Supplier of construction materials entitled to issue a payment claim for future works

November 6, 2018

NMHB Limited v Concrete Structures (NZ) Limited

In this month’s article I wish to review the High Court decision of NMHB Limited v Concrete Structures (NZ) Limited.  This was an application to set aside a statutory demand under section 289 of the Companies Act 1993, making demand for outstanding amounts owing pursuant to payment claims under the Construction Contracts Act 2002 (“CCA”).

The Court was required to determine whether there was a substantial dispute as to whether or not the debt was due and owing, and whether NMBH retained a counter claim or set off for equal or more than the amount sought.

The Court was also required to determine whether a party could claim for security under the CCA, where it has been allowed for in the contractual agreement i.e. payment in advance of commencement of construction works.

Facts. 

NMHB was a construction company who engaged Concrete Structures Limited to manufacture and supply concrete panels for a building project. Concrete Structures issued a statutory demand on NMHB on 16 February 2018 demanding the amount of $206,391.94 be paid, which comprised the two invoices, or payment claims, that were sent in September and December 2017.  The first payment claim attempted to secure payment for half the contract price of the concrete panels in advance of production.   

S 14 CCA

S 14 of the CCA allows parties to a contract to modify the statutory terms and to agree to their own “mechanism for determining” the “number”, “amount”, and “date” of payment. Two specific contractual conditions required firstly, that the requested concrete panels would be delivered to the construction site on the week commencing 06 November 2017; and secondly, that 50 percent of the total payment would be made in advance, with the final 50 percent being due on completion of final delivery. 

Sudden death under CCA

NMHB failed to issue a payment schedule in response to the two invoices that were sent.  Under the CCA, if a payment schedule is not sent in response to a payment claim within the specified time, then the payer becomes liable to pay the claimed amount. In other words, NMHB were required to either issue a payment schedule within the specified timeframe, or alternatively ‘pay now and argue later’.

In response to the ‘sudden death’ principle, NMHB argued that the invoices fell outside the scope of the CCA, in that security sought (monies paid in advance) is beyond the Act’s contemplation, and therefore they were not required to submit a payment schedule in the strict timeframe provided for in the Act.  In particular it argued that the payment claim must identify completed construction work, not security in advance of such work.  NMHB submitted that the language in section 20(2)(c) and section 6 CCA is only concerned with actual work, rather than security for work.  If NMHB succeeded in this argument, then that part of the payment claim that related to future work, would not require responding to by way of a payment schedule.  It would also be free to counterclaim against or set off the amount sought in the statutory demand.

The Judge disagreed with this argument, and said that a payment claim may still relate to future work, and therefore NMHB was still required to submit a payment schedule within the prescribed time.  She held that the interpretation of the Act as advocated by NMBH, would run counter to the wide discretion afforded by section 14, whereby parties were afforded the opportunity of determining the exact content of their contractual arrangements.  NMBH’s interpretation would be contrary to the purpose of the Act, being to swiftly facilitate payments between parties to a construction contract.  Further, it is not uncommon for companies to request security in advance, so if the payment claims of Concrete Structures were prohibited, this may have negative implications on parties in similar contractual relationships. 

Result

The Judge declined to allow the application to set aside the statutory demand, and ordered that NMHB pay $206,391.94 which was claimed by Concrete Structures.

For completeness sake, because the Judge decided the payment claims by Concrete Structures were valid, NMHB was not able to make a counterclaim or set off for the amount sought in the statutory demand, strictly applying section 79 of the CCA.

 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice).  No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.