20.05.2020

Payment schedule dispute causes delay to Commercial Bay completion

The recent judgment in Fletcher Construction Company Ltd v Spotless Facility Services (NZ) Ltd [2020] NZHC 780 and 871 demonstrates the Court’s pragmatic approach to injunctive relief against a subcontractor’s suspension of works based on an allegedly invalid payment schedule and, effectively, requiring a subcontractor to return to site and continue its works.

Background

Fletchers is the main contractor for the Commercial Bay development on the old Downtown site in central Auckland.  Spotless is the mechanical services subcontractor.  The project, which will see new office and retail space, has been ongoing for several years and is within months of completion.

On 24 January 2020 Spotless submitted payment claim 44 (PC44) claiming approximately $2m.  In payment schedule 44 (PS44) Fletchers responded rejecting $1.3m of Spotless’s claim and – for the first time – claiming contra-charges of close to $5m. 

Spotless took the view that PS44 was invalid and on 18 March 2020 gave notice of its intention to suspend works.

On 25 March the country went into Alert Level 4 lockdown and work at Commercial Bay came to a halt.  On 14 April, as preparations for the end of Alert Level 4 were underway, Spotless advised Fletchers it was suspending works immediately, including essential activities that had been ongoing during the lockdown.  

Fletchers applied for an urgent injunction to lift the suspension and require Spotless to resume work.

Decision

In determining an application for interim injunction, the Court must consider three issues: whether there was a serious question to be tried; where the balance of convenience lies; and the overall justice of the case.

Serious question to be tried

In determining the injunction application, the Court did not have to make a final decision on Spotless’ claim that PS44 was invalid.  Rather, the Court simply had to assess whether there were genuine grounds to challenge Spotless’ suspension. 

Spotless argued that Fletchers in PS44 did not indicate the manner in which it calculated the amount that it proposed to pay, nor did Fletchers set out the reasons for the difference between the claimed and scheduled amount (Construction Contracts Act 2002, s21(3)(a) and (b)).  It appears that the Court on the face of it agreed with a number of the deficiencies.   

Fletchers produced evidence there had been a collaborative process in assessing payment schedules, including a site inspection in which Fletchers identified uncompleted works.   Fletchers also argued that PS44 should not be assessed in isolation of previous payment claims / schedules as the parties could develop a practice which leads them to understand or infer reasons for a variance.  Additionally, it was argued that prior meetings and correspondence made it clear what Fletchers was alleging in relation to its contra charges. 

The Court agreed there were deficiencies in PS44, but was unwilling to rule out Fletchers’ arguments in response.  Accordingly, there was a serious question to be tried as to whether PS44 was valid and whether there were proper grounds for the suspension.

Balance of convenience

The Court found the balance of convenience favoured Fletchers.  Spotless’s works were essential to the completion of the overall works and it was not realistic for Fletchers to find another firm to complete this work at this late stage and which would lead to significant delay.  A suspension would adversely affect innocent subcontractors and tenants.

Spotless had a statutory right to suspend work under the CCA if PS44 was invalid, which was not to be overlooked lightly.  However, this was not a case where Spotless had suspended as it was concerned that Fletchers were unlikely to be able to pay should Spotless ultimately be successful.  Additionally, Spotless was clearly able to withstand a delay in payment. 

Overall justice

Fletchers ought not to have delayed in bringing its application – in doing so it put unnecessary pressure on Spotless to respond.  However, the delay did not ultimately prejudice Spotless.

In the result, the Court granted the injunction sought and lifted the suspension, provided that Fletchers first paid the value of PC44 to a stakeholder to hold pending further order of the Court.

Our comment

The Court in this matter has highlighted some important considerations for construction parties when seeking injunctive relief from suspension, in particular the need to take prompt steps when notice of suspension is first given.  In addition, it is notable that the Court will put aside a contractor’s/subcontractor’s statutory right of suspension when the balance of convenience favours the continuation of works and where the interests of third parties are at risk.

The High Court in a recent judgment has ruled in favour of Spotless and determined PS44 was invalid.

Our outline of that judgment can be read here.

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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