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Payment claims can be used to significant advantage in keeping cash flowing. The Construction Contracts Act 2002 (CCA) sets out what has been described as a “sudden death” regime – if a payer does not provide a timely payment schedule in response or pay the full amount of a payment claim, the unpaid balance becomes a debt due. It can then be enforced. Contracting parties should therefore ensure their payment claims are always valid by meeting the requirements in the CCA.
In Nicholls Group Projects Ltd v Plan Design Build Homes Ltd [2022] NZHC 56, the High Court has reaffirmed that minor errors in payment claims will not prevent claims from being valid under the CCA. Of particular interest is the Court’s conclusion that a consequential error in the due dates arising from delayed delivery of the payment claims was of no consequence.
Background
Nicholls Group Projects Ltd (Nicholls) applied to set aside a statutory demand served by Plan Design Build Homes Ltd (PDBH), which provided labour for a project. The statutory demand was served after Nicholls failed to pay four invoices issued by PDBH as payment claims. No payment schedules had been issued within time. Nicholls argued – unsuccessfully – that the payment claims were invalid.
Requirements for valid payment claims and minor errors
The requirements for valid payment claims are set out in s 20(2) of the CCA. These include relevantly that the payment claim must:
- Identify the construction work and the relevant period to which the payment relates (s 20(2)(c));
2. State the due date for payment (s 20(2)(d)); and
- Indicate the manner in which the payee calculated the claimed amount (s 20(2)(e)).
Relying on the relevant construction contract and the above subsections, Nicholls argued the payment claims were invalid because of various errors and omissions, which are discussed below.
Double charging error – s 20(2)(c)
One payment claim appeared to be double charging time claimed in an earlier payment claim, as it incorrectly (and inadvertently) recorded the dates of work as being in April rather than May. The Court concluded this was a “trifling error”, that did not invalidate the payment claim. The error should have been obvious to Nicholls from the invoice date (4 June) and the days of the week recorded beside each entry.
Incorrect due dates for payment – s 20(2)(d)
Nicholls contended that the due dates in two of the payment claims were incorrect due to delayed delivery of the claims. The due dates were four days’ earlier than they should have been due to the payment claims being delivered a few days later than anticipated (but still within time). In other words, the payment claims included due dates, but these dates became technically incorrect under the terms of the contract.
Under the original wording of s 20(2)(d), which only required a payment claim to “indicate” a due date for payment, the courts generally accepted that a legitimate error in the date did not invalidate the claim. Broadly speaking, it was sufficient if a due date (even if wrong) was included.
Notwithstanding the new wording of s 20(2)(d), which requires a payment claim to “state” a due date for payment, the Court in Nicholls was satisfied that PDBH’s error with the due date was also minor and in the category of a technical quibble that did not invalidate the payment claims. There was no evidence that Nicholls was prejudiced, and it should have been obvious to Nicholls that the dates were wrong because of a later delivery.
Incorrect payment period – contract terms
Nicholls also argued that one of the payment claims was invalid as it covered a four-week period whereas the contract required weekly claims. The Court rejected this argument because the contract only created an ‘expectation’ that payment claims were to be issued weekly. This was not a strict requirement. Further, even if the contract had required weekly invoices, this would only be a breach of the contract, rather than a failure to comply with the CCA requirements for a payment claim. The alleged contractual breach was ultimately a matter that Nicholls should have raised in a payment schedule in response.
Inadequate description of work – s 20(2)(c)
Nicholls contended there was no description of the work for it to assess the claimed amount. However, this was given short shrift. PDBH had been engaged on a labour-only basis at an hourly rate, so stating the number of hours and the rate for each builder was sufficient in the circumstances to comply with s 20(2)(c).
Failure to identify each worker – s 20(2)(e)
The final issue was whether the payment claims were invalid because they did not identify individual builders, given Nicholls had raised a dispute about the level of qualification it expected the builders would have – some were more inexperienced than others. Nicholls suggested that, because of this dispute, PDBH should have included the names of the builders in the payment claims so that Nicholls could understand the claims and recalculate and serve payment schedules.
This too was rejected. The payment claims complied with s 20(2)(e) because it was clear how PDBH had calculated the claimed amount. The Court distinguished case law relied on by Nicholls based on the facts; here, the payment claims contained enough information for Nicholls to have issued a payment schedule within time.
Our comment
The Court’s decision on the due date error is of greatest interest in Nicholls. It reflects a pragmatic (and some might say fair) approach in the circumstances. However, the judgment did not expressly discuss the new wording in s 20(2)(d) as part of its reasoning on that issue. As a result, it is unclear whether or to what extent this may have made the decision more finely balanced than if it had been decided before the statutory amendment. It was also arguably a missed opportunity for the courts to provide some guidance on the distinction between the old/new wording and what this means in practice, even if only made in obiter.
More generally, this decision reflects a practical attitude by the courts, arguably bringing some slight breathing room that payment claims will not be frustrated by genuine minor errors, particularly where the payer is not prejudiced by the error. That said, ensuring payment claims are error-free is best practice and the most effective way to avoid unnecessary delay, confusion, or argument around payment.
If you have any questions about payment claims, payment schedules, or this judgment, please get in touch with our Construction Team.
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.
