By Lana Doyle
Kensington Swan Lawyers
In the case of Cube Buildings Solutions Ltd v King, the contractor was engaged to build an 80 bale rotary dairy shed on farmland near Wakanui. The contract price was to be paid by six progress payments at agreed percentages and times. The contractor issued payment claims under the Construction Contracts Act 2002, and argued that the Kings were obliged to pay the amounts claimed, since they had failed to issue valid payment schedules.
The contractor pursued the Kings in the Court’s summary jurisdiction, which allows for fast-track proceedings where the other party has no arguable defence to a claim. In summary judgment proceedings the onus is on the plaintiff to satisfy the Court that the defendant has no arguable defence and the Court must be left with no doubt on the matter.
Generally, the options available to a contractor on receipt of a payment schedule are as follows:
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Accept the reasons given for non-payment of the disputed amount and attend to a remedy or abandon the disputed claim;
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Accept the document as a bona fide notice of dispute, with sufficient identification of grounds to refer the issue to adjudication under Part 3 of the Act;
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Reject the letter as invalid or defective, and rely on it is an admission of a debt giving rise to a right to claim summary judgment.
In Cube Buildings Solutions Ltd v King, the contractor argued that the Kings had no arguable defence as they had failed to respond adequately to payment claims. Counsel for the contractor argued that, in asserting that the amount owing was a credit due to the payer, the King’s payment schedule was so extreme as to render it invalid.
The key requirements for payment schedules under section 21 of the Act are that they must be in writing, identify the payment claim to which they relate, and indicate a scheduled amount. If the scheduled amount is less than the amount claimed, the payer must indicate how they calculated the amount, and the reasons for the difference between what is scheduled and what was claimed. Likewise, if the payer is withholding payment, it must indicate its reasons.
The Court found that a payment schedule is not invalid simply by virtue of the payer having taken an extreme position, for example, stating that the sum payable is nil. Although that in itself does not make a payment schedule invalid, a key requirement is that the basis of the calculation is then explained with some precision.
Where the payment schedule sets out the payer’s genuine position, the contractor has remedies through the prompt adjudication of disputes procedures under Part 3 of the Act. Generally, the third option (summary judgment) would arise where the reasoning indicated in the payment schedule is found to have been put forward in bad faith. An extreme position in a payment schedule, such as listing a nil amount, would then be taken as providing evidence of bad faith.
In its summary jurisdiction, a Court will be cautious to conclude that a payer acted in bad faith as the finding must be beyond argument. It might be possible that the payer does not have great experience in the Act, and may instead have presented some genuine grounds of dispute, not realising these were not presented properly.
In Cube Buildings Solutions Ltd v King, it was found that since this was the first payment schedule that the Kings had presented, and that substantial set-off claims appeared to have been calculated on a rational basis, the matters could not be resolved on summary judgment. In these circumstances the claim is more appropriately pursued in standard civil proceedings, or adjudication under the Act.
Contractor Vol.34 No.3 April 2010
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