 November 2022. Nor is it necessary to consider whether the “wash-up” provisions in cl 14.2 of the general conditions of contract are engaged by termination under cl 5 of the special conditions.
[38] Even if KBC did have an unconditionally accrued right to payment of PC15 as at 4 November 2022, and even if the “wash-up” provisions are not engaged, I consider
that GRL has a reasonably arguable defence to the claim based on equitable set-off.9 PC15 was not a claim under the CCA, so s 79 of that Act does not apply to preclude set-off. As submitted by Mr Long, GRL can claim set-off on the basis that it was entitled to terminate the contract under cl 5 of the special conditions, and it is also entitled under that clause to “recover liquidated damages and any losses suffered” as a result of KBC’s breach.
[39] GRL has put forward evidence to support its position that it validly terminated the contract under cl 5 of the special conditions and that it is has suffered substantial losses as a result of KBC’s delays which exceed the total amount claimed for payment claims 14, 15 and 16 and the retentions invoice in KBC’s statement of claim. As discussed above, there are material conflicts of evidence on these matters. I consider that there is a sufficient degree of credibility in the evidence put forward by GRL to provide the basis for an arguable defence of equitable set-off. These matters can only properly be determined at trial.
[40] Accordingly, I am not satisfied that GRL has no defence to KBC’s claim in respect of PC15.
Payment claim 14
[41] Payment claim 14 (PC14), for $110,277.35 including GST, was served on 4 October 2022. KBC says it was required to be paid by 20 October 2022. GRL says that the due date for payment was 28 October 2022.
[42] As with PC15, GRL did not provide a payment schedule for PC14 within the required period under the contract. On 25 November 2022, KBC notified GRL and Mr Nand of this failure. On 19 December 2022, GRL, through Mr Nand, raised some deductions to PC14.
[43] As with PC15, PC14 was not a claim under the CCA. The claim, as pleaded by KBC, is for breach of contract because no payment schedule was provided in
9 See Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 11; and Pemberton v Chappell, above n 2, at 4; and Jessica Gorman and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR12.9.09].
response to the payment claim and GRL failed to pay the amount claimed by the due date for payment. KBC claims that it is entitled to payment of the full amount of PC14.
[44] GRL accepts that an obligation to pay PC14 had accrued unconditionally prior to the alleged termination on 4 November 2022. However, GRL contends that the Court should exercise its residual discretion not to enter summary judgment on this cause of action. GRL submits that the discretion should be exercised because, whatever the outcome of this summary judgment application, the proceeding will proceed to trial on KBC’s sixth cause of action. It is submitted that the “wash-up” process under cl 14.2 of the general conditions of contract will need to be undertaken on completion of the works and any outstanding amounts owed to KBC (including PC14) will be taken into account alongside any damages that GRL is entitled to recover from KBC. GRL submits that there is little use in requiring it to pay the amount claimed in PC14 at this stage.
[45] However, in my view it is not necessary to consider whether the residual discretion should be exercised in relation to PC14. That is because, for the same reasons as set out above in relation to PC15, I consider that GRL has a reasonably arguable defence of equitable set-off in respect of PC14. As PC14 was not a claim under the CCA, s 79 of that Act does not apply to preclude set-off. GRL has put forward evidence of alleged losses which exceed the total amount claimed for payment claims 14, 15 and 16 and the retentions invoice in KBC’s statement of claim.
[46] Accordingly, I am not satisfied that GRL has no defence to KBC’s claim in respect of PC14.
Retentions invoice
[47] On 30 September 2022, KBC issued an invoice for $43,870.26 including GST for the balance of the retentions due for Stage 1 of the works. Payment of the invoice was due by 20 October 2022. The invoice has not been paid.
[48] KBC submits that the amount of the retentions invoice was due for payment prior to GRL’s alleged cancellation on 4 November 2022 and must be paid.
[49] GRL says that it has a defence to this cause of action in that it has already paid the final retentions release for Stage 1 of the works.
[50] In his affidavit evidence, Mr Mason states as follows with regard to the retentions invoice:
KBC issued an invoice for retentions dated 30 September 2022. This was said to be the final retentions release for Separable Portion 1 (Stage 1 of the earthworks) … However, GRL had already paid the
$43,870.26 claimed in this invoice on 2 November 2021, in the course of a “wash-up” that occurred before finishing Separable Portion 1 of the earthworks and starting Separable Portion 2 (Stages 2–6 of the earthworks). A copy of email correspondence from Linda Bullock on 4 November 2021 confirming GRL’s payment of the amount is annexed at …
[51] Mr Nand has also provided affidavit evidence in relation to this issue. Mr Nand states:
The final retentions released for Separable Portion 1 of the earthworks was not paid, however there is a reason for that. In short:
(a)On Separable Portion 1, Mr Mason requested this to be rolled into the bulk earthworks contract for Separable Portion 2;
(b)On Separable Portion 2, KBC underclaimed on the volumes throughout; and
(c)On Separable Portion 3, we increased the volumes to capture the cost of the final invoice.
In summary, the final retentions release was paid out at the time based on the invoiced or claimed amounts, however it was not paid out as one final retentions release.
[52]In reply to Mr Nand, Mr Bullock states:
… Mr Nand discusses the retentions release for SP01. I agree that SP01 was rolled into SP02, that the retentions were to be paid out based on the claimed amounts and that the retentions owing to KBC was not paid out as a single retentions release. This is why KBC issued an initial invoice for SP01, being 50% of the amount of the retentions due to KBC. The first invoice was paid by GRL in October 2021. KBC then issued a second invoice on 30 September 2022 for the remaining 50% owing to KBC for the retentions upon final completion of SP01. That invoice was due on 20 October 2022 and has not been paid by GRL.
[53]Mr Mason also provides a reply to Mr Nand on the retentions issue. He states:
… Mr Nand discusses payment of the final retentions release for Separable Portion 1 of the earthworks. He says that “the final retentions release was paid out at the time based on the invoiced or claimed amounts” but “it was not paid out as one final retentions release”.
That is correct. The amount now being claimed by KBC for retentions has already been paid. It was my recollection that it was paid in the course of a “wash-up” that occurred between Separable Portion 1 (Stage 1) and Separable Portion 2 (Stages 2 to 6) of the earthworks. But whether it was folded in during the wash-up, or folded into later invoices, the amount has been paid. There is no amount owing for retentions for Separable Portion 1.
[54] In my view, there is a material conflict of evidence in relation to payment of the final 50 per cent of retentions for Stage 1. In short, there is a conflict of evidence as to whether the final 50 per cent was paid as part of a “wash-up” between Stages 1 and 2 or “rolled into” payments for Stages 2 or 3.
[55] Having reviewed the evidence, it is my view that there is a sufficient degree of credibility in the affidavit evidence on behalf of GRL such that this issue can only properly be resolved at trial, with the benefit of full discovery and oral evidence, including, potentially, expert evidence and cross-examination of witnesses.
[56] Further, the retentions claim is not a claim for a debt due under the CCA. It is a claim, as pleaded by KBC, for breach of contract for failure to pay the invoice. Therefore, even if there are unpaid retentions in respect of Stage 1, for the reasons set out above in relation to PC15 and PC14, GRL has a reasonably arguable defence of equitable set-off.
[57] Accordingly, I am not satisfied that GRL has no defence to KBC’s claim in respect of the retentions invoice.
Payment claim 16
[58] Payment Claim 16 (PC16), for $1,222,978.47 including GST, was served on 25 November 2022. On 19 December 2022, GRL responded with a payment schedule, stating that the scheduled amount of $773,758.11 (including GST) was payable.
[59] The due date for payment was stated to be 20 December 2022. GRL failed to pay the scheduled amount on or before the due date for payment.
[60] KBC now claims the sum of $773,768.11 including GST as a debt due under s 24 of the CCA. This section provides that:
24 Consequences of not paying scheduled amount in manner indicated by payment schedule
(1)The consequences specified in subsection (2) apply if-
(a)a payee serves a payment claim on a payer; and
(b)the payer provides a payment schedule to the payee within the time allowed by section 22(b); and
(c)the payment schedule indicates a scheduled amount that the payer proposes to pay the payee; and
(d)the payer fails to pay the whole, or any part, of the scheduled amount on or before the due date for payment to which the payment claim relates.
(2)The consequences are that the payee-
(a)may recover from the payer, as a debt due to the payee, in any court,-
(i)the unpaid portion of the scheduled amount; and
(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and
…
(4) In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.
[61] GRL contends it has an arguable defence to KBC’s application for summary judgment in respect of PC16 based on the alleged termination. GRL’s position is that the statutory regime for payment claims under the CCA is premised on the notion that there is an underlying construction contract between the parties. Mr Long submits that, following termination of the construction contract, including the payment provisions, KBC was no longer entitled to serve a payment claim under the contract. Therefore, KBC could no longer serve a valid payment claim under s 20(1)(a) of the CCA.
[62] Mr Long relies on the decision of the High Court of Australia in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd.10 That case involved a dispute between a principal and a contractor over a payment under a construction contract in the context of the New South Wales security of payment legislation. The contract was terminated on 28 October 2014. On 4 December 2014, the contractor served what purported to be a payment claim on the principal for work carried out under the contract. The principal argued that the document could not be a payment claim under the relevant legislation because no reference date arose after termination that entitled the contractor to issue a further payment claim. The High Court of Australia held that:
[66] The repeated references in s 8, and in the extended definition of progress payment to payment “for” work carried out or to be carried out (or goods and services supplied or to be supplied) “under” a construction contract nevertheless point to an important limitation that is implicit in the overall design of the Act, and that has been so from the time of its original enactment. That limitation is that the Act is concerned to provide a statutory mechanism for securing payment of an amount claimed to be payable in partial or total discharge of an obligation to pay for work (or for goods and services supplied) imposed by the contractual force of a construction contract. …
…
[79] … the effect of termination was that Lewence and Southern Han were both discharged from further performance of the Contract and that Lewence’s rights under the Contract were limited to those which had then already accrued under the Contract except insofar as the Contract is properly to be interpreted as stipulating to the contrary. The right to make a progress claim under … the Contract in relation to work carried out to 27 October 2014 had not accrued as at 28 October 2014. Had the Contract not then been terminated, the right would have accrued only on 8 November 2014.
[63] Mr Long submits the same reasoning applies in this case under the CCA. He submits that the Act was never intended to provide an entirely independent statutory process for claiming payment for construction work divorced from whether or not there is an underlying contractual entitlement to payment.
[64] In my view, Southern Han does not determine that a payment claim under the relevant security of payment legislation can never be made after valid termination of the underlying construction contract. Rather, it is necessary to review the terms of
10 Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52, (2016) 260 CLR 340.
the underlying contract to determine whether there is a right to make a further payment claim after termination. In a subsequent New South Wales case, Impero Pacific Group Pty Ltd v Bonheur Holdings Pty Ltd, the Court found that the terms of the contract specifically provided an entitlement to further payment post-termination.11
[65] However, in my view, a different approach is required under New Zealand law in relation to the CCA. In South Pacific Industrial Ltd v Demasol Ltd,12 in the context of an application to set aside a statutory demand, the High Court found that it was reasonably arguable that a payment claim under the CCA was invalid on several grounds, including that a single payment on completion was expressly agreed in the construction contract in accordance with s 14(2) of the CCA, and the payment claim was not served in accordance with this agreed term, and therefore did not comply with the requirements of s 20(1) of the CCA.
[66]In determining the appeal on this issue, the Court of Appeal held in
Demasol Ltd v South Pacific Industrial Ltd that:13
The Associate Judge sought to consider the contract between Demasol and SPI to determine whether Demasol was entitled to serve the claim. In our view, she erred in undertaking this enquiry. Section 20(1) of the CCA deals with when a payee may serve a payment claim. If the construction contract provides for the matter, a payment claim can be served at the end of the period specified in or determined in accordance with the contract. If the contract does not provide for the matter, in the case of a progress payment, a payment claim can be served at the end of the relevant period referred to in s 17(2) – that is, the period commencing on the day of the month on which the construction work was first carried out and ending on the last day of that month, and each month thereafter. In the case of a single payment expressly agreed under s 14(1)(a), if the contract does not provide for the matter then a payment claim can be served following the completion of all of the construction work to which the contract relates.
There was considerable debate before the Associate Judge as to which of these various provisions applied. We are not persuaded that it makes any difference for present purposes. If SPI wished to contend
11 Impero Pacific Group Pty Ltd v Bonheur Holdings Pty Ltd [2019] NSWSC 286 at [13] and [41]-[44]. A similar approach has been taken in Singapore where the Court will review the terms of the contract to determine if there is a right to serve a payment claim after termination, see Orion- One Residential Pte Ltd v Dong Cheng Construction Pte Ltd [2020] SGCA 121 and Shimizu Corporation v Stargood Construction Pte Ltd [2020] SGCA 37.
12 South Pacific Industrial Ltd v Demasol Ltd [2021] NZHC 3597.
13 Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480, at [41]-[42] and [47] (footnote omitted).
that Demasol was not entitled to serve a payment claim on it when Demasol did so, that was a point it could and should have taken by way of response in a payment schedule. …
…
… In our view, the only enquiries required in relation to SPI’s application to set aside the statutory demand were:
(a)whether the payment claim complied with s 20 of the CCA;
(b)whether SPI had provided a payment schedule contesting its liability or paid the amount claimed by the due date.
The general merits of Demasol’s payment claim were not open for consideration and were irrelevant in the statutory demand context. In our view, the Associate Judge erred when she embarked on an enquiry into the terms of the contract and the quantum and merits of payment claim 2.
[67] Although Demasol was in relation to an application to set aside a statutory demand, and alleged termination of the underlying construction contract was not in issue, it seems to me that the same approach applies in the present case.
[68] It is not disputed that there was a construction contract between GRL and KBC, and the work that is the subject of PC16 was carried out under that construction contract prior to the alleged termination. In my view, KBC is seeking payment for “construction work carried out under a construction contract” in terms of the definition of “payment” in s 19 of the CCA. Even if the contract was validly terminated on 4 November 2022, as contended by GRL, that does not avoid the contract as though it never existed. Rather, it is discharged prospectively and some contractual rights and obligations, for example an obligation to pay liquidated damages for delayed completion, may continue to apply post-termination.14
[69] In Demasol, with regard to the single payment issue, the question was whether Demasol was entitled to serve the relevant payment claim on SPI when it did so. The Court of Appeal found that considering the contract between Demasol and SPI to determine that issue was not the correct approach. In the present case, the issue is whether KBC was entitled to serve PC16 on GRL at the time it did so, that is, after the
14 Section 42(1)(a) Contract and Commercial Law 2017; and Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at 18.4.1.
alleged termination of the contract. Determination of this issue firstly requires consideration of the terms of the contract between KBC and GRL.15 However, in the context of an application for summary judgment for a debt due under s 24 of the CCA, as with an application to set aside a statutory demand for a debt due under the CCA, it seems to me that it is not appropriate to undertake that enquiry. If GRL wished to contend that KBC was not entitled to serve a payment claim on 25 November 2022 after the alleged termination of the contract, that was a point that it could and should have taken by way of response in its payment schedule.
[70] In my view PC16 was a valid payment claim in accordance with s 20 of the CCA. PC16:
(a)is in writing;
(b)contains sufficient details to identify the construction contract to which the payment relates;
(c)identified the construction work and the relevant period to which the payment relates;
(d)states a claimed amount and the due date for payment;
(e)indicates the manner in which KBC calculated the amount; and
(f)states that it is made under the CCA.
[71]PC16 also complies with the requirements of s 20(3) of the CCA.
[72] A potential issue with compliance with s 20 is that PC16 states that the relevant period to which the payment relates is 1 November 2022 to 25 November 2022. It is clear from the evidence, and it was accepted at the hearing, that all the work which was the subject of PC16 was undertaken prior to the end of October 2022. However, in this case, it seems to me that the failure to state the correct period to which the claim
15 See section 20(1)(a) of the Construction Contracts Act 2002.
relates constitutes a mere “technical quibble”.16 GRL, through Mr Nand, responded fully to PC16 in payment schedule 16 and there is no evidence of any confusion or prejudice to GRL arising from this issue.
[73] In this case, GRL issued a payment schedule in response to PC16 on 19 December 2022. The payment schedule did not raise any issue about entitlement to serve PC16 after the alleged termination. It stated a scheduled amount payable to KBC in the sum of $773,758.11 (including GST). GRL then failed to pay that scheduled amount by the due date for payment being 20 December 2022 or any time thereafter.
[74] The difficulty for KBC is that it is not clear whether the payment schedule was served by GRL within the time allowed by section 22(b) of the CCA as required by s 24(1)(b). In any proceedings for the recovery of a debt under s 24, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection 24(1) exist.
[75] Section 22 of the CCA provides that a payer becomes liable to pay the claimed amount on the due date for the payment to which the payment claim relates if
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.
[76] The construction contract between GRL and KBC stated that the payment schedule was to be provided no later than 12 working days after the payment claim was served.17 GRL served the payment schedule in response to PC16 on 19 December 2022 which was 16 working days after PC16 was served.
16 See Rangitahi Ltd v Pemberton Civil (Hamilton) Ltd [2021] NZHC 3471 at [46]; Herbert Construction Co Ltd v Reinforcing Steel & Mesh Ltd [2013] NZHC 376 at [52]; Pedestal Ltd v City Build Construction Ltd [2014] NZHC 1783 at [43]–[49].
17 Clause 12.2.5 of the general conditions of contract.
[77] It may be arguable that, if the contract was validly terminated on 4 November 2022, then the contract no longer provided for a time by which the payment schedule was to be served, in which case s 22(b)(ii) would apply. However, determination of that issue requires determination of whether GRL validly terminated the construction contract on 4 November 2023. As discussed above, due to the material conflicts of evidence, that issue can only be properly determined at trial.
[78] Therefore, because I am not satisfied that the circumstances in s 24(1)(b) of the CCA exist, I am unable to grant summary judgment in respect of KBC’s claim for a debt due under s 24 of the CCA.
Result
[79] The plaintiff’s application for summary judgment in respect of the first cause of action in the statement of claim dated 14 March 2023 (payment claim 14) is dismissed.
[80] The plaintiff’s application for summary judgment in respect of the second cause of action (retentions invoice) is dismissed.
[81] The plaintiff’s application for summary judgment in respect of the third cause of action (payment claim 15) is dismissed.
[82] The plaintiff’s application for summary judgment in respect of the fourth cause of action (payment claim 16) is dismissed.
[83] As to costs, my preliminary view is that costs should be reserved in accordance with NZI Bank Ltd v Philpott.18 If either party disagrees with that preliminary view, then memoranda may be filed (not exceeding three pages – excluding costs schedules) and costs will be dealt with on the papers.
18 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
Directions
[84] The defendant is to file and serve a statement of defence within 20 working days of the date of this judgment.
[85] The parties are then to file a joint memorandum or separate memoranda for the first case management review in accordance with r 7.3 of the High Court Rules.
Associate Judge Skelton
Solicitors:
Dalzell Wollerman, Wellington for Plaintiff/Respondent Collins & May, Lower Hutt for Defendant/Applicant
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