What is required to satisfy the requirements of Section 20(2)(e) of the CCA 2002?

Timothy Bates of Auckland law firm Legal Vision.

In this month’s article I wish to review the recent Court of Appeal decision in C J Parker Construction Ltd (In Liquidation) v WS Ketan & Others.

This proceeding had started in the High Court as a summary judgment application whereby the appellant had sought to have judgment entered on the basis that the respondents had not issued a payment schedule in response to an invoice they had served seeking payment of the sum of $240,542.10 (the purported payment claim).

In the High Court, the summary judgment failed because the court did not consider a valid payment claim had been served on the respondents.

Judge Woolford found that there was no agreement as to the construction price and value of the progress payments.

Applying section 17(4) of the Construction Contracts Act 2002 (CCA), he said the value of the construction work and any variation was calculated with regard to the reasonable value of the work.

He held that the purported payment claim did not meet the requirements for a payment claim under Section 20 as it did not properly address the reasonable value of the work, and did not enable the respondents to respond effectively.

The principal issue brought on appeal to the Court of Appeal was whether the purported payment claim met the requirements for a valid payment claim under section 20 of the Act.

In addressing the critical issue, the court made some general comments upon the statutory scheme under the CCA. At paragraph 16 the court recorded the following:

“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 ‘sudden death’ regime if its payment procedures are not complied with.

“The scheme of the Act is to entitle a payee to prompt payment where the amount claimed is not disputed, and to provide resolution procedures for disputed claims.”

The respondents resisted summary judgment on the basis that the purported payment claim did not indicate the manner in which the payee calculated the claimed amount.

They said several parts of the purported payment claim did not make sense, and it remained unclear how the amount claimed was calculated.

It was submitted for the appellant that a bare statement of the amount claimed making up a total claim meets the requirements of the Act.

However, in considering the said submission, some analysis was carried out by the court on what was required by the CCA in a payment schedule, which was required to properly respond to a payment claim.

The Court of Appeal ruled that a pragmatic, common sense and contextual approach ought to be adopted when assessing whether the purported payment claim complied with Section 20(2)(e) of the Act. At Paragraph 26 the court held as follows:

“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 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’, 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.”

The court went on to rule that, in this instance, the purported payment claim had parts of it that were incomprehensible, or insufficiently detailed to inform the payer about how it was calculated.

There was no agreed contract price and no agreed formula for calculating the price. A single unit used for labour charges was insufficiently detailed to be capable of evaluation.

It held the purported payment claim did not satisfy the requirement of indicating the manner in which the payee calculated the claimed amount. Accordingly, the summary judgment application failed.

This Court of Appeal decision is notable for discarding the argument that the respondent could have obtained clarification by using the framework of the Act.

It simply ruled that a payer who has not been provided with sufficient information to understand the manner in which a claim has been calculated cannot be required to provide a payment schedule which complies with the Act.

The court also made the observation at Paragraph 27 that where a construction contract does not provide expressly for contract price, labour rates or prices for materials and services, the requirement for establishing compliance with Section 20(2)(e) is more onerous.


Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.

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