The Court of Appeal has upheld a ruling on a $3 million Okura subdivision contract dispute requiring developer John Hamilton’s SOL Trustees Ltd to pay for work done before any counterclaim is considered.
Mr Hamilton claimed delays in earthworks by Giles Civil Ltd had cost him more than $1.1 million, so he didn’t make progress payments which came to about the same amount, even though his own engineer to the contract, Mike Lee (Airey Consultants Ltd), had approved about 6 months of extensions to the contract period.
Both High Court associate judge Hannah Sargisson and the Court of Appeal bench of Justices Christine French, Geoffrey Venning & Robert Dobson said Mr Hamilton’s responses to payment claims were inadequate, saying only that they were in dispute without specifying an alternative sum as required under the Construction Contracts Act 2002.
As well as the unpaid claims for work done on the 20-lot lifestyle subdivision at 268-278 Okura River Rd, at the top of the North Shore, Giles issued 2 statutory demands and has now applied to wind up Sol Trustees. 9 of Mr Hamilton’s other property companies have been wound up or removed from the Companies Register.
These 2 judgments emphasise the “pay now, argue later” basis of the 2002 contracts act, over-riding previous legislation which allowed disputes to run on without any payment of a claim for work done.
Under section 21 of the Construction Contracts Act 2002, a payer may respond to a payment claim with a payment schedule. If the scheduled amount is less than the claimed amount, the payment schedule must indicate how the payer calculated the scheduled amount, why the difference and, if it’s because the payer is withholding payment, why.
The Court of Appeal said in its judgments, released on 7 November: “We agree that technical quibbles should not be allowed to vitiate either a payment claim or a payment schedule that otherwise substantially complies with the requirements of the act. The issue in this case is whether the documents SOL relies on can be said to have substantially complied with the requirements of the act.
“It is clearly insufficient to simply assert the amount claimed is disputed, which is as far as SOL’s email responses to payment claims 13 & 14 went. SOL’s attempt to incorporate the earlier spreadsheet [setting out the costs of delay] as part of its payment schedule does not assist it. The spreadsheet cannot, either on its own or taken with the other emails referred to, satisfy the requirements of a payment schedule. At best it is SOL’s calculation of a potential counterclaim or setoff for delay.”
The court said a counterclaim or setoff of the nature SOL sought to raise couldn’t provide the basis for a payment schedule in response to a payment claim under the act: “To allow a counterclaim or setoff to be used in that way would be contrary to the purposes of the act to facilitate regular & timely payment by identifying the amount payable to the contractor for work done.”
Giles began work on the subdivision on 17 December 2012, with a scheduled completion date of 17 May 2013. The work wasn’t completed by then but the engineer to the contract allowed extensions which took the contract period up to 29 November 2013.
Mr Hamilton told Airey on 22 October that claim 10, for $565,000, was disputed, and prepared a cost over-run spreadsheet showing $1.12 million of resulting losses. However, he made a $230,000 part-payment of that claim. Airey certified the next 4 claims, and Mr Hamilton responded to each with an email saying they were disputed.
Counsel for SOL, Ben Molloy, submitted that the short email responses to claims 13 & 14 should not be read in isolation and could be read with the earlier spreadsheet & previous emails. However, the court concluded: “It is clearly insufficient to simply assert the amount claimed is disputed, which is as far as SOL’s email responses to payment claims 13 & 14 went.”
Attribution: Court of Appeal judgment.