Nicholls Group Projects Limited v Plan Design Build Homes Limited
[2022] NZHC 56
•28 January 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001294
[2022] NZHC 56
UNDER Section 290 of the Companies Act 1993 BETWEEN
NICHOLLS GROUP PROJECTS LIMITED
Applicant
AND
PLAN DESIGN BUILD HOMES LIMITED
Respondent
Hearing: 28 October 2021 Appearances:
M L Clark for the Applicant M Taylor for the Respondent
Judgment:
28 January 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 28 January 2022 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Maria Taylor, Auckland
Vallant Hooker & Partners, Auckland Matt Taylor, Auckland
NICHOLLS GROUP PROJECTS LTD v PLAN DESIGN BUILD HOMES LTD [2022] NZHC 56
[28 January 2022]
Introduction
[1] Nicholls Group Projects Limited (Nicholls Group) applies to set aside a statutory demand served by Plan Design Build Homes Limited (Plan Design) dated 2 July 2021, which seeks payment of the sum of $96,707.87. The sum relates to a Building Work contract dated 9 March 2021 for a project at 335 Great South Road. Under the contract, Plan Design agreed to provide labour for the project.
[2] The sum claimed arises out of four invoices issued by Plan Design between 27 May and 15 June 2021, as payment claims under the Construction Contracts Act
2002 (CCA). These are: (a)
Invoice 139 (dated 27 May 2021)
$55,856.96
(b)
Invoice 140 (dated 4 June 2021)
$15,118.20
(c)
Invoice 143 (dated 11 June 2021)
$15,417.20
(d)
Invoice 144 (dated 15 June 2021)
$10,315.51
TOTAL $96,707.87
[3] In its application to set aside the statutory demand, Nicholls Group set out 15 grounds in support. At the hearing, Nicholls Group sensibly refined its case to one ground: that the payment claims issued by Plan Design are invalid. Specifically, Nicholls Group contends that:
(a)the payment claims contain errors and double-charging;
(b)payment claim 139 was not issued within the time provided in the contract;
(c)the payment claims do not identify the construction work completed;
(d)the payment claims do not identify the builders whose time is charged.
[4] Nicholls Group concedes that no payment schedules were issued in response to the four payment claims underlying the statutory demand within the prescribed time.
Legal framework
[5] The legal framework concerning an application to set aside a statutory demand for sums claimed pursuant to payment claims under the CCA was helpfully set out by Associate Judge Sargisson in GPW Investments Ltd v Dreamhome Construction Group Ltd:1
[18] Under s 290(1)(a) of Companies Act 1993, a court may grant an application to set aside a statutory demand if it is satisfied that there is a substantial dispute whether or not the debt is owing or is due. GPW must “show a fairly arguable basis upon which it is not liable for the amount claimed”.2 This calls for a prompt judgment as to the existence of such a genuine and substantial dispute, but the Court is not tasked with resolving that dispute.3
[19] It is quite palpable, at first blush, that there is a genuine and substantial dispute between the parties over the alleged debt…
[20] But in cases such as this, the s 290 test must be viewed through the lens of the payment regime established by the Act. Part 2 of the Act provides a regime to facilitate regular and timely payments between the parties to a construction contract. Sections 19-24 outline a procedure for the payee to recover payment: the payee makes a Payment Claim, and the payer responds by means of a Payment Schedule.4
[21] The Act establishes a draconian “sudden death” regime if its payment procedures are not complied with. If the payer does not provide a Payment Schedule within the specified time or else does not pay the claimed amount before the due date, the payee may recover from the payer, as a debt due, any unpaid portion and the costs of recovery.5 In short, the payee must simply pay now, and pursue any argument later.
[22] Dreamhome relies on this sudden death regime to get around the inescapable reality of the parties’ dispute. If GPW has failed to provide a Payment Schedule in time, in response to a valid Payment Claim, then GPW’s liability would follow automatically without further challenge or argument. There could be no “substantial dispute” for the purposes of s 290. For the statutory demand to be set aside, I must therefore be persuaded that the state of “sudden death” under the Act has not actually arisen.
1 GPW Investments Ltd v Dreamhome Construction Group Ltd [2017] NZHC 2057 at [18].
2 Forge Holding Ltd v Kearney Finance (NZ) Ltd HC Christchurch M149/95, 20 June 1995.
3 Industrial Group Ltd v Jan Dirk Bakker [2011] NZCA 142 at [24].
4 CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA at [1].
5 At [2], [16].
[6] Similarly, having failed to issue payment schedules to the payment claims in time, the only way that Nicholls Group can avoid the consequences of the “sudden death” regime is to establish that Plan Design’s payment claims are invalid.
[7]The requirements for a valid payment claim are set out in s 20(2) of the CCA:
A payment claim must –
(a)be in writing; and
(b) contain sufficient details to identify the construction contract to which the payment relates; and
(c) identify the construction work and the relevant period to which the payment relates; and
(d)state a claimed amount and the due date for payment; and
(e) indicate the manner in which the payee calculated the claimed amount; and
(f)state that it is made under this Act.
[8] I now address each of Nicholls Group’s reasons for why the payment claims are invalid.
Errors and double-charging
[9] Nicholls Group alleges that invoices 139 and 140 do not comply with s 20(2)(c) as they do not identify the relevant period to which the payment relates. Specifically, Nicholls Group alleges that there is double-charging across the two invoices for 27 and 28 April 2021, and there is a charge for the public holiday observing ANZAC day (26 April 2021) on invoice 140 when no work was completed on that day.
[10] Michael Hemmingsen-Jensen (also known as Mike Jensen) of Plan Design explains that there is no double-charging, and that invoice 140 incorrectly records the dates of work as being April when they were in fact dates in May. Once that correction is made, it is clear that there has been no double-counting for 27 and 28 April 2021 and no charge for work on the public holiday.
[11] I have no hesitation in concluding that this is a trifling error that does not invalidate these invoices as payment claims.
[12] It is well-established that technical quibbles that a payment claim has not complied with the requirements of s 20(2) should not be permitted to invalidate the payment claim and frustrate the purpose of the CCA. In George Developments Ltd v Canam Construction Ltd, the Court of Appeal said:6
[43] … the general observation that technical quibbles should not be allowed to vitiate a payment claim that substantively complies with the requirements of the Act is critical and needs to be weighed alongside the “technocratic” interpretation advanced by George.
[13] The error described should have been obvious to Nicholls Group when it received the invoice, from the invoice date (4 June 2021) and the days of the week recorded beside each entry. If the error was not immediately apparent to Nicholls Group, it would have become clear when Plan Design provided the relevant timesheets for each day invoiced, on 11 June 2021. Those timesheets refer to May.
[14]Accordingly, this ground for invalidity is not made out.
Incorrect due date for payment
[15] Nicholls Group contends that due to delayed delivery of the payment claims, the due dates recorded on invoices 139 and 140 were incorrect, in breach of s 20(2)(d). Whereas invoice 139 recorded a due date of 3 June 2021, the correct due date based on when it was sent and received was 7 June 2021. Likewise, whereas the due date stated on invoice 140 was 11 June 2021, the correct due date based on when it was sent and received was 15 June 2021.
[16] In CMP Construction Ltd v Aluminium Technology Ltd, this Court concluded that a due date that had been incorrectly calculated did not invalidate the payment claim. Associate Judge Faire stated:7
[27] … Although s 20(2)(d) of the Construction Contracts Act 2002 requires that a payment claim indicates the due date for payment, [counsel] drew
6 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [43].
7 CMP Construction Ltd v Aluminium Technology Ltd [2013] NZHC 2481.
attention to decisions of the court that have held that minor errors in a payment claim, such as an error in the due date, should not be allowed to frustrate a subcontractor’s entitlement to payment under the Construction Contracts Act 2002. Such errors are regarded as mere technical quibbles.
[28] [Counsel] drew attention to the fact that there is no evidence that the applicant has been misled by the error. He referred me to the two decisions where the Courts have disregarded an error in the due date for payment as being a ground for holding that the payment claim was invalid.
[29] I conclude that there is nothing in this case that would justify my concluding that an error in the payment date should invalidate the payment claim.
(citations omitted)
[17] Associate Judge Sargisson accepted that approach in Pedestal Ltd v City Build Construction Ltd, concluding that the complaint that the payment claim incorrectly stated the due date was a technical quibble and there was no evidence to suggest that the payer was prejudiced by the error.8
[18] I similarly find that the incorrectly stated due dates on invoices 139 and 140 are minor errors in the category of a technical quibble. There is no evidence that Nicholls Group was prejudiced by the errors other than that they were confused by invoices 139 and 140 because both appeared to charge for the week of 26 April 2021 (as discussed above).9 It should have been obvious to Nicholls Group that the due dates were wrong because of delayed delivery of the invoices. If anything, the errors should have given Nicholls Group a greater sense of urgency for providing payment schedules than was required. Despite that, it did not provide a payment schedule until much later, on 28 June 2021.
[19] I conclude that the incorrect due dates on invoices 139 and 140 do not invalidate them as payment claims.
Incorrect payment period
[20] Next, Nicholls Group complains that invoice 139 was issued for a five week period in breach of the Building Work contract, which it claims required weekly
8 Pedestal Ltd v City Build Construction Ltd [2014] NZHC 1783 at [45]-[46].
9 Affidavit in reply of Carlos Anthony Nicholls sworn 9 August 2021 at [23].
invoicing. It argues that it was prejudiced by this departure from the contract, as it did not have enough time to work through the invoice and determine a scheduled amount within the five working days it had to serve a payment schedule.
[21] The first schedule to the contract states, under the heading “Payment”, that the method of payment will be payment claims. Under that has been written “weekly invoices”. On the following page in the section concerning “Payment Claims”, the contract states:
(a)expected number of payment claims: weekly payments;
(b)minimum interval between payment claims: weekly; and
(c)due date for payment of payment claims: five working days after date of delivery of the payment claim.
[22] I do not accept that the issuance of invoice 139 for a period of longer than one week invalidates it as a payment claim. First, the contract creates an expectation that payment claims will be issued on a weekly basis and sets a mandatory minimum interval between payment claims of one week. It is certainly not clear that the contract requires weekly payment claims.
[23] Second, even if it does, issuance of an invoice for a longer period amounts to a breach of the Building Work contract, not the requirements for valid payment claims in s 20(2) of the CCA. The appropriate course for Nicholls Group was to raise this possible breach of the contract through a payment schedule in response to the payment claim. This is the purpose of a payment schedule.
[24] In this respect I agree with the approach of Asher J in Marsden Villas Ltd v Wooding Construction Ltd.10 The Judge found that a failure to issue a payment claim for the period stated in the contract did not invalidate the payment claim. This failure simply provided a ground on which the payer could object to the payment claim within a payment schedule. He stated:
10 Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 (HC) at [32]-[34].
[34] There is no obvious reason why the Legislature should have made it mandatory that progress payment claims be for certain specified periods, or indeed that they must comply with whatever periods are specified in the Construction Contract. Such a requirement would be technical and oppressive, and is contrary to the purpose of the Act of ensuring prompt cashflows. The particular complaint is in the nature of a “quibble”. There is no suggestion that there is any substantive problem caused for a principal as a consequence of the period of the claim being for less than that stipulated in the Contract. There is nothing in the Act to indicate that a failure to observe the Contract in calculating a progress payment is fatal to a claim. For these reasons I do not consider that this objection is valid … The answer is that the Act’s purpose is to facilitate prompt and regular payments, and that while a very strict position is taken as to payment time limits, such a strict and literal approach is not required in respect of matters of form.
[25] Associate Judge Faire cited this reasoning in CMP Construction Ltd v Aluminium Technology Ltd. In that instance, he concluded that there was no evidence to suggest that there was any prejudice to the payer from the timing of the issue of the payment claim.
[26] Third, I consider the prejudice Nicholls Group complains of is somewhat exaggerated. Nicholls Group argues, referencing these authorities, that it was prejudiced by the payment claim being issued for four weeks rather than one as envisaged by the contract, because it only had five working days to serve a payment schedule. Nicholls Group emphasises the context, which was that it was trying to calculate the correct hourly rate for each worker on site and therefore the amount payable for five different workers.
[27] I do not discount that submission entirely but make the following observations. First, the invoice covers four weeks not five, from 26 April to 21 May 2021. Second, it is a simple invoice that identifies the hours of five builders (described as Builder 1, Builder 2, Builder 3, and so on) for each day applied to the unit price of $65 an hour. I do not accept that it was not possible for Nicholls Group to respond to this simple invoice within the agreed five days. That payment schedule could have raised a dispute concerning the period of the invoice as well as the charges made.
[28] For these reasons I conclude that invoice 139 was not invalid as a payment claim because it covered a period longer than one week.
No description of work undertaken
[29] Nicholls Group complains that the payment claims do not contain a description of the work undertaken, in breach of s 20(2)(c). It says that because of this omission it was unable to assess the work against the estimated timeframes given by Plan Design.
[30] I reject this submission. The contract is for Plan Design to undertake “Building Work”. Building Work is defined in the Second Schedule to the contract as being “Labour only for the items detailed in email 9/3/21 from Mike Jensen”. In that email Mr Jensen states:
The basis of the contract is labour only within the supply of 5 builders at $65 per hour
+ GST. Josh as the LBP will also [sic] at the same rate. Yong Ly will be the Site Foreman for the project.
Below are estimated timeframes...
[31] Thus, the “work” that Plan Design contracted to undertake was to supply builders to the project at an hourly rate. Stating the number of labour hours worked and the rate for each builder was enough to comply with s 20(2)(c).
Failure to identify each worker
[32] This issue is at the heart of the dispute between Nicholls Group and Plan Design. Nicholls Group says that it understood that the five builders Plan Design would provide, as per the contract and the email from Mike Jensen, would be qualified and experienced builders. Nicholls Group says that as the project progressed it became aware that some of the builders on site were inexperienced apprentices or “hammer hands” who could not work unsupervised. It raised this issue with Plan Design, first in March and again in June 2021. Ultimately, on 28 June 2021, Nicholls Group provided Plan Design with its recalculation of the labour charges using a lower hourly rate for the inexperienced builders on site. It accepts that this was too late to qualify as a payment schedule to the four invoices in question.
[33] Plan Design responds that the contract does not require that the builders be “qualified” and there is no legal requirement for a builder to have formal qualifications. The requirement for qualifications applies where restricted building work is being carried out, which must be done or supervised by a Licensed Building Practitioner (LBP). One of the builders on site, Mr Marfleet, was an LBP. It maintains that it complied with the Building Work contract by providing five “builders”.
[34] Undoubtedly this disagreement represents a genuine and substantial dispute between the parties. However, and as discussed, in the context of a statutory demand for sums arising out of payment claims issued under the CCA, that dispute does not provide grounds to set aside the statutory demand where the “sudden death” regime has become engaged. Subject to the following question, as Nicholls Group did not issue a payment schedule raising this dispute within five working days of being served with the payment claims, the sums are a statutory debt which Nicholls Group must pay. This leaves the dispute to be resolved separately.
[35] The relevant question here is whether the payment claims are invalid because they do not identify the individual builders. If the payment claims are invalid, the “sudden death” regime has not been engaged.
[36] Reframing this issue in terms of the requirements for payment claims in s 20(2) of the Act, the absence of the identities of the builders could only be a potential breach of s 20(2)(e) — the requirement for a payment claim to indicate the manner in which the payee has calculated the claimed amount.
[37] On its face, this requirement is met. As discussed, each invoice states for each day of work the number of builders on site (Builder 1, Builder 2 and so on) and the hours each builder has worked, and then multiplies those hours by the unit price of
$65 to arrive at the claimed amount. It is clear how Plan Design has calculated the amount claimed in each invoice.
[38] But Nicholls Group submits that because of the dispute that had arisen about the level of qualification and experience of the builders on site, it was incumbent on Plan Design to provide the names of the builders to enable Nicholls Group to
understand the payment claims, recalculate the charges and serve a payment schedule indicating the scheduled amount it would pay.
[39]Nicholls Group referred to several authorities in support of its argument. First,
CJ Parker Construction Ltd (in liq) v Ketan, where the Court of Appeal said:11
A payment claim must be sufficiently detailed and comprehensible to enable a payer to understand the basis on which the claim is made. Only then can the payer decide whether to accept it or to put the payee on notice of a dispute by providing a payment schedule in response which explains the payer’s reasons for disagreeing with the claim.
[40] In that case, the Court found that the payment claim was incomprehensible or insufficiently detailed to inform the payer about how it was calculated, and therefore the payer could not reasonably be required to provide a payment schedule.
[41] Second, Fowler Homes Southern Lakes Ltd v Bose, where Associate Judge Osborne, applying CJ Parker Construction, also concluded that the payee had not provided enough detail in the payment claim for the payer to understand it and respond in the required period.12
[42] Third, GPW Investments Ltd v Dreamhome Construction Group Ltd, where Associate Judge Sargisson also adopted the test in CJ Parker Construction. The Judge also considered it relevant to consider whether the payer has been or is likely to be prejudiced or misled by the payee’s apparent failure of compliance. She emphasised that “[t]he prejudice to the payer is precisely being left in the insecure position of being unable to decide whether to accept the claim or provide a Payment Schedule explaining the payer’s reasons for rejecting it.”13 In concluding that the information in the payment claim was inadequate, the Judge considered that the ongoing dispute between the parties had a bearing on the level of information that should have been contained in the payment claim. Nicholls Group emphasises this final point.
[43] I do not accept Nicholls Group’s submission for the following reasons. First, as already noted, the payment claims comply with s 20(2)(e) of the CCA. It is
11 CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA 3 at [26].
12 Fowler Homes Southern Lakes Ltd v Bose [2017] NZHC 1707.
13 GPW Investments Ltd v Dreamhome Construction Group Ltd [2017] NZHC 2057 at [39].
perfectly clear how Plan Design has calculated the claimed amounts on each invoice. In CJ Parker Construction terms, the payment claim is sufficiently detailed and comprehensible to enable Nicholls Group to understand the basis on which the claim is made.
[44] Second, the comments of the courts in CJ Parker Construction and GPW Investments Ltd must be seen in their context. In the first case, the Court of Appeal was dealing with a vastly more complicated invoice which was obviously lacking in particularisation. In relation to the labour part of the invoice, the payee specified a single unit in the ‘Quantity’ column, for which it charged $22,497.61. There was no reference to the number of hours worked, or hourly rates. The Court stated:
[25] Though the validity of a payment claim will not be impeached due to purely technical deficiencies, we do not accept [counsel’s] submission that a bare statement of the amount claimed for each item making up a total claim meets the requirements of the Act. Keeping in mind the Act’s purpose of facilitating regular and timely payments in the construction industry, a pragmatic, common sense and contextual approach should be adopted when assessing whether a purported payment claim complies with s 20(2)(e).
(citations omitted)
[45] Associate Judge Sargisson was also dealing with quite a different situation in GPW Investments Ltd. There was an ongoing dispute between the parties which had been referred to an independent expert pursuant to the contract before the payment claim was issued. The expert’s determinations went against the payee. Despite this, the payee issued a statutory demand for the sum claimed in the payment claim, effectively seeking to circumvent the expert’s determination. A further difference is that the Court held that the payment claim was non-compliant with s 20(2) in two respects. Associate Judge Sargisson’s comments about the prejudice to the payer were thus made in the context of a non-compliant payment claim.
[46] Third, even if a dispute between the parties about the qualifications of the builders imposed an additional obligation on Plan Design to identify each builder in the invoices, that dispute did not come to a head until 10/11 June 2021, by which stage invoices 139 and 140 had already been issued.
[47] Nicholls Group submits that the issue was in dispute as early as 21 March 2021, when Carlos Nicholls signed and returned the contract stating that he wanted to clarify who was qualified and who was not, and the appropriate rates.14 But that is not borne out by the facts. While there is evidence that Nicholls Group continued to query the qualification of the builders on site,15 Plan Design issued four invoices between 24 March and 28 April 2021 for a total of $80,188.11, all of which were paid without any dispute by Nicholls Group. It was not until 10 June 2021 that Carlos Nicholls requested the qualifications for each builder on site, information that Plan Design provided that morning. Later that day, Mr Nicholls requested invoices and a snapshot of the timesheets. Some information was sent the same day; and then on 11 June 2021 Plan Design provided all the timesheets, and invoices from contractors, for the most recent invoice 139. There followed a chain of correspondence between Plan Design and Nicholls Group about the invoices, beginning on 16 June 2021 and culminating with the 28 June 2021 email from Nicholls Group attaching their assessment of the amount they should pay, and therefore the disputed amount.
[48] Fourth, and critically, I disagree that the payment claims did not contain enough information to enable Nicholls Group to issue a payment schedule within time.
[49] A payment schedule must be in writing, identify the payment claim to which it relates, and indicate the scheduled amount.16 If the scheduled amount is less than the claimed amount, the payment schedule must indicate the manner in which the payer has calculated the scheduled amount and the reason for the difference.
[50] This Court has found that an unduly technical approach to the fulfilment of the requirements for payment schedules is not warranted.17 It is enough if the essential message is clear and unequivocally consistent with the requirements of s 21.
[51] Nicholls Group was in a position even before the information was provided on 10/11 June 2021 to provide a payment schedule. It could have disputed the payment
14 Submissions of counsel for the applicant dated 12 October 2021 at [48](a).
15 For example, at a meeting on 23 March 2021. See the affidavit in reply of Carlos Anthony Nicholls, above n 9, at [12] and the affidavit of Michael Hemmingsen-Jensen sworn 2 August 2021 at [17].
16 Construction Contracts Act 2002, s 21(2).
17 See Pedestal Ltd v City Build Construction Ltd [2014] NZHC 1783.
claims in their entirely and indicated a scheduled amount of “nil”; or it could have indicated a scheduled amount based on the number of builders it considered to be experienced based on its observations while on site. Certainly, without knowing the identity of each builder recorded on the invoices it was not possible to conduct a precise recalculation, but it could have arrived at an approximate figure. It is relevant that on 10 June 2021 Carlos Nicholls asked that only two qualified builders continue to work.
[52] Fifth, by 11 June 2021 Nicholls Group had the information it needed to provide a more precise recalculation, as is evidenced by the fact that it sent such a recalculation on 28 June 2021 based on this information. Had it acted promptly, it could have served a payment schedule before the correct due date of invoice 140 and invoices 143 and 144.
[53] I conclude that the payment claims are not invalid because they did not include the identities of the builders. The payment claims met the requirements of s 20(2)(e) in that they indicated the way the payment sum had been calculated. While the identities of the builders would have enabled Nicholls Group to provide a more precise calculation of a scheduled amount, it had enough information to issue a payment schedule disputing the entire sum or a proportion of it.
Result
[54] For these reasons, I find that the payment claims that underpin the statutory demand are not invalid. Plan Design is entitled to rely on the “sudden death” regime in the CCA. The application to set aside the statutory demand is dismissed.
[55] As costs follow the event under the statutory costs regime, Plan Design is entitled to costs on a 2B basis, plus disbursements as fixed by the Registrar.
Associate Judge Gardiner
0
5
0