Coker v Phil Brown Building Limited HC Blenheim CIV 2010-406-235 [2011] NZHC 121 (17 February 2011)

Last Updated: 25 May 2011

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

_{CIV 2010-406-235}

IN THE MATTER OF THE CONSTRUCTION CONTRACTS ACT 2002

BETWEEN PAUL MARK COKER Appellant

AND PHIL BROWN BUILDING LIMITED Respondent

Hearing: 21 February 2011

Counsel: D J Clark for Appellant

Q A M Davies for Respondent

Judgment: 17 February 2011

_{JUDGMENT OF RONALD YOUNG J}

PAUL MARK COKER V PHIL BROWN BUILDING LIMITED HC BLE CIV 2010-406-235 17 February 2011

Introduction

[1] This is another building contract dispute where the builder and the client failed to record their agreement in writing. Mr Brown, through his company and Mr Coker agreed that Mr Brown would build Mr Coker’s house in the Marlborough Sounds. An estimate of the labour costs was given together with an estimate of the total costs. The contract was based on time and materials (cost plus ten percent).

[2] Construction began at the end of 2009. Six interim bills were sent by Mr Brown and paid by Mr Coker. Eventually Mr Coker refused to pay the last two accounts saying that the cost of the house had vastly exceeded the estimate. It appeared the labour costs would likely double to complete the house. Mr Brown stopped working on the house. Mr Brown said his accounts were ―payment claims‖ under s 20 of the Construction Contracts Act 2002. He applied without notice to the District Court for an order for leave to file an originating application for his claim based on money owing under that Act. The application was granted.

[3] A hearing was held in the District Court relating to Mr Brown’s claims. Of

the $99,000 claimed by Mr Brown’s company the Judge ordered Mr Coker pay

$95,823.

[4] This appeal raises the following issues:

(a) whether the originating application procedure was properly available; (b) if the procedure was properly available, or if I find any procedural

errors irrelevant, then whether the payment claims complied with the

Act (leave being required to raise this issue);

(c) whether a combination of the parties’ agreement and the statutory regime provided for progress payments on which payment claims could be based.

Background facts

[5] The brief introductory facts of the District Court Judge are sufficient to identify the immediately relevant facts. He said:

[1] In late 2009 Mr Brown, a director of Phil Brown Building Ltd (―PBBL‖), was approached by Mr Coker to see whether he would be interested in building a house for him and his wife at Whatamango Bay in the Marlborough Sounds. An oral building contract was entered into and work began in early December 2009. It was agreed that it would be a time and materials based contract and an estimate of $80,000 plus GST for the cost of labour was given to Mr Brown. There was an agreement that there would be progress payments but no agreement about how many, how often, for how much and how soon after invoicing payment would be required.

[2] The first six invoices rendered by PBBL to Mr Coker, between

7 December 2009 and 8 April 2010, totalling $183,649.97, were all paid promptly. The next invoice dated 6 May 2010 for $52,243.67 elicited a

part-payment of $20,000 but not portion of the final two invoices, rendered on 2 June 2010 for $63,579.90 and on 21 June 2010 for $3,893.25, has been

paid. The total outstanding, according to PBBL, is therefore $99,716.82.

[3] Mr Coker and his wife have refused to pay any more because the labour cost charged has been almost exactly twice of what was estimated. Although there have been some variations in the work carried out as compared with that originally contemplated, the Cokers will consider they have been very substantially overcharged. They say they have run out of money because they arranged funding based on the estimate. On the other hand, PBBL says it also faces financial difficulties as a result of having had to meet costs resulting from the project without having the balance payments it claims. It stopped work and left the site in June 2010.

Payment claims

[6] Given my view of the second ground of appeal I consider that first. Mr Brown sent Mr Coker accounts for work done and materials supplied on the job from time to time during the construction of the house. Mr Brown claimed there was an agreement with Mr Coker that he would provide fortnightly accounts. Mr Coker disputed that there was any such agreement. In fact Mr Brown did not send fortnightly accounts in any event, supporting Mr Coker’s evidence. The period between accounts varied from about three to five weeks. The Judge in the District Court concluded there was an agreement there would be progress payments but no agreement as to how often the accounts would be sent and when they had to be paid.

[7] Mr Brown used a pre-printed account form with details added for

Mr Coker’s job. At the bottom of each account rendered it stated ―payment due in

7 days‖. Mr Coker denied that there was any agreement between him and Mr Brown that he would make payment within seven days. He said in any event he typically did not pay the accounts within seven days but no complaint by Mr Brown was made. The accounts also said ―this is a payment claim under the Construction Contracts Act 2002‖. They advised ―residential occupiers‖ to read the notice on the other side of the account. These payment claims formed the basis of Mr Brown’s claim in the District Court. Their inadequacy forms the basis of the appellant’s claim in this Court.

[8] The appellant’s case on appeal is that these payment claims did not follow the Act and were defective, and could not therefore support Mr Brown’s claim. This issue was not raised in the District Court and so leave is required in this Court to raise this appeal point. The respondent opposed leave.

[9] An appellate court is generally reluctant to permit new points to be argued on appeal. The following factors are generally seen as relevant:

(a) whether the point raised is arguable on the evidence presented to the

Court below and would not require further evidence and rebuttal;[1]

(b) the Court will permit new points to be argued where they are concerned with matters of law and when there is no prejudice to the other parties;[2]

(c) the Court will likely allow the new point where the issue is one of statutory interpretation;[3]

(d) if the new point raised is untenable or has no force then the Court will not give leave.[4]

[10] I am satisfied in this case leave should be given. There is no doubt the advice attached to the payment claim relied upon by Mr Brown did not comply with the requirements of the Act. The consequence of such an error is the appeal issue the appellant wishes to raise. This is essentially a question of law. The respondent submitted that a factual issue might arise as to whether any defect in the payment claim advice mattered to Mr Coker.

[11] For reasons that will be clear I do not consider that further factual issues arise here ([31], [32]). The respondent knew of this challenge some weeks ago and cannot point to any prejudice arising from the notification. The issue is one of statutory interpretation where leave is typically given.

[12] Finally, the process by which this case came to be heard was extremely truncated with very limited time to examine all of the issues before the trial. There was only seven days from when the appellant became aware the proceedings were to be by originating application and the substantive hearing. This counts in favour of allowing the point to be raised now. I therefore give leave for this appeal point to be raised on the appeal. Anticipating this possibility I heard full agreement from counsel on the substantive appeal point.

[13] Section 20 of the Act sets out what ―payment claims‖ must contain. Of particular relevance are ss (3) and (4) which provide:

20 Payment claims

...

(3) If a payment claim is served on a residential occupier, it must be accompanied by—

(a) an outline of the process for responding to that claim; and

_{(b) an explanation of the consequences of—}

(i) not responding to a payment claim; and

(ii) not paying the claimed amount, or the scheduled amount, in full (whichever is applicable).

(4) The matters referred to in subsection (3)(a) and (b) must—

(a) be in writing; and

(b) be in the prescribed form (if any).

[14] Mr Brown’s payment claim told Mr Coker that the advice on the reverse of the account was intended for a ―residential occupier‖. As an aside, in the ordinary sense of an ―occupier‖, Mr Coker was not one. He did not live in the house because it had not been completed. Unsurprisingly the Act contains an extended

definition of ―occupier‖ to include those who intend to occupy.[5] The notice would

be better to refer to the expanded definition of occupier. Thus those who intend to occupy the house will appreciate the notice refers to them also.

[15] A form has been prescribed in Schedule 1 of the Construction Contracts

Regulations 2003.[6]

[16] There are three confusing statements in the s 20(3) notice given by

Mr Brown to Mr Coker on the reverse of his accounts.

[17] The two most serious errors arise from the advice to Mr Coker as the residential occupier. Form 1 in Schedule 1 required Mr Brown to identify the following three consequences:

Consequences of not responding to payment claim

If you do not respond to the payment claim by paying the claimed amount in full or providing a payment schedule that sets out the amount you are prepared to pay, then you will become liable to pay the claimed amount and the payee may recover from you, as a debt due, in the appropriate court, the unpaid portion of the claimed amount and the actual and reasonable costs of recovery awarded against you by the court.

Consequences of indicating that you will pay nothing or less than claimed amount

If you do respond to the payment claim by providing a payment schedule but indicate in the schedule that you are prepared to pay nothing or an amount less than the claimed amount, the payee may take issue with you doing so. The payee may bring court proceedings against you and refer the matter as a dispute for adjudication under the Act.

Consequences of not paying scheduled amount in manner indicated by payment schedule

If you do respond to the payment claim by providing a payment schedule but do not pay the scheduled amount on or before the due date for the progress payment to which the payment claim relates, the payee may recover from you, as a debt due, in the appropriate court, the unpaid portion of the scheduled amount and the actual and reasonable costs of recovery awarded against you by the court.

[18] The advice of the second and third consequences in Mr Brown’s payment claim erroneously deals with the situation where the occupier does not respond to the payment claim. In fact Schedule 1 requires the advice to an occupier to be where they do respond to the payment claim.

[19] The relevant statements in Mr Brown’s notice said:

Consequences of indicating that you will pay nothing or less than the claimed amount

If you do not respond to the payment claim by providing a payment schedule but indicate in the schedule that you are prepared to pay nothing or an amount less than the claimed amount the payee may take issue with you doing so. The payee may bring Court proceedings against you and/or refer the matter as a dispute for adjudication under the Act.

Consequence of not payment scheduled amount in manner indicated by payment of schedule

If you do not respond to the payment claim by providing a payment schedule but do not pay the schedule the amount on or before the date due for the progress payment to which the payment claim relates, the payee may recover from you as a debt due in the appropriate Court the unpaid portion of the scheduled amount and the actual and reasonable costs of recovery ordered against you by the Court.

[20] The word ―not‖ in the first line of each paragraph should not be there. Both paragraphs are intended to tell the reader about the consequences if they do respond to the payment claim.

[21] Further, in the second heading, the last three words of the paragraph do not make sense. The addition of the word ―of‖ is in error, the phrase should be

―payment schedule‖. By itself this is trivial and the intended meaning clear.

[22] The consequence of such errors in a payment claim, are not expressly identified by the Act. Section 23 of the Act provides that the payment claim can become a debt due to the builder. However, such consequences are dependent on there being a valid payment claim.

[23] The issue is therefore whether, as a result of the errors, the statement served on Mr Coker is a payment claim.

[24] The respondent submitted that given the appellant had not filed a payment schedule errors in the two paragraphs did not matter. They dealt with the situation where a payment schedule was provided. Mr Coker would have been aware of the essential proposition that if he wanted to object to a payment claim he had to serve a payment schedule.

[25] The Court of Appeal in George Developments Limited v Canam Constructions Limited considered the position of a payment claim where it did not strictly comply with s 20(2).[7] The claim did not accurately specify the construction work, the period to which the payment related, or how the amount owing was calculated.

[26] The Court considered these were technical defects in the form on which the payment claims were presented. The Court took the view that such technical failures should not be allowed to frustrate the thrust of the legislation which was to speed up the payment process in the construction industry.

[27] In Foggo v R J Merrifield Limited the Judge was faced with identical errors to this case in the advice form.[8]

[28] As to this the Judge said:

[24] The requirements of s 20 are mandatory. The language is ―must‖.

[25] However, despite the mandatory language, it is clear from the Court of Appeal decision in George Developments Limited v Canam Constructions Limited [2006] 1 NZLR 177 that not every breach of the s 20 requirements will automatically render a payment claim invalid. The Court held that a purposive interpretation must be adopted and that technical quibbles should not be allowed to vitiate a payment claim that substantively complies with the requirements of the Act. This is because one of the key purposes of the Act is to facilitate regular and timely payments between the parties to construction contracts. As Lord Denning once graphically said, cash flow is the very life blood of the building industry: Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern Ltd) (1973) 71 LGR 162.

[26] Applying that approach to the facts of this case, the mistake in the heading (―payment of schedule‖ instead of ―payment schedule‖) clearly falls into the category of a technical quibble. It is self-evidently a typographical error.

[27] However, in my view, the same cannot be said of the other two errors. They render the document confusing and potentially misleading. The requirement of a special explanatory notice for residential occupiers was obviously designed as a measure of consumer protection given the ―sudden death‖ nature of the special payment procedure. In my view, it is particularly important the document should be, as Parliament intended, a clear and unequivocal statement of the consumer’s rights and obligations. The document provided by Merrifield was not such a statement.

[29] The respondent’s case was that Foggo was wrongly decided and had effectively failed to follow the principles expressed in George Developments as it was obliged to do. I reject this argument. The Court in George made it clear technical breaches would be unlikely to result in a conclusion that the failure was fatal to the payment claim. Here, the errors were not technical. They were information that Mr Brown was obliged to provide Mr Coker so that he could decide what he wanted to do. This error is therefore in an entirely different category than the errors identified by the Court of Appeal in George Developments. I agree with the Judge’s approach in Foggo.

[30] In Foggo the question of whether or not the occupier was misled by the errors was also considered. The Judge said:

[28] In coming to this conclusion, I have not overlooked the absence of any evidence the Foggos were in fact misled by the errors. However, following the decision of Welsh & Anor v Gunac South Auckland Ltd HC Auckland CIV 2006-404-007877, 11 February 2008, Allan J, that is not conclusive.

[31] The respondent says that the Welsh decision is not in fact authority for that proposition. The respondent’s case as I have mentioned was that given Mr Coker did not file a payment schedule the fact that he was not given advice about the consequences of filing a payment schedule did not matter. In any event the respondent said that it was up to Mr Coker to establish that the correct advice would have made a difference to his decision making.

[32] I do not consider that is the right approach. It is not possible to now speculate on the significance of this erroneous information. The important point is that the advice goes to the core question for an occupier, whether to serve a payment schedule or not, and if a payment schedule is served exactly what it should contain. Any evidence from Mr Coker now as to the effect of the misleading information in the advice he was given is (without intending to be critical of Mr Coker) likely to be self serving. Clearly Parliament thought that this advice was fundamental to a decision as to whether to file a payment schedule and if so, with what conditions or circumstances. It compulsorily required that the payment claim contain this information. Parliament made the provision of the advice mandatory and provided a form to be followed. The error here was not trivial or technical. It completely changed the sense of the two relevant paragraphs. It meant the advice was confusing.

[33] As I have noted the advice goes to the heart of the decision that the owner has to make. There is nothing to suggest here that Mr Coker had stubbornly made up his mind he would do nothing about the payment claim no matter what he was told.

[34] The focus of s 23 is in identifying the circumstances under which the payer is to pay. Subsection (4) instructs the Court not to enter judgment in favour of the payee unless it is satisfied that the circumstances in s 23(1) exist. The thrust of s 23(1) is a failure to pay a payment claim or to serve a payment schedule. A payment claim must contain accurate advice of the Schedule 1 matters. If it does not it will not be a payment claim.

[35] Once a payment claim is served it provides a potentially significant advantage for the builder. Unless the occupier can identify, by a payment schedule, why they should not pay the builder the payment claim is a debt due.

[36] Section 20(3) and (4) are intended to protect the payee. The claim will not be a debt due unless the payment claim complies with the essential features. The subsection (3) factors are essential features. They outline the process for responding to the claim and require an explanation of the consequences of not responding and not paying the amount claimed.

[37] This advice must be in writing in a prescribed form.[9] Although the current notice is not in the prescribed form, that in itself would not have been fatal as long as it gave an accurate explanation of the consequences and the process.

[38] My conclusion for the reasons given is that the purported payment claim served by the respondent on the appellant was not a payment claim in view of the errors identified, and in terms of s 23 the Court could not enter judgment in favour of the builder as a debt due. This conclusion disposes of the appeal. However, I consider the other two appeal grounds in summary form.

Was the originating application the correct procedure?

[39] This ground of appeal relates to the process used by Mr Brown to bring the dispute before the Court. The appellant’s submission is that the Judge was wrong

_{to allow this case to proceed as an originating application and that as a result it}

allowed the case to be inappropriately dealt with as if it was a summary judgment. The appellant challenged the original without notice order at trial, however, the Judge concluded he had no jurisdiction to reconsider that order. The appellant now challenges that decision in this appeal. The Judge said:

[17] Whether or not Judge Zohrab was correct to grant the application, the reality is that he did and there has been no appeal or application for judicial review of his decision. His decision amounts effectively to an endorsement by the Court of the use of the originating application procedure. Accordingly I do not consider I would be in a position to decline to deal with the matter even if, after fully considering the matter, I had disagreed with the propriety of the use of the procedure. I have had submissions on the point, which of course Judge Zohrab did not, but do not propose to address them in these circumstances.

[40] The respondent says it is now too late for the appellant to challenge this order. If the appellant wished to challenge it then it needed to appeal the interlocutory order of the Judge. It did not do so and thus cannot now do so.

[41] I agree with the appellant that the Judge did have jurisdiction to review the interlocutory order allowing the originating application process to be used here. Rule 3.52.31 of the District Court Rules 2009 incorporates r 7.49 of the High Court Rules into the District Court’s jurisdiction. Rule 7.49 of the High Court Rules provides as follows:

7.49 Order may be varied or rescinded if shown to be wrong

(1) A party affected by an interlocutory order (whether made on a Judge's own initiative or on an interlocutory application) or by a decision given on an interlocutory application may, instead of appealing against the order or decision, apply to the court to vary or rescind the order or decision, if that party considers that the order or decision is wrong.

(2) A party may not apply under subclause (1) if the order or decision was made or given—

(a) with the consent of the parties; or

(b) on an interlocutory application for summary judgment under rule 12.4; or

(c) by an Associate Judge in chambers.

(3) Notice of an application under subclause (1) must be filed and served,—

(a) if it is made by a party who was present or represented when the order was made or the decision given, within 5 working days after the order was made or the decision was given:

(b) if it is made by a party who was not present and not represented, within 5 working days after receipt by the party of notice of the making of the order or the giving of the decision, and of its terms.

(4) The application does not operate as a stay unless a Judge so orders. (5) Unless a Judge otherwise directs, the application must be heard by

the Judge who made the order or gave the decision.

(6) The Judge may,—

(a) if satisfied that the order or decision is wrong, vary or rescind the order or decision; or

(b) on the Judge's own initiative or on the application of a party, transfer the application to the Court of Appeal.

[42] The appellant wished to challenge the without notice order in the District Court. Rather awkwardly the order itself was not required to be served by Mr Brown on Mr Coker (see s 2.8.2). As far as a defendant is concerned the proceedings are commenced by the receipt of the originating application and affidavit(s) in support. In this case, confusingly, the appellant was served with the without notice application, the originating application and the affidavit in support of both, on 12 August. Unsurprisingly the appellant assumed no order had been made (given the without notice was served) and there was nothing to suggest an order approving the originating application procedure had been made.

[43] On 30 August counsel for the appellant rang the Court to ask when the application to bring the proceedings by originating application would be heard. Court staff then told him that the order had already been made and the hearing of the originating application was due for 7 September.

[44] On 31 August Mr Coker filed a challenge to the interlocutory order. The substantive application was heard on 7 September together with the appellant’s challenge to the use of the originating application procedure. The District Court

Judge considered he had no jurisdiction to revisit the ―without notice‖ order allowing the originating application procedure to be used. The earliest, therefore, the without notice order was brought to the appellant’s attention was 30 August. The challenge to this order, filed on 31 August, was therefore within the five day period identified in r 7.49(3)(b).

[45] I am satisfied, therefore, the Judge had jurisdiction to reconsider, and should have reconsidered, the previous order allowing the originating application procedure in light of what was then known. I note that from the trial Judge’s remarks that he doubted the appropriateness of the originating application procedure but felt unable to set it aside.

[46] I am satisfied, therefore, the Judge made an error of law in concluding he had no jurisdiction to revisit the question of the appropriateness of the originating application procedure. The appropriate course is for me to now do so as part of the resolution of this appeal.

Was the originating application the correct process?

[47] The respondent makes the point that the Judge’s decision to allow Mr Brown to use the originating procedure was based on a discretion and that an appellate court should be slow to set aside such a decision. The difficulty with that proposition in this case is that the Judge gave no reasons for granting the application and therefore it is not possible to assess whether the Judge erred in exercising his discretion in any of the well established grounds of error, e.g. taking into account irrelevant matters or failing to take into account relevant matters.

[48] Rule 2.7.1, 2.7.3, 2.7.5 and 6.1.3 of District Court Rules provide:

2.7 Court's discretion to grant leave to file statement of claim or originating application

2.7.1 A plaintiff may, by an interlocutory application made when filing the plaintiff’s notice of claim under rule 2.10, apply to the court for an order under rule 2.7.5 granting the plaintiff leave—

(a) to file a statement of claim and continue under this rule; or

(b) to file an originating application and continue under this rule.

...

2.7.3 An application under rule 2.7.1 may in the first instance be made without notice, but the court may require notice to be given in accordance with the court's directions.

...

2.7.5 The court may make an order accordingly and the proceeding continues subject to any directions in the order.

[49] Confusingly there is a second entirely separate rule dealing with originating applications:

6.1.3 A party may apply without notice for permission to start a proceeding by originating application under this Part and the court may, in the interests of justice, permit the proceeding to start in that way. The proposed originating application must be filed with the application for permission.

[50] As to the two rules, r 2.7.1 expressly requires that a notice of claim be filed where an application to file proceedings by originating application is made. Rule 6.1.3 is silent as to this requirement.

[51] Obviously r 2.7 is more detailed than r 6. Further, in r 2.7 detailed direction is given to the Court as to the factors to be taken into account in deciding whether or not the originating application procedure is appropriate. Rule 6.1 occurs at the beginning of Part 6 of the District Court Rules. That part deals with originating applications. However, given the specific directions in r 2.7 it seems better to adopt that rule as giving primary directions when such a process is sought.

[52] I am satisfied, therefore, that Mr Brown was obliged to provide a notice of claim and that his application should have been rejected for filing without such document. Some, but not all, of the information contained in the notice of claim would have been contained in the without notice application and the originating application. In this case I am not required to decide what, if any effect, a failure to file a notice of claim in this case is. However, greater vigilance is clearly required to ensure that proceedings are only accepted for filing which comply with the rules.

[53] Given the absence of any reasons for granting the without notice application the proper course is for me to consider those factors in 2.7.4 against the facts in this case.

[54] The first decision for the Judge was whether the application should be without notice or whether it should be on notice. Factors such as whether there was an ―opposer‖ to the application, and if so, whether the subject of the litigation as in dispute, and the fact that the Construction Contract procedure is designed for speedy resolution of simple matters, will all be relevant.

[55] Typically a clearly contested case is likely to require service of the application to proceed by originating application. This will be required given the quite different process for commencing and continuing an action in the originating application procedure. If on notice, the Judge will have information regarding the need for full pleadings, discovery and full oral evidence.

[56] In this case if the applicant had provided the full detail of the dispute to the Judge then it would have been clear to the Judge that this was a disputed case. I consider then the proper course would have been to require that the application be on notice.

[57] Further, there is reason to believe that Mr Brown may not have fully disclosed the extent of the dispute between Mr and Mrs Coker in his without notice application. The obligation on those who seek without notice orders is strict.[10]

This aspect of the case was not the subject of an appeal point. Although the

―disclosure‖ aspect of this case was concerning I would not have allowed the appeal solely on this point.

[58] As to the application itself, while the factors that are relevant are identified at r 2.7.4 no guidance is given in the rules as to how they are relevant. For example, (b)(i) identifies ―the amount of money involved‖ and (b)(ii) ―the importance of the case‖. Is the latter to be objective or subjective? It is unlikely that a litigant will say their case is unimportant. Presumably the greater the amount of money involved and the more important the case, the less likely the procedure will be appropriate. Here, the amount of money involved, given the District Court jurisdictional limit, was significant.

[59] As to (b)(iii), ―the degree of difficulty or complexity‖, this can also be difficult to assess when the Judge is faced with a without notice application. Often a plaintiff will assess a case as simple but without response from the defendant this assessment is unlikely to give the full picture. In this case there were complex legal issues and some factual issues that required resolution. Presumably the more

urgent[11] the case the more this will count in favour of the adoption of an originating

application, given this process is designed for a speedy hearing.

[60] As to the financial position of the parties it may be that financial vulnerability will count in favour of the speedy process. On the other hand the originating application process can lack thoroughness of identification of issues (through pleadings), can leave crucial evidence undiscovered and the evidence may

_{be relatively untested. This may not have the robustness litigants are entitled to.}

[61] In this case the factor pointing towards the use of the procedure was the claim for urgency because of the applicant’s financial position. However, the information in support of this claim was somewhat sparse.

[62] The applicant said in his affidavit in support of the application:

14. I am only a small operator. I cannot afford to finance this sort of debt.

15. I have had to borrow money in order to pay wages and suppliers to whom I owe money. I have been told by my bank that I am at the lending limit.

16. It may be that the reason why Paul Coker and his wife have not paid me is that they simply have no money, although they have been getting other tradesman to do bits of work on their property. I want to be in a position to lodge a charging order and enforce my debt as soon as possible.

[63] Mr Brown knew that at least one of the reasons why Mr Coker had refused to make further payments was that the actual costs had grossly exceeded the estimate.

[64] In this case if it had been clear to the Judge who granted the order, as it must have been to Mr Brown, that there was a substantial dispute between Mr Brown and Mr Coker relating to this building contract then the inappropriateness of this procedure would have been evident. The way in which the case proceeded illustrates why the originating application procedure was not suitable.

[65] The Judge at the substantive hearing was forced to adopt the unsatisfactory approach that unless both parties agreed on any factual matter, that he would assume the plaintiff/applicant had not established the fact. While that may appear to advantage Mr Coker it was, as I think the Judge recognised, well short of ideal.

[66] Some documents which were annexed to affidavits were in fact disputed but were never challenged. The speed of the hearing (often commendable) meant preparation by the parties was inadequate and, as this appeal illustrates, fundamental points were misled.

[67] Even accepting the limited purpose of a Construction Contracts Act dispute under s 20, this case required proper pleadings, discovery and oral evidence including cross-examination for the issues to be adequately explored.

[68] In summary I have concluded the trial Judge could and should have reviewed the appropriateness of the originating application procedure. If he had done so I am satisfied he would not have allowed the case to continue on this path. Further, I am satisfied the original without notice application should not have been granted.

[69] It could be said what does it matter now that the case has had a trial. The difficulty with that approach is that the trial itself, as the Judge in the District Court recognised, left much to be desired. I would have allowed this appeal based on this ground of challenge.

Progress payments

[70] The appellant’s case is that the payment claim system for residential construction under the Act is dependent upon the parties agreeing to detailed progress payments. The parties agreed there would be progress payments under the contract. The appellant says that because they did not agree on any other details relating to such payments, the payment claim procedure could not be used. In particular the appellant says the parties did not agree upon when progress payments could be sought, nor when if sought, Mr Coker was obliged to pay.

[71] The appellant’s case is that the default provisions in the Act relating to progress payments (where the parties have not agreed) do not apply to residential construction contracts. The Judge concluded that a proper reading of the Act did incorporate some of the default provisions into a residential contract as long as there was an agreement for progress payments.

[72] As to this, the Judge said:

[43] I have therefore come to the clear view that against the background of that agreement, PBBL was perfectly entitled to make payment claims under the Act for those progress payments. However, because of the absence of agreement about any details relating to them, it was not entitled to insist on payment any earlier than the Act permits where there has been no agreement. Although the default provisions of ss 15–18 do not apply, clearly when the payment claims were made by PBBL, then ss 20 to 23 did apply. This meant that the time at which PBBL could serve a payment claim was to be determined under s 20(1) which, again for convenience, I repeat here:

20 Payment claims

(1) A payee may serve a payment claim on the payer for each progress payment,–

(a) if the contract provides for the matter, at the end of the relevant period that is specified in, or is determined in accordance with the terms of, the contract; or

(b) if the contract does not provide for the matter, at the end of the relevant period referred to in section 17(2).

[73] The Act is not without its difficulties in this area. The starting point is s 14 which provides as follows:

14. Parties free to agree on progress provisions in construction contract
    

The parties to a construction contract are free to agree between themselves on a mechanism for determining –

(a) the number of progress payments under the contract: (b) the interval between those payments:

(c) the amount of each of those payments:

(d) the date when each of those payments becomes due.

[74] Here, none of the factors in (a) to (d) were agreed upon by the parties. In those circumstances s 15 provides as follows:

15 Application of sections 16 to 18

If the parties to a construction contract fail to agree on a mechanism for determining any of the matters referred to in section 14, the relevant provisions of sections 16 to 18 apply to the extent that those provisions relate to any matter for which a mechanism has not been agreed on between the parties.

[75] Section 16 states that if there is a construction contract then the builder has a right to progress payments. Section 17 is the default mechanism enabling the parties to calculate the amount and the timing of progress payments and s 18 identifies the default provisions for calculating due date.

[76] However, s 10 expressly excludes ss 15 to 18 from residential construction contracts. The thrust of these provisions is that the parties to any type of construction contract are free to agree on progress payments and how they will work. However, if they do not agree (including the details in s 14) then in non residential construction contracts the builder has a right to progress payments and the default provisions identify when and for how much the progress payment claims can be made and when they are due.

[77] In residential construction contracts there is no right to progress payments but the parties may agree. In this case in fact progress payments were agreed and paid. This was part of an agreement between the parties. There was, however, no pattern in this ad hoc arrangement. Payment claims were made at various times during construction and payment by Mr Coker was also at various times. No inference, therefore, could be taken from this pattern of claims and payment other than, as I have noted, an agreement that progress payments would be sought and paid.

[78] The Judge solved the dilemma in this way:

[44] Clearly s 20(1)(a) did not apply because the contract did not provide for ―the matter‖ of the timing of payments, so PBBL has to rely on s 20(1)(b). This refers one back to s 17(2) for the relevant period. For convenience I also repeat this here:

17 Amount of progress payment

(2) For the purposes of subsection (1)(a), the relevant period for a progress payment under a construction contract is–

(a) the period commencing on the day of the month on which construction work was first carried out under the contract and ending on the last day of that month (the first period); and

(b) each month after the first period.

[45] Although there is a superficial argument that because s 17 is one of the excluded default provisions then it cannot be considered in the circumstances of a payment claim being made under a residential construction contract, I reject that argument. All that Parliament has done, for convenience, is to refer back to the period identified in s 17(2). It is not in any way undermining the effect of s 10 to allow reference to that portion of one of the default provisions.

[46] During the hearing there was argument about the meaning of paragraph [37] in Wylie J’s judgment in Suaniu v Hi-Qual Builders Limited (High Court, Auckland, CIV-2008-404-001576, 26 June 2008) where His Honour said:

[37] In the present case the parties provided for progress claims in their contract. They were entitled to do so – s 14. Indeed they were wise to do so because the default provisions that relate to progress claims to (sic) not apply to residential construction contracts – s 10. There are some default provisions – ss 20(1)(b) and 22(b) – but they are limited in their ambit.

[47] I do not see these obiter observations as cutting across in any way the view I take. There can be no serious suggestion that the default provision in s 20(1)(b) is also taken out of play in the case of residential construction contracts; on the contrary if Parliament’s intention had been to that effect then it would in s 10 have referred to ss 20(1)(b), and 22(b), as well as to ss 15 to 18.

[48] The key basis on which I have rejected Mr Clark’s argument is that s 14 of the Act in my view does not touch or relate to a simple underlying agreement that there be some progress payments; it is limited in scope to saying that if the parties to a construction contract have agreed that there will be progress payment provisions then they are free between themselves to agree on a mechanism for determining the format as referred to. But clearly they also must have a freedom not to agree on those things, or fail to agree on them. In either of those events, provided there is nevertheless an underlying agreement that there will be progress payments, then a party such as PBBL is perfectly entitled to issue payment claims, whether under a residential construction contract or an ordinary construction contract. PBBL was however limited here as to how frequently it could do this by s 20(1)(b), because this was a residential construction contract and s 10 meant the default provisions in ss 15 to 18 could not avail PBBL.

[79] The Judge’s analysis may well provide a ―solution‖ to the ability to calculate the period for each progress payment. Section 20(1)(b) may, as the Judge said, refer to s 17(2) only as a way of identifying a particular period for calculation purposes and nothing more. If so, then the prohibition against using the default provision in s 17 in relation to residential construction contracts would not apply. Therefore, in default of agreement, the relevant period for each progress payment would be one month in a residential contract, subject to an underlying agreement that there would be progress payments.

[80] However, in this case there was no agreement when the progress payment claim was to be paid. There was no due date. Section 18 provides for a default due date of 20 working days after the payment claim is served. However, this section has no application to residential contracts.[12]

[81] Why then does it matter that there is no due date agreed or any applicable default provision? Section 20 sets out the mandatory requirements of a payment claim. Subsection (2)(d) provides:

(2) A payment claim must—

...

(d) indicate a claimed amount and the due date for payment; and

[82] In George Developments the Court of Appeal made it clear that a failure to comply with the requirements of s 20, where they are technical quibbles, would not invalidate the payment claims. In this context if a due date had been agreed but the payment claim erroneously referred to the wrong due date, that might come within the technical quibble category. However, I consider that failure to agree on any due date is more than a technical quibble. A due date that has not been agreed cannot be ―specified‖ in the payment claim as ss (2)(d) requires. I note further that Schedule 1, Form 1 of the Construction Contracts Regulations 2003 provides the due date is the date agreed upon by the parties to the construction contract.

[83] What follows from this conclusion is that Mr Coker was not obliged to respond with a payment schedule (s 23(1)), and Mr Brown could not recover the amount he claimed was unpaid as a debt due (s 23(2)), because no valid payment claim was served on him.

[84] I acknowledge this interpretation is not without its difficulties. It leaves the builder in a somewhat unsatisfactory position of having agreed with the occupier on progress payments, but being unable to enforce the agreement because of the

_{lack of agreed detail.}

[85] However, it must be kept in mind this process is concerned not with the underlying merits of whether Mr Coker owes this money to Mr Brown but with a resolution of the short term issue of who is entitled to the money under the contract in the meantime. Mr Brown’s rights to sue for the unpaid labour and materials remains, as does, Mr Coker’s rights to resist payment. In those circumstances I would also have found for the appellant on the third ground of appeal, which by itself meant the appeal would be successful.

[86] In summary, therefore, I am satisfied that the payment claims were fatally flawed and no valid payment claim was ever made; secondly, the District Court used the wrong procedure to bring this case before it; and thirdly, the payment claims were invalid because the arrangements between the parties had no due date and the default provision of the Act did not apply.

[87] The effect of these conclusions is that the judgment entered against the appellant must be set aside. If Mr Brown now wishes to pursue this aspect of his claim he will now need to follow the ―ordinary‖ procedure for filing a claim in the District Court. It may well be, given the time that has now passed, that the parties can agree to shorten this process by agreed pleadings identifying the substantive issues in dispute and resolving the matter either by arbitration, mediation, or settlement conference, or by proceedings in the District Court on the merits of Mr Brown’s claim.

Costs

[88] Should the appellant seek costs it should file a memorandum within 14 days and the respondent has a further 14 days within which to reply.

[89] Two aspects counsel should keep in mind when making submission on costs. Firstly, one of the appeal points required leave not being argued in the District Court. This favours a reduced order for costs in favour of the appellant. Secondly, some of the difficulty arose in this case because of Mr Coker’s failure to

_{serve a payment schedule albeit Mr Brown’s process was imperfect.}

Ronald Young J

Solicitors:

D J Clark, Wisheart Macnab & Partners, PO Box 138, Blenheim, email: [e-mail]

Q A M Davies, Gascoigne Wicks, PO Box 2, Blenheim 7240, email: [e-mail]

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[1] _{Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257.}
[2] _{Foodstuffs (Auckland) Limited v Commerce Commission [2004] 1 NZLR 145 (PC).}
[3] Foodstuffs; Telephone Mobile Limited v Commerce Commission [2006] 3 NZLR 323 (SC).

[4] Cupples v Police HC Auckland CRI 2009-404-67, 8 June 2009, Keane J.
[5] _{Construction Contracts Act 2002, s5.}
[6] Construction Contracts Act 2002, s 20(4)(b).
[7] _{George Developments Limited v Canam Constructions Limited [2006] 1 NZLR 177 (CA).}
[8] Foggo v R J Merrifield Limited HC Christchurch CIV 2009-409-000605, 21 September 2009, French J.

[9] Construction Contracts Act 2002, s 20(4); Construction Contract Regulations 2003, Sch 1.
[10] _{United People’s Organisation (Worldwide) Inc v Rakino Farms Ltd (No 1) [1964] NZLR 737.}
[11] Rule 2.7.4(b)(iv).

[12] Construction Contracts Act 2002, s 10.