Construction Contracts Act update at Paihia

Robertson_Stuart.jpgBy Stuart Robertson
Partner, Kensington Swan Lawyers

If ever there was the time for renewed focus in the use of the Construction Contracts Act it is now. At the Contractors’ Federation conference in August I presented a case law update on the CCA. A feature of this was the difficulties with conflicting decisions coming out of the courts. Below is a brief summary of part of my presentation.

Much to the disappointment of many lawyers, in most instances, the courts are not interested in technical quibbles over definitions of words and strict adherence to form. For example:

  • Even if your contract required your claim to be submitted on the last day of the month, but you delivered it on the 25th of the month, this is a valid claim.
  • If you are under NZS3910:1998, then service on the engineer, instead of the payer (the principal), is valid.
  • If you failed to put a due date for payment on your payment claim, but it is included in the covering letter, then this also is a valid payment claim.
  • Stating the CCA is ‘2003’ instead of ‘2002’, will not invalidate you payment claim.

However, the supply of cranes is not something that can be claimed in a payment claim. The court held that this was a hireage contract and not construction work.

Even if you undertake construction work – and the definition in the CCA is very broad – this will not include construction of a boat. It must be something that forms part of the land.

Payment claims cannot be used for downtime or profit claims. In a situation where a contractor was wrongfully terminated, and therefore suffered a loss of profits, this could not be the subject of a payment claim, as this is not value for construction work actually completed.

While the courts will try and support contractors in making payment claims, this is not always the case when dealing with payment schedules. For those of you that are head contractors, and receiving payment claims from subcontractors, you need to be vigilant. Having said that, the courts have confirmed that it is neither necessary to place a title on your schedule (‘Payment Schedule’) or even make reference to the CCA on the payment schedule for it to be complying.

Payment schedules can be two documents as long as they are both served before the due date in your contract. Under NZS3910:2003, this is within 12 working days of receipt of the payment claim.

The courts have also taken the sensible approach to clause 14.2.3, which arises where the contractor is in default, the principal has given notice of default and the contractor has failed to remedy that default. In those circumstances clause 14.2.3 states that the contractor ‘shall not be entitled to any further payment until completion of the contract works’. Notwithstanding that a payment claim may have been submitted, it is valid to rely on clause 14.2.3 and record $nil in your payment scehdule.

But, beware as the court is less forgiving regarding the contents of payment schedules and when they are served. Even if you are only one day late issuing a payment schedule it is invalid. The subcontractor is entitled to the full amount of its payment claim. Similarly, while a payment schedule can be in the form of a letter, if it is for less than the claimed amount then general allegations of defective workmanship are not sufficient. You need to show how you calculated the value of each item of work and reasons for the difference.

There were two new issues that have arisen recently regarding service of payment claims and whether a trust is an ‘individual’.

For both payment claims and schedules, service on the correct party is essential. Time runs from the day after service, and failure to comply with the time limits under the Act (or as agreed in your contract) are fundamental to establishing a CCA debt.

In a rather harsh decision in February 2009, the court held that where the contractor had served the principal with a payment claim this was invalid. This is because the associate judge found that the contract required service on the principal’s quantity surveyor (who was not the engineer to the contract) and this had the effect of excluding the other modes of service provided for in the CCA. While this decision appears wrong, play it safe and ensure you serve as per the contract as well as on the principal (the payer).

The second issue regarding trusts (and trustees) arises because of the question as to whether you have a residential or commercial construction contract.

If you have a residential contract (that is where one of the parties to the contract is the residential occupier of the dwelling on which the work is being undertaken), then for it to be a complying payment claim you must attach a Notice to Residential Occupier. In a Hamilton district court, in March 2009, the contractor served a ‘commercial’ payment claim on the trust. The court, wisely, held that the trust (made up of three trustees) was not an individual and therefore could not be a residential occupier.

Unfortunately, a very recent district court decision in Christchurch has ruled the opposite way. Two of the three trustees of the Fisher Family Trust (the husband and wife) lived in the property. The court held that as they were signatories to the contract (albeit as trustees of the trust, with their solicitor) they were individuals and therefore it was a residential contract. As the builder had not attached with his payment claim a notice to residential occupier, its payment claim was invalid. If in doubt, attach a copy of the notice to every payment claim.

Contractor Vol.33  No.9  October 2009
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