Construction Law - Interesting Developments

Thursday September 13, 2012

Construction Contracts Act – Change to the District Court Rules

One of the key themes of the Construction Contracts Act 2002 ("the CCA") is pay now argue later.  This is to enable the cash to keep flowing in the building trade.  The CCA facilitates this by providing that if a party does not pay the amount claimed in a payment claim or serve a valid payment schedule, the unpaid amount can be claimed as a debt due in Court. 

Up until the change of the District Court Rules, claiming a CCA debt for under $200,000 could be done by way of summary judgment.  Summary judgment is a process that enables a quick judgment if you can establish that the defendant has no defence.  Under the CCA, there is no generally no defence to not paying an amount due under a payment claim or not serving a valid payment schedule and so judgment was easily and quickly obtained.

However, the District Court Rules changed significantly in 2009 and effectively removed the summary judgment procedure.    This meant a claim for under $200,000 had to go through a new process that would mean months before getting judgment or else one had to lodge a claim in the High Court at significantly more expense. 

Thankfully the District Court Rules have now changed again and as from June of this year, the summary judgment procedure is back for CCA claims.  Unfortunately, the forms that have to be completed to get summary judgment are unnecessarily laborious and repetitive and it is hoped these will be amended soon!

Construction Contracts Act – Without Prejudice in a Payment Schedule

As noted above, if a person does not provide a valid payment schedule, the amount claimed from them can be recovered as a debt in Court.  Section 21 of the CCA is quite specific in setting out what needs to be in a payment schedule.  Likewise, s 20 is quite specific in setting out what is required for a valid payment claim. 

However, somewhat surprisingly, there are a number of Court decisions dealing with whether payment claims or payment schedules are valid due to parties not properly complying with the CCA's requirements.  In most cases, this could have easily been avoided had care been taken to follow the requirements, which are not particularly difficult to follow nor onerous.

Where parties also fall into difficulty, particularly in respect of payment schedules, is when they get creative rather than simply following s 21.  This is illustrated by a recent High Court decision of McAlpine Hussmann Limited v Cooke Industries Limited.  In that case a subcontractor provided a payment schedule, which while on its face looked to be a payment schedule setting out all the required items in s 21 and a scheduled amount.

However, the payment schedule went on to essentially state that the scheduled amount was "without prejudice" and if not accepted in full and final settlement, the scheduled amount was nil.

The Court held that had the payment schedule stopped before adding the without prejudice "tag", it would have been valid.  However placing a "tag" on the scheduled amount was contrary to the scheme of the Act and therefore it did not comply with s 21.

This seems to be a consistent message through the cases which, simply put, is stick to the requirements in the Act and do not add any conditions or "tags" to payment schedules. 

Michelle Paddison - Senior Solicitor