Rangitahi Limited v Pemberton Civil (Hamilton) Limited

[2021] NZHC 3471

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2021-419-000177

[2021] NZHC 3471

BETWEEN

RANGITAHI LIMITED

Applicant

AND

PEMBERTON CIVIL (HAMILTON) LIMITED

Respondent

Hearing:	27 October 2021
Appearances:	J A MacGillivray for Applicant V A Whitfield for Respondent
Judgment:	16 December 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 16 December 2021 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ………………………..

RANGITAHI LTD v PEMBERTON CIVIL (HAMILTON) LTD [2021] NZHC 3471 [15 December 2021]

Introduction

[1]Rangitahi Ltd1 applies to set aside a statutory demand issued by the respondent,

Pemberton Civil (Hamilton) Ltd,2 in the sum of $973,079.47.3

[2]                 The statutory demand was based on a progress payment claim (number 41) under a construction contract. That construction contract is subject to the Construction Contracts Act 2002.4 The progress payment claim was issued after the engineer had issued the final completion certificate.5 Rangitahi did not issue a progress payment schedule in response to the progress payment claim. On that basis, Pemberton’s position is that Rangitahi cannot deny the debt is due and owing. Pemberton relies on ss 22 and 23 of the CCA and the statutory philosophy of “pay now, argue later”.6

[3]                 The issue before me is whether Pemberton issued a valid progress payment claim; specifically, whether it is reasonably arguable that the issuing of the FCC meant that Pemberton could only make one final “wash-up” payment claim encompassing all of its outstanding claims.

Factual background

[4]                 Rangitahi is undertaking the development of a subdivision in Raglan comprising over 550 sections. In 2018, the parties entered into a written construction contract to complete the construction of earthworks and civil works necessary to deliver sections in “precinct A” of the subdivision. The construction contract is a NZS3910:2013 contract.7 It provided for retentions that were to be released in accordance with cl 12.3.2, below, and the special conditions of the contract.

[5]Clause 12.2 of the contract is entitled “Progress Payment Schedules”. Clause

12.2.1 provides that the engineer shall provide a Progress Payment Schedule in

1      Rangitahi.

2      Pemberton.

3      Companies Act 1993, s 290.

4      CCA.

5      FCC.

6      Gill Construction Ltd v Butler [2010] 2 NZLR 229 at [9].

7      For ease, I refer to this as the Precinct A contract.

response to each payment claim not later than 12 working days after the date of service of the payment claim.

[6]Clause 12.3.2 provides for “Retention monies”:

The monies retained, less any deductions which the Principal is entitled to make, shall be paid to the Contractor as follows:

(a)By payment, as part of the first progress payment after the issue of the Practical Completion Certificate for the whole of the Contract Works or for the Separable Portion, of any amount in excess of the defects liability retention specified in the Special Conditions;

(b)By payment, as part of the first and any subsequent progress payment after the end of the Defects Notification Period for the whole of the Contract Works or for the Separable Portion, of the defects liability retention less the Engineer’s assessment of the value of the Contract Works remaining to be completed in accordance with 11.2 at the time of the progress payment. The assessed value of such remaining Contract Works shall be assessed Cost to the Principal of making good those omissions and defects in accordance with 11.2.2 and 11.2.3; and

(c)By payment of any remaining defects liability retention 10 Working Days after the date of the Final Completion Certificate for the whole of the Contract Works or of the Separable Portion.

[7]Clause 12.4.1, headed “Final payment claim”, reads:

Not later than one Month after the issue of the Final Completion Certificate or within such further time as the Engineer may reasonably allow, the Contractor shall submit a final account of all the Contractor’s payment claims in relation to the Contract. The final account shall be signed by the Contractor and endorsed “final payment claim”, and shall be the Contractor’s final payment claim under the Contract. The final payment claim shall be served on the Engineer as agent of the Principal and at the same time a copy of the final payment claim shall be provided to the Principal.

[8]                 Over the course of the project, there were various issues between Pemberton and the engineer in relation to Pemberton’s claims. Some items Pemberton claimed were not approved; approved and later rejected; rejected and later approved; or the engineer required further information in relation to them.

[9]                 On 5 May 2020, the practical completion certificate was issued. Accordingly, the 12-month defect liability period ended on 5 May 2021. On 6 May 2021, Pemberton served claim number 40 for the month of April under which it claimed $784,456.35 (GST included). The first half of the retentions Pemberton claimed in the first progress

payment (payment claim 36) after the issue of the practical completion certificate. It was certified by the engineer and released.

[10]             On 13 May 2021, the engineer, David Napier, served a payment schedule in response to claim 40 with a schedule amount of $1,047.60 (including GST) being payable to Pemberton. Rangitahi says that the substantial difference between the claimed and scheduled amounts for claim 40 is owing to deductions Mr Napier made for amounts claimed that he had previously determined invalid.

[11]             On 1 June 2021, Mr Napier issued a final completion certificate pursuant to  cl 11.3 of NZS3910. That was accompanied by NTC66 which contained the following passage regarding the submission of a final payment claim under cl 12.4.1 of NZS3910 following the issue of the final completion certificate:

… Pembertons are required to submit their Final Payment Claim by 1st July 2021, being one month following the issue of the Final Completion Certificate. The final claim must be endorsed “Final Claim” and shall be rejected if not so endorsed. Failure to submit a properly formulated final claim by that date shall be considered by the Engineer to reflect the Contractor’s intention to make no further claims, and a Final Payment Schedule will be issued.

[12]On 4 June 2021, Pemberton served claim number 41 in which it claimed

$973,079.47 (GST inclusive). The parties agree that no contract works at all had been undertaken during the previous month (May 2021) and except for additional interest (including interest charged on disputed amounts yet to be determined) and the retention release, claim 41 mirrored claim 40.

[13]             Payment claim 41 was not marked “Final Payment Claim”. Pemberton says it was not intended to be the final payment claim and that it had until 1 July 2021 to submit the final payment claim.

[14]             On 10 June 2021, another engineer on the project, Andrew Dyer, sent an email to Pemberton on behalf of him and Mr Napier stating:

We note that Claim 41 is not marked ‘Final Claim’ if this is in error please review and re-submit, please confirm. There are no further progress claims expected under the contract. If Pemberton’s intend to continue submitting progress claims – these will be rejected without review.

As per NTC 66 issued on the 1/6/2021 Pemberton’s are obliged to provide their final claim. If the final claim has not been submitted by 1 July 2021 the Engineer will issue a final payment certificate in accordance with s 12.4 NZS3910:2013.

[15]             Pemberton did not respond to that email. Pemberton says it took the view that it did not need to re-submit the claim given that it was not the final payment claim.

[16]             On 1 July 2021, Pemberton issued its final payment claim (number 42). The cover email noted the following:

This does not replace Progress Payment Claim 41, with an amount outstanding of $973,079.47 inclusive of GST.

[17]             Also on 1 July 2021, Pemberton’s solicitors wrote to Rangitahi’s solicitors contending that claim 41 was not in fact intended to be a final payment claim and demanded immediate payment of $973,079.47 (GST inclusive).

[18]             On 9 July 2021, Pemberton served a statutory demand on Rangitahi for the sum of $973,079.47 (GST inclusive). That followed correspondence from Rangitahi’s solicitors disputing that any amount was owing or due under claim 41.

[19]             Based on its final payment claim dated 1 July 2021, Pemberton’s position that Pemberton owes the demanded sum under the contract. In contrast, Rangitahi’s position, based on the final payment schedule of 11 August 2021, is that no amount is payable to Pemberton. Rather, Rangitahi says that it is owed money under the contract when liquidated damages and other deductions from amounts claimed by Pemberton are taken into account.

Relevant legal principles

Setting aside a statutory demand

[20]Section 290 of the Companies Act 1993 relevantly provides:

Court may set aside statutory demand

(1)The court may, on the application of the company, set aside a statutory demand.

…

(4)The court may grant an application to set aside a statutory demand if it is satisfied that –

(a)there is a substantial dispute whether or not the debt is owing or is due; or

(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.

[21]             The general principles on an application to set aside a statutory demand under s 290(4)(a) are well settled:

(a)The onus is on the applicant to show there is “arguably a genuine and substantial dispute” as to whether the debt is owing or due.8 There need only be a “fairly arguable” basis on which it is not liable for the amount claimed.9 This is a question of fact to be determined in light of all the relevant circumstances.10

(b)The Court’s task is not to resolve the dispute, only to determine whether there exists a substantial dispute that the debt is owing or due.11

(c)Mere assertion a qualifying dispute exists is insufficient but only “some material short of proof” is required.12 Where this material is available, the dispute should normally be resolved first in ordinary proceedings, before any statutory demand is issued.13

(d)Finally, as on other summary applications, the Court must be cognisant of the features of the summary jurisdiction, including any disadvantage

8      Link Electro Systems v GPC Electronics (NZ) Ltd [2007] NZCA 501, (2007) 18 PRNZ 946 at [17].

9      Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd (2001) 16 PRNZ 963 (CA) at [15];

United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27] and [32].

10     QDC Developments Ltd v Trustees of the Boss Properties Trust HC Wellington CIV-2010-485- 1761, 1 December 2010 at [7].

11     Confident Trustee Ltd v Garden & Trees Ltd [2017] NZCA 578 at [16(a)]; Link Electro Systems v GPC Electronics (NZ) Ltd, above n 8, at [17].

12     Link Electro Systems v GPC Electronics (NZ) Ltd, above n 8, at [17].

13     Confident Trustee Ltd v Garden & Trees Ltd, above n 11, at [16](c).

to applicants, and that it is distinct from the Court’s position in a full- blown trial.

The scheme of the CCA

[22]             Section 22 of the CCA provides that a principal becomes liable to pay the claimed amount of a payment claim if the contractor does not provide a payment schedule within the time allowed; either a specified time in the contract, or if unspecified, 20 working days after the payment claim is served. Section 23 provides the consequences of not paying a claimed amount where no payment schedule is provided: the contractor may recover from the principal as a debt due, the unpaid portion of the claimed amount.

[23]             Section 79 of the CCA prevents a court from giving effect to any counterclaim set-off or cross-demand in any proceedings for recovery of a debt pursuant to s 23, save for certain circumstances which do not apply in this case.

[24]             The consequence is what is referred to as a “pay now, argue later” regime, as described by this Court in Gill Construction v Butler:14

[9] A determination under the CCA therefore provides a mechanism by which payment of disputed amounts can be promptly required and enforced, even though the payer is able to separately contest that the payment was owing under the contract between the payer and the payee. If the payer’s position is upheld in separate proceedings, then the payee will be required to pay back the money that he or she received from the payee as a result of the CCA process. For this reason, the CCA has been described as a “pay now, argue later” regime and as giving rise to a “temporary” debt (e.g. Laywood v Holmes Construction [2009] 2 NZLR 243 at [52]). Nevertheless, because it is a debt that may be enforced, it has been held that a statutory demand can be issued in respect of it: Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited (2005) 18 PRNZ 97.

The issues

[25]             I must resolve whether Rangitahi has established a reasonably arguable claim on the following questions:

14     Gill Construction Company Ltd v Butler [2010] 2 NZLR 229, (2009) 20 PRNZ 274 (HC).

(a)Whether once cl 12.4 of the contract is triggered (the FCC having issued), the contractor must issue a final payment claim and can no longer issue a progress claim under cl 12.1; and

(b)Whether claim number 41 is invalid because it was not a new progress payment claim and lacked the necessary mandatory detail (including the identification of the contract works, the relevant period to which the payment claim relates and the manner in which the payee calculated the claimed amount).

Analysis and decision

Issue (a): Was Pemberton required to issue a final payment claim?

[26]             In its judgment in Firm PI1 Ltd v Zurich Australian Insurance Ltd15 the Supreme Court confirmed the general approach to contractual interpretation.16 The aim is to determine “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”17 As McGrath, Glazebrook and Arnold JJ summarised in Firm PI1:

[63]  While context is a necessary element of the interpretive process and  the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

[27]             The starting point is  of  course  the  words  of  the  contract.  I  agree  with Ms Whitfield that there is no express prohibition in the contract that precludes the making of a further progress claim after the issue of the FCC. However, the words of the critical cl 12.4 are expressed in mandatory terms – “shall submit”. In addition, the reference to “a final account of all the contractor’s payment claims in relation to the

15 Firm PI1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].

16 See Bathurst Resources Limited v L&M Coal Holdings Limited [2021] NZSC 85 at [43].

17     Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912–913, cited in Firm PI1 Ltd v Zurich Australian Insurance Ltd, above n 15, at [60] and Bathurst Resources Limited v L&M Coal Holdings Limited, above n 16, at [41].

contract” (emphasis added) provides clear support for the contention that at that stage (i.e. after the FCC issues) there can only be one final “wash-up” payment claim that encompasses all of the then outstanding claims. It is arguably an all-encompassing provision which provides the payee with one last opportunity to submit all its outstanding claims at once.

[28]             There is clear support for this approach in the scheme of the contract as a whole. The purpose of the FCC is to signal the end of the construction work. An FCC is only issued when the defects notification period has expired and the contractor has remedied all minor omissions and defects notified by the engineer (cl 11.3.1). From the date the FCC is issued, there is no work to be carried out under the contract. This appears to make the issuing of a progress claim prior to the FCC superfluous.

[29]             Contrary to cl 12.1.2, which provides that payment claims can only be submitted for work carried out during a period of not less than one month, cl 12.4.1 expressly requires a final payment claim to be submitted within one month after the issue of the FCC. That too provides some support that the parties intended the FCC would trigger the final payment claim process under cl 12.4, bringing the previous progress claim process to an end.

[30]             Ms Whitfield, for Pemberton, emphasised cl 12.3, the “retention monies” clause. She contended the contract expressly contemplates a progress payment for the release of retentions before the FCC and the need for a final payment claim. She contended that Pemberton was entitled to issue a progress claim for the balance of the retentions after 13 May 2021 (i.e. the date the defects notification period ended). It did so, it is contended, by issuing claim 41, which was the progress payment due after the end of May 2021.

[31]             I agree the contract expressly contemplates a progress payment for the release of retentions before the FCC and the need for a final payment claim. However, that does not address the question of whether, once a FCC is issued, the release of any outstanding retentions can no longer be claimed via progress payment but must be included in the final wash-up claim.

[32]             Part of Pemberton’s difficulty is the retentions are a relatively modest part of the progress claim at issue, comprising approximately $158,000 of the statutory demand sum.

[33]Clause 12.3.2 stipulates that retentions are to be paid as follows:

(a)for retentions after the issuance of the practical completion certificate (12.3.2(a)) and after the end of the defects notification period (12.3.2(b)), by way of a progress payment claim; and

(b)for retentions remaining after the date of the FCC, by payment of any remaining defects liability retention 10 working days after the date of the final completion certificate.

[34]             By contrast with cls (a) and (b), cl 12.3.2(c) makes no express reference to a “progress payment” claim. That scheme arguably provides some support for Rangitahi’s position that the release of retentions after the date of the FCC is not pursuant to a progress payment claim because the contract does not envisage that a progress claim will be issued after the FCC.

[35]             Pemberton contends its  claim  for  the  remaining  contentions  arose  under cl 12.3.2(b), and not under cl 12.3.2(c). It says that clause was never engaged because the engineer made no deductions for incomplete or defective work.

[36]             In my view, this is a trial issue. In any event, taking the contract as a whole, it is arguable Pemberton was not able to issue further progress claims once the FCC issued, whether for retention or anything else; rather, it could only make one final wash-up claim for all outstanding issues.

[37]             It is also arguable that the only additional amount claimed by Pemberton between claim 41 and the final payment claim 42 was additional interest. There was therefore no good reason for a progress claim to be issued for the sole purpose of providing an interim interest calculation. While the Court of Appeal has held that payment claims can include items other than physical work (insurance costs, interest,

costs of preparing a programme on extension of time entitlement),18 following the issue of an FCC there is no good reason for a progress claim to then be issued for the mere purpose of giving an interim interest calculation prior to the final payment claim. This is particularly so when the interest sought is not on unpaid unscheduled amounts but interest on disputed amounts that are yet to be determined.

[38]             I conclude Rangitahi has established a reasonably arguable claim that after the FCC was issued, Pemberton could only make one final “wash-up” claim encompassing all of its outstanding claims. It follows payment claim 41 is arguably invalid and Rangitahi’s failure to issue a progress schedule in response cannot be relied upon by Pemberton to establish that the debt is due and owing.

Issue (b): Is claim 41 invalid?

[39]             As noted above, cl 12.1.2 expressly provides that payment claims may only be submitted for work carried out during periods of “not less than one month”.

[40]Under cl 12.1.3(a), the contractor’s payment claims shall:

Identify the contract and the relevant period to which the payment claim relates.

[41]This reflects the requirements of s 22(b) and (c) of the CCA.

[42]Under cl 12.1.3(b), the contractor’s payment claim shall:

Identify the Contract Works to which the payment claim relates, the claimed amount in respect of those Contract Works and the manner in which the claimed amount has been calculated …

[43]This reflects the requirements of ss 22(c), (d) and (e) of the CCA.

[44]             As the Court of Appeal held in C.J. Parker Construction Ltd v Ketan, having regard to the purpose of the CCA in 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

18     George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 at [55].

s 20(2)(e)”.19 The Court accepted the principle that “technical quibbles should not be allowed to vitiate a payment claim that substantively complies with the requirements of the [CCA] is critical”.20 Rather, “[t]he key is the provision of sufficient information to make clear the manner in which the amount claimed has been calculated.”21 It is common ground claim 41 does not expressly state the work period to which it relates. It is also common ground that Pemberton did not carry out any work in May 2021.

[45]             In contending that claim 41 is unclear and invalid, Mr MacGillivray submitted for Rangitahi:

(a)Claim 41 was effectively a re-submission of claim 40, restating all the claimed monthly quantities and amounts for the month of April 2021. That can be seen from claim 41 having the same green-coloured identifiers as claim 40 for purported “new” monthly quantities and amounts, despite those monthly amounts already being claimed the previous month. Pemberton did not provide any additional information to support claimed quantities and amounts in claim 40, which had not previously been considered. Instead, they had already been rejected by the engineer for the reasons given in the NTC accompanying claim 40.

(b)Given (a) above, it is unclear what period the claim 41 was intended to refer to; what works were being claimed for that period; and the way the claimed amount had been calculated.

[46]             I find that Rangitahi has established the threshold of a reasonably arguable case that claim 41 is invalid because it fails in substance to comply with the mandatory requirements of the contract and ss 20(2)(c) and (e) of the CCA. There are several factors that tend toward the conclusion the defects are arguably substantive and not merely technical. First, I agree that in some cases contractors can present a previously declined or ignored claim.22 However, it is apparent there was genuine confusion or a

19     C J Parker Construction Ltd v Ketan [2017] NZCA 3 at [25].

20 At [43].

21     At [66], citing Geoff Bayley and Tómas Kennedy-Grant A Guide to the Construction Contracts Act (Rawlinsons Media, Auckland, 2003) at 65.

22     As recognised in George Developments Ltd v Canam Construction Ltd, above n 18, at [44].

lack of understanding by the engineer as to much of the substance of claim 41 related to. In addition, although the engineer may have had some understanding that claim 41 included retentions, as noted that formed only a relatively modest amount of the total sum claimed. There was also arguably a failure to indicate the manner in which the payee calculated the claimed amount and the relevant period to which the claim relates. Again, in some cases, the failure to state the relevant period to which the claim relates may constitute a mere “technical quibble”, for example in circumstances where the parties would have been aware of the relevant workstreams, invoicing and so on to which the claim related.23 However, here, where Pemberton carried out no work in May 2021 and provided no additional information to support old, already rejected claims, it is arguable payment claim 41 was defective in a substantive way.

[47]             Given the point I have reached, it is not necessary that I address estoppel on the grounds of misrepresentation by silence.

Result

[48]             I grant Rangitahi’s application to set aside the statutory demand. Rangitahi has established that there is a genuine substantial dispute as to whether the debt is owing or due.

[49]             As to costs, I am of the preliminary view, that having succeeded, Rangitahi is entitled to costs on a 2B basis plus disbursements. If costs cannot be agreed, then memoranda are to be filed (no more than three pages’ length) by 28 January 2022.

Associate Judge P J Andrew

23     Herbert Construction Co Ltd v Reinforcing Steel & Mesh Ltd [2013] NZHC 376 at [52]; Pedestal Ltd v City Building Construction Ltd [2014] NZHC 1783 at [43] and following.