18 February 2016

Construction: Manchester Industrial v. Hazelton

The “sudden death” payment regime imposed by the Construction Contracts Act does not require claims and schedules to be in one document, but multiple documents must be cross-referenced to provide the full story.
Failure to explain the extent of its dispute over the value and quality of work done on a central Wellington apartment building cost the building owner $49,000; the amount immediately payable on a payment claim upheld in a Construction Contracts Act adjudication.
The Construction Contracts Act 2002 sets out a structured procedure to clarify payments due and to protect contractors’ cashflow.  It is designed to limit frivolous allegations of bad workmanship intended to force a renegotiation of the contract price under threats of lower payment or no payment at all.  Payment is due on issue of a “payment claim” specifying what is due, when and why.  Unless a “payment schedule” is issued in response explaining why and when a different amount is due the terms of the “payment claim” become a debt immediately enforceable.  Any claimed set-off or counter claim is set aside to be sorted out later.
The High Court was told Manchester Industrial Holdings Ltd employed Bussell Construction Ltd to carry out renovations and to complete some required earthquake strengthening at its Eva Street flats in Wellington.   It was a loose oral arrangement.  There was no fixed price.  Bussell was to be paid monthly for time incurred and materials used.  Differences arose.  After paying the first five invoices totalling some $103,000, Manchester Industrial fired Bussell from the job in April 2013 hiring another firm to complete the work.  In the following months, Bussell sent further invoices claiming a further $49,000.  The amount due was queried, but nothing happened for some 15 months when Bussell issued a “payment claim” for the $49,000 previously invoiced.  Evidence was given that Manchester Industrial responded immediately with an email stated to be a “payment schedule” with the amount due being zero.  This email included a complaint that Bussell had failed to respond to its earlier request for some clarification of how the amount due was calculated and also included adverse comments about Bussell’s standard of workmanship and performance on the job.  A Construction Act adjudicator ruled this email was not a valid “payment schedule”.  Payment was now due immediately.  The High Court agreed.
Justice Dobson ruled the “payment schedule” email alone did not amount to a valid response.  The claimant must be adequately informed as to the nature and extent of the dispute over payment.  More detail was required.  This can be achieved by cross-reference to earlier correspondence, His Honour said, though in this case nothing in earlier correspondence provides information about alleged overcharging or of amounts spent on supposedly remediating Bussell’s prior work. 
Manchester Industrial Holdings v. Hazelton – High Court (18.02.16)

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