Harnessing the Construction Contracts Act 2002

BRETT MARTELLI, SENIOR ASSOCIATE, HEANEY & PARTNERS

CONTRACTORS ARE WELL aware that under the CCA, if a payment claim is not paid or disputed by the statutory or contractual deadline, the other party is automatically liable for the amount of the payment claim as a debt due which is enforceable in the courts.

Occasionally, contractors have thought that the CCA will apply if the invoice says “This invoice is a payment claim under the CCA”.

That is not correct.

In some cases the contractor will need to comply with the letter of the legislative requirement. In other cases, it may be sufficient if there has been substantial compliance. Each case will turn on its own facts but a particular case can show what is not going to comply with the CCA.

This article reviews what must be said/sent to meet the requirements of the CCA and a case where the contractor did not meet the necessary standard.

What should be sent?

Section 20(2) of the CCA says a payment claim must:

a) Be in writing; and contain sufficient details to identify the construction contract to which the payment relates;

b) identify the construction work and the relevant period to which the payment relates;

c) state a claimed amount and the due date for payment;

d) indicate the manner in which the payee calculated the claimed amount;

e) and state that it is made under this Act.

It is (b) and (e) that cause the most disputes.

In CJ Parker Construction Ltd v Ketan [2017] NZCA 3, the contractor (CJ Parker Construction Ltd) partially renovated Mr Ketan’s house. Unusually, there was no contract between the parties. Mr Ketan became dissatisfied with the work and terminated the arrangement.

CJ Parker sent Mr Ketan a “Tax Invoice” claiming $240,542.10. The invoice:

• Said “this is a payment claim under the Construction Contracts Act 2002” for work completed between 7 May 2013 and 10 July 2013; and

• Described the work loosely as “Main Contract”. The particulars were incomprehensible, for example, one description of work read, “plumbing & drainage for 2 stages as per quote $77,395 plus GST, currently (stage 1) 70 percent work done to charge 20 percent plus GST for major work already done for both stages”. The invoice charged $15,479 for this item. Other descriptions were similar.

Payment was not made and CJ Parker applied for summary judgment for $240,542 on the basis that the invoice was a valid payment claim and the respondent did not reply with a valid payment schedule in time.

Therefore, the invoiced amount was a due debt under the CCA.

Ketan opposed summary judgment on the basis that the payment claim did not indicate the manner in which the payee calculated the claimed amount.

The court held that CJ Parker was not entitled to summary judgment. In other words, Mr Ketan might have a defence to the claim and CJ Parker would have to test the defence properly at a full trial.

In coming to that conclusion, the court noted:

• Although payment claims should not be held to be invalid because of minor technical deficiencies, the payee must indicate an objectively understandable basis upon which the value of the work claimed was calculated; and

• CJ Parker merely set out general figures without reference to ascertainable factors in its calculation which were not sufficiently detailed and comprehensible.

Common sense always goes a long way. If the payment claim provides enough information and reference for a person not associated with the work to understand the calculations, the chances are that the payment claim will be valid.

Aside from proper descriptions of calculations covered above, under section 20(3) CCA, payment claims must be accompanied by a document which: Outlines the process for responding to the payment claim; and explains the consequences of not responding to the payment claim and not paying the claimed amount, or the scheduled amount, in full.

Common sense always goes a long way. If the payment claim provides enough information and reference for a person not associated with the work to understand the calculations, the chances are that the payment claim will be valid.