By Stuart Robertson (Partner), Caitlin Hogan (Solicitor) and Rusi Jagose (Law Graduate) in Dentons Kensington Swan’s Major Projects and Construction team.
The Construction Contracts Act 2002 (CCA) prescribes a strict regime for the service of payment claims and the response to these claims via payment schedules. This regime is designed to facilitate regular and timely payments between parties to a construction contract.
The benefits of the CCA include a right to suspend (even if your contract does not provide one) and to recover debts due via a statutory demand. But, contractors should be wary of poor file maintenance, lack of certainty as to where to serve payment claims, or a lack of response to payment claims. Contractors risk having to immediately pay contentious payment claims if they fail to respond adequately through a complying payment schedule, or respond but did not serve them in accordance with the CCA.
We have identified some key trends arising from recent case law that should be of assistance in avoiding common, and potentially costly, administrative mistakes.
The CCA payment regime
The CCA regime allows for a contractor (whether they be a head contractor or subcontractor) to serve a payment claim on the other party to its contract (e.g. the principal or head contractor, respectively).
We will use the Principal/Head contractor scenario. The payment claim is a progress claim for work previously undertaken, setting out the value of the work completed and needs to contain all the relevant information listed in the CCA. Importantly, when served it must be accompanied by the information prescribed in ‘Form 1’. This details the consequences of not responding to or paying the claimed amount, within time.
The Principal may dispute all or elements of the payment claim via a payment schedule. A payment schedule must be in writing, identify the relevant payment claim, and state a scheduled amount. If the scheduled amount is less than the claimed amount, the Principal must record how it calculated the scheduled amount, the reasons for the lesser amount, and if it is withholding payment, the reason for doing so. The scheduled amount must be paid within 20 working days (or the time period stated in the contract – for NZS 3910:2013 this is 17 working days) or it becomes a statutory debt.
Critically, the payment schedule must be served on the payee (here the Principal) within the time set out in the contract (for NZS 3910 this is 12 working days) or if the contract is silent, within 20 working days. Both periods are measured from when the payment claim was served.
Valid payment claims/schedules
Faced with having missed the date for serving a payment schedule, payers often look to see if the payment claim was invalid. If so, then no debt is due under the CCA. They do so by looking under the CCA and/or the contract.
In a recent appeal decision, the payer took issue with the validity of a payment claim as it sought reimbursement for significant variations to the scope of works. The High Court found that in the absence of a contractual right to variations, the payment claim was invalid. The Court of Appeal disagreed.
The Court of Appeal held that if a creditor was enforcing a debt under the CCA, all that need be considered was compliance with the CCA. Either the payment claim complied with the CCA as to form, content and service, or it did not.
If it did, as here, then a failure to respond with a payment schedule in time, rendered the whole of the claimed amount a debt due under the CCA. As issuing a payment schedule is very straightforward, any issue under the contract could have been addressed in the payment schedule.
Service of payment claims
Payers who miss the date for serving a payment schedule may also try to raise service issues with the payment claim, and avoid it becoming a debt due. In the absence of detailed processes for serving payment claims and schedules in the contract, parties will look to the CCA.
Section 80 of the CCA, and the CCA regulations, set out modes of permitted service which includes electronic communications, such as email, provided the receiver has consented to receiving the information.
Importantly, and where many of the disputes around service arise, the regulations also note that this consent may be inferred from a party’s conduct. A number of cases through the courts recently have highlighted some important things for contractors to be aware of in serving payment claims.
Inferred consent to receive a payment claim is often found where the email address in question has been used by the parties for payment claims and/or schedules in the past.
If payment claims have been previously and regularly sent to an email address, and paid without question or complaint, this will likely influence a court to find the payee has consented to service at that address. This means that the service of a payment claim can still be valid, even if it is not delivered to the email address stated in the contract.
On the flip side, a failure to send a payment claim to a recipient who had previously been receiving these can be enough to invalidate the service. For example, in a recent case a payee was required to send payment claims to the accounts department of the payer.
This was done without issue for a number of months, with the payee sending payment claims to the accounts department email but also copying in the project manager. On one occasion the payee mistakenly sent the payment claim to just the project manager.
The Court found that based on the prior conduct of the parties, it could not be found that the project manager, solely, had consented to receive payment claims and therefore the service was invalid.
Conclusion
The lessons gleaned above from recent cases highlight the need to strictly comply with the requirements of the CCA payment procedures.
It serves as a reminder for both payers and payees to get their payment processes in order, to avoid facing the consequences of disputed claimed amounts becoming debts due under the CCA.
Ensuring the construction contract contains sufficient details about the process for serving payment claims and schedules (including addresses for service) will go a long way to avoiding disputes.
This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons Kensington Swan does not accept any liability other than to its clients, and then only in relation to specific requests for advice. For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons Kensington Swan on (09) 379 4196.
Parting words from Jeremy Sole- a final column