Our German Desk
The High Court has provided useful guidance for contractors in issuing and assessing payment schedules under the Construction Contracts Act 2002 (CCA) in its recent decisions in Chillex Services Ltd v Best Air Conditioning Ltd [2025] NZHC 1729 (Chillex Decision) and Construction Advantage Ltd v Eljayej Holdings Ltd [2025] NZHC 1749 (Construction Advantage Decision).
The decisions provide guidance on:
- The importance of knowing when payment schedules are due and ensuring they are issued in time.
- The extent to which payment schedules can refer to other documents.
- The extent to which the courts will look at the merits of the reasons indicated for a deduction in payment schedules.
- Whether privileged “without prejudice” information can be relied upon in payment schedules.
Chillex Decision
Chillex Services Limited (Chillex) entered into a subcontract with Best Air Conditioning Limited (Best Air). A dispute eventually arose between the parties as to Best Air’s performance, which Chillex considered to be unsatisfactory.
Best Air reissued various invoices on 23 July 2024 and 25 July 2025 which it claimed were valid payment claims. On 8 August 2024, Chillex issued payment schedules in response. On 12 August 2024, Best Air issued a statutory demand for the amounts claimed in the payment claims.
Associate Judge Paulsen found that the statutory demand had been prematurely issued. Part of the reasoning for this was a finding that the subcontract provided that the due date for payment schedules was 22 working days following the end of the claim month, meaning Chillex’s payment schedules had been issued well within time and were not due until 30 August 2024.
Associate Judge Paulsen also found that:
- The Court will not inquire into the adequacy of the reasons recorded in payment schedules. The focus is on whether or not there is compliance with the CCA. If parties wish to dispute substantive matters, they should be referred to adjudication or through the dispute resolution procedures under the contract.
- Section 79 of the CCA only applies to debts under ss 23, 24 and 59 of the CCA. Nothing in this section prevents counterclaims, contra charges or set-offs being raised in payment schedules.
Chillex’s application to set aside Best Air’s statutory demand was granted.
* Hesketh Henry acted for Chillex in this proceeding.
Construction Advantage Decision
Construction Advantage Limited (CAL) entered into a construction contract with Eljayej Holdings Limited (EHL). A dispute arose between the parties, which was subject to extensive correspondence between CAL’s and EHL’s solicitors, including letters by EHL’s solicitors on 21 & 27 September 2023, 19 January 2024 and 28 February 2024.
CAL eventually issued a payment claim to which EHL responded with a payment schedule certifying a nil amount and stating the reasons for the deductions were “for the reasons set out in previous letters…, in particular, but not exclusively,…letters…dated 19 January 2024 and 28 February 2024.”
Associate Judge Sussock found that although the 19 January 2024 letter was sent on a without prejudice basis, it was referred to in the payment schedule and was between the parties, meaning it could be considered in determining whether reasons for deductions have been sufficiently indicated.
As to whether the four letters from EHL’s solicitors had been incorporated into the payment schedule, Associate Judge Sussock found, following Fletcher Construction Company Ltd v Spotless Facility Services (NZ) Ltd [2020] NZHC 1942, that there were four layers to the payment schedule, with each layer below the actual payment schedule being incorporated by reference on the basis of the “common understanding” between the parties. This was because the payment schedule referred to the 19 January 2024 & 28 February 2024 letters by date, these two letters referred to the 27 September 2023 letter by date, and the 27 September 2023 letter referred to the 21 September 2023 letter by date.
The parties agreed the 19 January 2024 & 28 February 2024 letters had been incorporated by reference into the payment schedule. As to the 21 September & 27 September 2023 letters, Associate Judge Sussock found these had been incorporated into the payment schedule “as there would have been a common understanding as to what that correspondence was because of the specific reference to it by date.”
Associate Judge Sussock concluded that:
- The payment schedule sufficiently indicated the reasons for the deductions made.
- CAL had not established the further information provided following the letters referred to made the reasons given in these letters out-of-date.
Our Comments
These decisions further illustrate the elements that are required for a compliant payment schedule to be issued, including:
- To read the relevant contract carefully and determine when a payment schedule is due to ensure that a payment claim is responded to in time in order to avoid payment claim liability;
- Enforcement proceedings should not be commenced if a payment schedule has been issued in time (or the time for issuing a payment schedule and/or for payment has not yet expired);
- Specifically indicating in payment schedules the reasons for deductions made to avoid having to argue there is a “common understanding” between the parties as to the reference. Reference to documents is permissible where that illustrates a common understanding. To avoid unnecessary arguments and costs, any such reference should be carefully and explicitly made.
- In some situations, without prejudice correspondence can be relied on in payment schedules.
If you have any questions about this decision, 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.
