NMHB Limited v Concrete Structures (NZ) Limited [2018] NZHC 2436 (18 September 2018)

Last Updated: 30 October 2018

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY I TE KŌTI MATUA O AOTEAROA TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE

CIV-2018-463-000016 [2018] NZHC 2436

BETWEEN	NMHB LIMITED Plaintiff
AND	CONCRETE STRUCTURES (NZ) LIMITED Defendant

Hearing:	24 May 2017
Appearances:	P Dalkie for the Applicant K Badcock for the Respondent
Judgment:	18 September 2018

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 18 September 2018 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Dyer Whitechurch, Auckland K Badcock, Rotorua

P Dalkie, Auckland

NMHB LTD v CONCRETE STRUCTURES (NZ) LTD [2018] NZHC 2436 [18 September 2018]

Introduction

[1] This is an application to set aside a statutory demand under s 290 of the Companies 1993. The demand is for outstanding amounts said to be owing pursuant to payment claims under the Construction Contracts Act 2002 (“the CCA”). It is accepted the applicant issued no payment schedule in response within the statutory timeframe.

[2] The apposite test is clear: the Court may grant the application if satisfied there is a substantial dispute whether or not the debt is owing or is due; or if NMBH appears to have a counterclaim or set-off for equal or more than the amount sought.

[3] But at core my determination turns on a single legal issue: can a party claim for security under the Construction Contracts Act 2002 — payment in advance of the commencement of any construction work — in circumstances where such is provided for in the parties’ contractual agreement?

Context

[4] NMHB is a construction company engaged in a building construction project at 3 Rabone Street, Henderson. It engaged Concrete Structures to manufacture and supply concrete panels for that project.

[5] Concrete Structures issued the statutory demand within the statutory timeframe: it is dated 16 February 2018, and was served on NMHB a few days later. It demands payment to the tune of $206,391.94 (including GST), that amount comprising two invoices:

(a) the first invoice — dated 25 September 2017, requesting payment of
$150,698.88 including GST; and

(b) the second invoice — dated 15 December 2017, requesting payment of
$75,349.44 including GST.
[6] Each invoice purports be a payment claim under the CCA, and counsel for NMHB does not dispute it initially received the claims as such.

The parties’ contractual understanding

[7] The invoices were also issued in reliance upon the parties’ own contractual understanding.

[8] Section 14 of the CCA provides for parties to modify the statutory terms by agreeing on their own “mechanism for determining” the ‘number’, ‘amount’, and ‘dates’ of payment. Without quibbling over irrelevant details, it appears to be common ground the parties agreed, in broad terms, on two specific contractual conditions:

(a) the requested concrete panels would be delivered to the construction site on the week starting 6 November 2017;

(b) 50 per cent of the total payment would be made upfront, upon invoice, and the other 50 per cent paid after final delivery.

[9] In both invoices, the accompanying description reads “Manufacture and deliver precast panels as per attached schedule”, with that schedule further stipulating:

To Manufacture & Deliver FOT on site 65 No x 150mm thick precast panels

[10] The first invoice specifies that work is “50% complete”; the second invoice specifies it is “70% complete”.

[11] Those particulars only make sense in light of the parties’ contractual understanding. In particular, since no work had been undertaken by the time the first invoice was issued, it could only refer to a security payment.

Escaping sudden death under the CCA?

[12] NMHB failed to issue a payment schedule challenging the claims within the statutory timeframe.
[13] The CCA establishes a draconian “sudden death” regime if its payment procedures are not complied with. If the payer does not provide a payment schedule within the specified time, or else does not pay the claimed amount before the due date, the statutory consequences are plain. Under ss 22 and 23 the payer becomes liable to pay the amount claimed, and the payee may recover in any court the unpaid portion as a debt due, plus the actual and reasonable costs of recovery.¹ In short, the payer must simply pay now and pursue any argument later.

[14] HMHB attempts to get around the ‘sudden death’ regime by arguing the first invoice – and somewhat tenuously, the second by extension – fell outside the scope of the CCA. That is, counsel suggests the security sought in the first invoice, for payment in advance of the commencement of any construction work, is beyond the Act’s contemplation, and so NMHB is not restricted to the strict statutory timeframes in raising its dispute. If that hurdle is successfully crossed, NMHB would go on to contend it has a counterclaim or set-off for equal or more than the amount sought in the statutory demand.

[15] But I do not consider that hurdle can be crossed.

[16] NMHB argues a payment claim based on security necessarily falls afoul of the s 20(2)(c) requirement that a valid payment claim must “identify the construction work
... to which the payment relates”. It further points out the definition of ‘construction work’ in s 6 is concerned only with kinds of actual work, and not security in advance of such work.

[17] I do not agree the statutory language debars a claim for security: such a payment claim can still ‘relate’ to identified future construction work. This does not stretch the statutory language, nor is it inconsistent with its intent. The purpose of the s 20 requirements is to ensure a payment claim is “sufficiently detailed and comprehensible to enable a payer to understand the basis on which the claim is made”.² The first invoice is, in that sense, perfectly comprehensible in light of the parties’ contractual understanding.

¹ CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA at [1], [2], and [16].

² At [26].

[18] The CCA statutory scheme operates, at its heart, as a mechanism for expeditiously facilitating payment between parties to a construction contract — providing mechanisms for requesting, resolving disputes over, and recovering payments. As much is evident from the statutory purposes laid out in s 3. A claim based on security does not offend that purpose.

[19] Rather, prohibiting these claims would run counter to the wide discretion s 14 affords parties to determine the exact content of their contractual arrangements. To bring to bear on this issue some commercial common sense, I note it is hardly unheard of for companies to request down-payments in this way.

[20] I conclude with a passage referred to me by NMBH’s counsel, where the Court of Appeal observes:³

... [a]s long as the construction contract provides for the payee to be paid the claimed amount in consideration for its performance of construction work ... the payee is entitled to make a claim for the payment in a payment claim.

[21] Of course, consideration can include an undertaking to perform construction work in the future: there is no reason in principle why that orthodox legal principle should not apply with equal force with respect to the CCA.

[22] It follows NMHB has no way of circumventing the inevitable consequences of its failure to issue payment schedules in time. For completeness, I observe NMHB would in any regard have no basis for raising a counterclaim in opposition to the statutory demand. It is well-settled that s 79 of the CCA applies in the statutory demand context to prevent the court from “giv[ing] effect to any counterclaim, set-off, or cross-demand”.⁴ That said, NMBH may be able to raise its counterclaim at a later stage, in some other context; I make no finding on the potential merits, which are wholly immaterial to my disposition of the present application.

³ George Developments Ltd v Can Construction Ltd [2006] 1 NZLR 117 (CA) at [55].

⁴ Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97 at [20]-

[22] followed by DTB Construction Ltd v Holdgate [2013] NZHC 320 at [33]. The one exception is a set-off of a liquidated amount if judgment has been entered for that amount or there is no dispute in fact between the parties in relation to the claim for that amount.

Result

[23] The application to set aside the statutory demand is declined.

[24] I order:

(a) under s 291(1)(a) of the Companies Act, NMHB must pay Concrete Structures the full sum of $206,391.94 (including GST) within five working days from the date of this judgment;

(b) if NMHB defaults on that payment, Concrete Structures may make an application to put NMHB into liquidation; and

(c) under s 23 of the CCA, NMHB must pay Concrete Structure its actual and reasonable costs on this application.⁵

[25] If the parties cannot agree on the quantum of Concrete Structures’ actual and reasonable costs, it is to file and serve a memorandum either:

(a) itemising those costs within 15 working days of the date of this judgment – in which case NMHB will have a further 10 working days to file any memorandum in response (such memoranda are to be referred to me for a ruling; or

(b) requesting 2B costs and disbursements, in which case the award may be fixed by the Registrar.






Associate Judge Sargisson

5. Watts & Hughes Construction Ltd v Complete Siteworks Company Ltd [2014] NZHC 2600 at [16]- [20].