IN THE COURT OF APPEAL OF NEW ZEALAND CA637/2015 [2017] NZCA 3 BETWEEN AND C.J. PARKER CONSTRUCTION LIMITED (IN LIQUIDATION) Appellant WASIM SARWAR KETAN, FARKAH ROHI KETAN AND WASIM KETAN TRUSTEE COMPANY LIMITED AS TRUSTEES OF THE WASIM KETAN FAMILY TRUST First Respondents WASIM SARWAR KETAN Second Respondent Hearing: 28 September 2016 Court: Counsel: Judgment: Winkelmann, Brewer and Toogood JJ J R Billington QC and H L Quinlan for Appellant J D McBride and D J Clark for Respondents 3 February 2017 at 3 pm JUDGMENT OF THE COURT A The appeal is dismissed. B The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements. REASONS OF THE COURT (Given by Toogood J) C.J. PARKER CONSTRUCTION LTD (IN LIQ) v KETAN & ORS [2017] NZCA 3 [3 February 2017]
[1] Part 2 of the Construction Contracts Act 2002 (the Act) provides a regime to facilitate regular and timely payments between the parties to a construction contract. It contains, in ss 19 to 24, a procedure that allows a party to a construction contract who is entitled to a payment under the contract (defined in s 19 of the Act as a payee ) to recover a payment by making a payment claim and the party to the contract who is liable for that payment (defined in s 19 as a payer ) to respond by means of a payment schedule. The events which are the subject of this appeal occurred before the enactment of the Construction Contracts Amendment Act 2015, so the changes to the law made by that Act do not apply and are not relevant to the issues we have to decide. Statements about the nature and effect of relevant legislative provisions, therefore, reflect the applicable law but should be read with that qualification in mind. [2] The consequences of failures by the payer to provide a payment schedule within a specified time and to pay the whole or any part of the claimed amount before the due date for payment, include that the payee may recover from the payer, as a debt due, the unpaid portion of the claimed amount and the costs of recovery. 1 [3] On 5 October 2015 Woolford J dismissed an application for summary judgment by C.J. Parker Construction Ltd (C.J. Parker) which had been brought against the respondents, holding that C.J. Parker (the payee) had not served on them a valid payment claim under s 20 of the Act. 2 [4] C.J. Parker now appeals. The appeal raises a question about how much information must be provided by a payee to constitute a valid payment claim. The parties also disagree about how much information must be provided by a payer to constitute a valid payment schedule. 1 2 Construction Contracts Act 2002, ss 23(1) and (2). Section 25 of the Construction Contracts Amendment Act 2015 inserted into the principal Act a new s 24A, which provides that the payee may also suspend work under the contract. C.J. Parker Construction Ltd v Ketan [2015] NZHC 2421 at [24].
Background [5] The relevant facts can be set out briefly. The first respondents (the trustees) own a motel in Remuera, held on trust for the second respondent (Dr Ketan) and members of his family. For the purposes of the appeal, it was accepted that there is no relevant distinction between the trustees and Dr Ketan. We proceed, therefore, on the basis that Dr Ketan acted both in a personal capacity and as a representative of the trustees throughout the relevant time period. Thus all references in this judgment to Dr Ketan include the trustees to the extent that such inclusion is necessary or appropriate. [6] In early 2013 Dr Ketan engaged with C.J. Parker with the intention that it would carry out renovations to the motel. Although the parties negotiated about a price for the work with a view to completing a contract, no contract was ever executed. There was no agreed contract price, nor agreement of terms relating to payment method, progress payments and payment claims. [7] The renovations began in mid-february 2013 with the first stage due to be completed around July 2013. By June 2013 Dr Ketan had become concerned about C.J. Parker s services for various reasons. He engaged a quantity surveyor to inspect and value the works. The surveyor produced a report on 25 June 2013 (the QS report) in which he valued the work undertaken to that date as being worth $420,305 including GST and variations. The QS report also itemised each aspect of work by unit, rate, area, amount and percentage completed. [8] By this point, however, Dr Ketan had already paid C.J. Parker approximately $505,000 including GST. After some brief communication between the parties about the QS report, Dr Ketan terminated C.J. Parker s involvement in the renovations on 9 July 2013. [9] On 15 July 2013 C.J. Parker sent Dr Ketan an email, which included an attachment entitled Tax Invoice and was dated 15 July 2013. Near the top of the document was this statement: This is a Payment Claim under the Construction Contracts Act 2002. The invoice was for $240,542.10 including GST. It stated that
it was for work done from 7 May 2013 to 10 July 2013. That document is the purported payment claim. We discuss it in more detail below. [10] Dr Ketan responded to this invoice by email that same day. The respondents argue that the email, read together with QS report, is the payment schedule. It is in these terms: Hi Phillip, also attach your home s documents you bought on 1/3/2013 under your wife s name. Have a look QS report and prepare your invoice in view of that, and follow quantity surveyor outlined, and then send me final invoice if I owe you? or you have to refund. You have taken [$500,500.00] more than QS report of first stage. You no longer involved for second stage of the building, as I remind you many times of your non capability as a builder/contractor and using unskilled builders for the job and taking long time to breach the contract. When I engaged Quantity surveyor, you and your team were very well aware of the cause and eventually you lost the contract for second stage. To my calculation with the report of QS, we overpaid you for the 1rst stage of motel work. You have to refund $45,000.00 as soon as possible. Dr. Ketan [11] The parties solicitors then became involved and C.J. Parker later began the proceeding in the High Court against the respondents to recover the amount claimed in the 15 July invoice. High Court [12] C.J. Parker applied for summary judgment in the sum of $240,542.10. It submitted that the 15 July invoice was a valid payment claim in terms of s 20 of the Act. It said that, because the respondents did not reply with a valid payment schedule within seven working days, 3 the invoiced amount was a due debt under s 23 of the Act. [13] The respondents denied that the 15 July invoice was a valid payment claim. They also submitted, in any event, that Dr Ketan s email in response to the invoice was a valid payment schedule in terms of s 21 of the Act. 3 See Construction Contracts Act, s 22. In this case, C.J. Parker asserted that the time period to be applied was that under s 22(i) namely, seven days as provided in the Master Builder Conditions of Contract, which were said to apply.
[14] Woolford J dismissed C.J. Parker s summary judgment application on the grounds that C.J. Parker failed to prove the respondents had no defence to its claim. 4 He found that there was no agreement as to the construction price or the amount and value of the progress payments. 5 Applying s 17(4) of the Act, the Judge said the value of the construction work and any variation was to be calculated with regard to the reasonable value of the work. 6 He held that the 15 July invoice did not meet the requirements for a payment claim under s 20 as it did not properly address the reasonable value of the work and did not enable Dr Ketan to respond effectively and in detail to the claim. 7 Without determining the issue, he also observed that Dr Ketan s email in response was likely to be a valid payment schedule in terms of s 21. 8 Issues on appeal [15] The principal question arising on the appeal is whether the High Court was correct in finding that C.J. Parker s 15 July 2013 invoice did not meet the requirements for a valid payment claim under s 20 of the Act. Depending on the answer to that question, it may be necessary to consider also whether Woolford J was justified in suggesting that Dr Ketan s email in response was likely to have met the requirements for a valid payment schedule under s 21 of the Act. The statutory scheme [16] The purpose of the Act has been well canvassed in previous decisions of this Court and the High Court and there is no need for us to expand upon those observations. 9 It is sufficient for the purposes of this case to note that the Act focuses more on procedure than on proof and that it establishes a draconian 4 5 6 7 8 9 C.J. Parker Construction Ltd v Ketan, above n 2, at [39]. At [9] [11]. At [15]. At [24]. At [32]. See George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [41]; and Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 (HC) at [16] [17]. These statements were recently endorsed by this Court in SOL Trustees Ltd v Giles Civil Ltd [2014] NZCA 539, [2015] 2 NZLR 482 at [23] [25].
sudden death regime if its payment procedures are not complied with. 10 The scheme of the Act is to entitle a payee to prompt payment where the amount claimed is not disputed and to provide dispute resolution procedures for disputed claims. 11 [17] Section 17 of the Act addresses the calculation of progress payments. It provides: 17 Amount of progress payment (1) The amount of a progress payment must be calculated by reference to (c) the relevant period for that payment; and the value of the construction work carried out, or to be carried out, during that period; and any relevant provisions in the construction contract (including, without limitation, provisions relating to the retention of money or liquidated damages). (2) For the purposes of subsection (1), the relevant period for a progress payment under a construction contract is 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 each month after the first period. (3) For the purposes of subsection (1), the value of construction work must be calculated with regard to (c) (d) the contract price for the work; and any other rates or prices set out in the contract; and any variation to the construction work authorised under the contract; and if any work is defective, the estimated cost of rectifying the defect. (4) If the contract does not expressly provide for the matters referred to in subsection (3) and, the value of construction work must be calculated with regard to the reasonable value of the work; and the reasonable value of any variation to the construction work authorised under the contract; and 10 11 See Marsden Villas Ltd v Wooding Construction Ltd, above n 9, at [17]. In short, the consequence is that the claimed amount becomes a debt due and payable by the payer to the payee (see Construction Contracts Act, s 23(2)). See s 3.
(c) if any work is defective, the estimated cost of rectifying the defect. [18] No issue is taken with Woolford J s finding that, as there was no contract price nor any agreed method for calculating the value of the work, the amount of the progress payment at issue fell to be determined under s 17(4). In such cases, the value of the construction work under a progress payment must be calculated with regard to the reasonable value of the work and the reasonable value of any variation to the construction work authorised under the contract. 12 There is no mechanism in the Act, however, for assessing reasonable value. [19] Section 20(2) of the Act sets out the requirements for a payment claim: 13 20 Payment claims... (2) A payment claim must (c) (d) (e) (f) The dispute in this case be in writing; and contain sufficient details to identify the construction contract to which the progress payment relates; and identify the construction work and the relevant period to which the progress payment relates; and indicate a claimed amount and the due date for payment; and indicate the manner in which the payee calculated the claimed amount; and state that it is made under this Act. [20] At the heart of the dispute in this case is the requirement in s 20(2)(e) that a payment claim must indicate the manner in which the payee calculated the claimed amount. The respondents resisted summary judgment on the basis that the 15 July invoice did not do so. They say that several parts of the invoice do not make sense and that it is unclear how C.J. Parker calculated the amount claimed. The first particular in the invoice under the heading Main contract reads: 12 13 Section 17(4) and. The changes to the wording of s 20 of the principal Act introduced by the Construction Contracts Amendment Act 2015 are not relevant for the purposes of this judgment.
Plumbing and drainage for 2stages as per quote $77,395+GST, currently (Stage 1) 70% work done to charge 20% +GST for major works already done for both stages The invoice charges $15,479.00 for this item. [21] There are similarly worded items in other parts of the invoice including lines relating to Electrical Works and Gas and Preliminary and General Costs. Another item, located after a number of more particularised Variation Works, reads Labour Costs for all above. The invoice specifies a single unit for this item in the Quantity column for which it charges $23,497.61. There is no reference to the number of hours worked or hourly rates. The appellant s contentions [22] Mr Billington QC submits that, because s 17(4) applies and the calculation of price is simply by reasonable value, it was not necessary for the invoice to provide a more detailed description of the way in which calculations were made. He suggests that reasonable value is an inherently contentious concept and that proving it would involve submitting evidence in the form of supporting documentation and comparative materials. Under the scheme of the Act, such evidence should be required only when a disputed claim is being adjudicated under pt 3 of the Act. Counsel argues that it should be open to a payee therefore to simply indicate what the payee considers to be reasonable value ; the use of the word indicate in s 20(2)(e) suggests that a detailed explanation is not required. 14 It is submitted that, so long as there is a clear and exact amount for a defined period, as is said to be the case with C.J. Parker s 15 July invoice, such detail is sufficient to constitute a payment claim. It would then be open to the payer to provide a payment schedule disputing the reasonable value. 14 See Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [78]. This case was cited with approval in Westnorth Labour Hire Ltd v S B Properties Ltd HC Auckland CIV-2006-404- 1858, 19 December 2006 at [29].
Discussion [23] To assess the merits of that submission, it is necessary to consider the statutory obligations of a payer who responds to a payment claim by providing a payment schedule to a payee under s 21. The section provides: 21 Payment schedules (1) A payer may respond to a payment claim by providing a payment schedule to the payee. (2) A payment schedule must (c) be in writing; and identify the payment claim to which it relates; and indicate a scheduled amount. (3) If the scheduled amount is less than the claimed amount, the payment schedule must indicate (c) the manner in which the payer calculated the scheduled amount; and the payer s reason or reasons for the difference between the scheduled amount and the claimed amount; and in a case where the difference is because the payer is withholding payment on any basis, the payer s reason or reasons for withholding payment. [24] It can be seen that a payer who elects to provide a payment schedule stating an amount less than the claimed amount must respond to the payment claim by indicating the manner in which the scheduled amount has been calculated and give a reason or reasons for the difference between the amounts and for withholding any payment. These obligations correspond to those of the payee under s 20. [25] Although the validity of a payment claim will not be impeached due to purely technical deficiencies, 15 we do not accept Mr Billington s submission that a bare statement of the amount claimed for each item making up a total claim meets the requirements of the Act. Keeping in mind the Act s purpose of facilitating regular 15 SOL Trustees Ltd v Giles Civil Ltd, above n 9, at [39].
and timely payments in the construction industry, 16 a pragmatic, common sense and contextual approach should be adopted when assessing whether a purported payment claim complies with s 20(2)(e). [26] A payment claim must be sufficiently detailed and comprehensible to enable a payer to understand the basis on which the claim is made. Only then can the payer decide whether to accept it or to put the payee on notice of a dispute by providing a payment schedule in response which explains the payer s reasons for disagreeing with the claim. This requirement is implicit in the payee s obligation to provide a claim that indicates the manner in which the payee calculated the claimed amount 17 and in the payer s obligation to respond by giving reasons for the difference between the amount claimed and the amount the payer is prepared to pay. 18 [27] Each case falls for determination on its particular facts but, if anything, the requirements for a valid payment claim under a construction contract that does not provide expressly for a contract price, labour rates or prices for materials and services (a s 17(4) contract) may be more onerous than in cases where the contract price or other prices are agreed. The payee must indicate to the payer an objectively understandable basis upon which the value of the work claimed is said to be reasonable. Merely setting out general figures without some reference to ascertainable factors in their calculation will not be sufficiently detailed and comprehensible in most instances where the contract falls under s 17(4). The price of relevant consumables, hourly rates or hours worked may need to be listed. Given the draconian consequences for a payer if they fail to respond by providing a valid payment schedule within the statutory time period, 19 compliance with such a requirement would not impose on a payee an unreasonable burden inconsistent with the overall statutory purpose. 16 17 18 19 Construction Contracts Act, s 3. Construction Contracts Act, s 20(2)(e). Section 21(3) and (c). See s 22.
Deficiencies in the payment claim [28] At this admittedly early stage in the proceeding, it seems that significant components of C.J. Parker s purported payment claim were either incomprehensible or insufficiently detailed to inform the payer about how it was calculated. There being no agreed contract price and no agreed formula for calculating the price, the itemised charge quoted above at [20] does not make sense. 20 Mr Billington frankly acknowledged in the course of his submissions that, at this point at least, he was unable to say what it meant. The single unit charged for labour costs is also insufficiently detailed to be capable of evaluation. Because there was no agreed contract price for labour, a statement of the total hours worked or the hourly rates applied was necessary to provide Dr Ketan with information about how the amount charged was calculated. That would have enabled him to come to a view about whether the claimed value of the work was reasonable. Providing both elements would have been more helpful and not unduly onerous. Could the payer have sought clarification from the payee? [29] Mr Billington drew attention to an observation in this Court s judgment in George Developments Ltd v Canam Construction Ltd that if the payer had not understood the payment claim in issue, it could have obtained clarification by using the framework contained in the Act. 21 It is not apparent from that passage in the judgment what part of the framework the Court had in mind. As Mr Billington acknowledged, there is nothing in the pt 2 procedure expressly providing for a payer to obtain clarification, or for the running of the strict time period for providing a payment schedule 22 to be suspended while clarification is sought. It may be inferred from later comments at [68] that the Court was referring to the use of a payment schedule to obtain particularisation. But as we have observed, a payer who has not been provided with sufficient information to understand the manner in which a claim has been calculated cannot reasonably be required to provide a payment schedule which complies with the obligation to indicate the reasons for any difference between the amount claimed and the amount the payer considers ought to be paid. 20 21 22 The same can be said for the other similar items. George Developments Ltd v Canam Construction Ltd, above n 9, at [46]. Construction Contracts Act, s 22.
In Canam, the payee was held to be entitled to rely on references to past payment claims as an aid to ascertaining the manner of calculation; 23 no such historical information exists in this case. Conclusion that payment claim not valid [30] We agree with the conclusion of Woolford J, largely for the reasons he gave, that the 15 July invoice was not a valid payment claim under the Act. It follows that the respondents were not required to submit a payment schedule and that s 23 of the Act was not engaged. Accordingly, they have a reasonably arguable defence to the appellant s claim that a debt was due and payable under s 23(2). The Judge was correct to dismiss the summary judgment application on that basis. We do not proceed, therefore, to consider the second issue argued before us: whether Dr Ketan s email and the QS report constituted a valid payment schedule. Given our primary conclusion that Dr Ketan had an arguable defence that no valid payment claim had been made, it would be artificial and, in any event, unnecessary to consider that issue at this interlocutory stage of the proceeding. Result [31] The appeal is dismissed. [32] The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements. Solicitors: Anthony Harper, Auckland for Appellant Wilson McKay, Auckland for Respondents 23 George Developments Ltd v Canam Construction Ltd, above n 9, at [68].