TUF agreed to prepare concrete panels for the defendant. TUF commenced the construction of the panels in accordance with the contract. Two payments were made by the defendant to the TUF. Invoices for the progress payments were prepared on TUF’s letterhead and sent to the defendant at Newco Construction Limited.

Then on 15 September 2003, TUF served formal payment claims on the defendant under the Act. The defendant responded in writing on 16 September 2003, raising concerns about the contractual arrangements and sought accounts as agreed on a cost plus basis for both sides. The defendant never made payment of the amounts owing in the Payment Claims. Summary Judgment proceedings were brought in accordance with the Act.

The two separate Payment Claims were served on the defendant on 15 September 2003. The Court held that the sole reply from the defendant did not mention a “schedule account”. It did not identify the Payment Claim to which it related and did not indicate a “scheduled amount”. It did not attempt to meet the requirements of Section 21(3) of the Act. It did not purport to be a payment “schedule” under the Act and it was not. It was therefore held that no payment schedule had ever been provided.

The Court went onto hold that in the absence of a payment schedule being served within the time provided, the defendant was liable to pay the amounts. Section 22 of the Act makes a payer liable to pay the amount claimed in a payment claim, if the payer does not provide a payment schedule in response within 20 working days from the date payment claim has been served.

In response, the defendant raised a number of defences which were as follows:

The plaintiff has issued proceedings against the wrong defendant.

The Court concluded that in fact the defendant was the correct defendant as he had signed the acceptance of tender document rather than his company. Further, the two payment claims were addressed to the defendant not his company. The fact that the first response to these payment claims of 16 September did not question whether the right party was being sued was also a crucial factor to the Court.

The correct defendant has a set-off or counter claim that equals or exceeds the amount of the plaintiff’s claim.

The Court held that except in certain situations which did not apply here, s79 of the Act excluded counterclaims, set-offs or cross-demands acting as a defence to making payment of payment claims.

The Payment Claims by the plaintiff do not comply with the Act.

It was held by the Court: that the payment claims were in writing, they identified the construction contracts to which the progress payment related, they identified the construction work as being manufacture of tilt panels they showed the relevant period, they showed the claimed amount and the due date for payment, they indicated the manner in which the payee calculated the claim by reference to the number of metres by the square metre rate and the percentage of work done, due credit was given for variations to the contract in relation to wages and a deduction of the two previous payments, the payment claim forms were ones that had been approved by the NZ Sub-Contractors Federation, and they specifically stated that they were made under the Construction Contracts Act 2002.

Summary Judgment is inappropriate in the context of a building dispute.

The Court held that previous authority to the effect that summary judgment proceedings are inappropriate in the context of a construction dispute has been overtaken and can be put aside. The Act has set up a new regime whereby summary judgment will be fully appropriate for situations where a payment claim has been served and no payment schedule is forthcoming from the payer.

This decision shows the power of the new Act where payment claims are served on a payer in the appropriate form. A payer must respond in the manner stipulated under the Act, otherwise the amount claimed in the payment claim becomes due and owing. The payee will then be able to summary judgment on the basis of this payment claim.

The purpose behind the act is described as:

(a) to facilitate regular and timely payments between the parties to a construction contract; and

(b) to provide for the speedy resolution of disputes arising under a construction contract; and

(c) to provide remedies for the recovery of payments under a construction contract.

The Act will apply to all construction contracts that relate to construction work carried out in New Zealand, and that are entered into on or after the date of commencement of this Act. It will also apply to construction contracts that were entered into before 1 April 2003, but were renewed for a further term on or after that date.

The Act will apply to oral or written contracts as well as partly written or partly oral. It is not possible for a party to contract out of the Act.

Payments Scheme.

Sections 13 to 24 set out the manner in which payments are to be made under the Act. Contractors and subcontractors will be in a position of strength in terms of receiving payment so long as they properly document their progress claims and payment schedules. So long as a claim is properly submitted, it becomes very difficult for a principal to refuse to make payment. In fact, if a principal receives a claim, for which it does not agree with, but fails to respond in time, then the principal will be bound to pay the full amount claimed under the Act.

It should also be noted that the clauses commonly described as “pay if paid” are deemed to be unenforceable by the Act.

The Act leaves it open for the parties to agree progress payment terms, however in the absence of these been expressly agreed, Section 17 and 18 impose monthly progress claims on a contract with payment to be made 20 days following a progress claim being submitted.

The Act sets out exactly the type of information that a progress claim should contain. In response the payer can provide to the claimant a payment schedule as to the payments it intends to make. Again the Act sets out the type of information that this should contain.

a) The Act provides a claimant with the remedy of suspension in a situation where payment is due, and the payer has not responded to the progress claim by way of payment schedule.

b) Similarly the same remedy remains open to the claimant, where the payer has submitted a payment schedule, but failed to pay the amount specified in the payment schedule on the due date.

Clearly the remedy of collection of the due amount, together with the collection costs involved is also available to the claimant, in both the situations detailed as a) and b) above.

Adjudication Process.

The Act also provides for a fast track adjudication process for disputes arising out of these construction contracts. Of course the Act still preserves the right of parties to agree to some other type of dispute resolution. However the fact that disputes that fall under the Act have to be resolved within 30 days, makes it a reasonably appealing Dispute Resolution mechanism for members of the industry.

The adjudication process is commenced by one party to the construction contract serving a fully detailed notice on the other party to the contract, and potentially the Owner, as to the fact that an issue is in dispute. The Act specifically sets out at Section 28 the procedure involved and the information required.

Remedies.

The Act provides a number of new and effective remedies that can be granted by an adjudicator in a situation where payment is not being made. Firstly suspension of work is justified in the two situations already mentioned, together with a situation where an Adjudicator’s award that payment be made, is not complied with. It is also made simple to have an award registered as a judgment and then enforced in the Courts. In some instances a charging order can be registered over land.

Although there is already a lot of opinion to the effect that this Act has not gone far enough in terms of protecting contractors, it is clear that will improve the situation for contractors being paid in a timely fashion, so long as they document their claims properly and diligently, in accordance with the Act.