21.04.2021

Construction Contracts Act Enforcement Costs

Cubo Projects Ltd v S&S Import Solutions Ltd

The High Court in Cubo Projects Ltd v S&S Import Solutions Ltd [2020] NZHC 3234 stopped short of awarding indemnity or increased costs to a payee for an action taken to enforce a “debt due” under the Construction Contracts Act 2002 (CCA). 

In 2018, Cubo Projects Ltd (Cubo), as contractor, served payment claims on S&S Import Solutions Ltd (S&S), as principal.  S&S did not issue payment schedules in response as required by the CCA and only paid a portion of what was claimed.  Cubo issued a statutory demand for the unpaid balance on the basis this was a debt due under the CCA.  S&S also ignored this.  Cubo therefore applied to put S&S into liquidation.  Only then did S&S take action – attempting to challenge the legitimacy of Cubo’s payment claims, before the parties settled on terms set out in a consent judgment.  The outcome of the settlement (excluding costs) was that S&S would pay the outstanding balance on the payment claims of $9,412.71.

The only remaining matter to be resolved was costs. A plainly exasperated Associate Judge Johnson noted that the costs question was referred back to the Court after the parties could not reach agreement.

Cubo sought its actual costs of $19,927 on an indemnity basis – arguing that it had an unimpeachable right to payment under the CCA with its “pay now, argue later” principle, which S&S only accepted at the eleventh hour and after Cubo had said it would seek indemnity costs.  S&S resisted this and argued that scale costs should apply and these should be downgraded from the usual 2B basis to 1A on the grounds it was a simple matter and only a small (c$9,000) sum was at stake.

While the Court said that Cubo was justified in criticising the defendant for its “somewhat cavalier approach” to both the payment claims and the statutory demand, it declined to award indemnity costs.  The Court agreed with S&S that the proceeding had been straightforward and noted that while s 23(2)(a)(ii) of the CCA allows for recovery of actual enforcement costs this is limited to “actual and reasonable costs” (emphasis added).  In this case, consideration of whether the costs incurred were reasonable pointed away from an award of indemnity costs.  Costs were awarded on a 2B basis ($11,830.50), which was still higher than the 1A basis sought by S&S.

While some in the construction sector may be disappointed to see this outcome, the decision is consistent with previous authorities where the Courts have confirmed that the intention behind s 23 is for payees to be able to recover enforcement costs, provided the quantum was reasonable and not “excessively high”, and that some proportionality is required when determining a party’s costs entitlement.

Cubo confirms that parties can recover enforcement costs in relation debts due under the CCA, but there is no automatic right to indemnity costs.  A more holistic assessment is required based on what is “reasonable” in the circumstances.

If you have any questions about the article, please get in touch with our Construction Team or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

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