Construction Contracts Act ‘pay now, argue later’ rules are designed to protect contractors’ cash flow. Arguing first and delaying payment by having the disputed amount held in a third party trust account is not allowed, the High Court ruled.
Stephen Cohen’s Christchurch company Melbourne Ltd paid a disputed $110,000 debt into his lawyer’s trust account, telling supplier Bartlett Concrete Placing Ltd that the money would sit there until their dispute over allegedly defective work was sorted out. The High Court was told this followed Bartlett Concrete’s earlier suspension of further onsite work at a job in Byron Street triggered by their dispute over quality of work done.
Bartlett Concrete then made a Companies Act statutory demand against Melbourne Ltd for the $110,000 claimed. Statutory demands are a precursor to forcing companies into liquidation and often used as a tactic to force payment of a debt.
Melbourne Ltd then argued there had been no formal demand for payment as required under the Construction Contracts Act; with no formal demand the ‘pay now, argue later’ rules did not apply, it said. Bartlett’s request by email for payment of the $110,000 did comply with the Act, Associate judge Paulsen ruled. Bartlett had made five previous progress payment claims by email, all of which were paid. This pattern meant the further emailed progress claim for $110,000 did comply with the Act.
Claiming to be solvent with a disputed payment held in a lawyer’s trust account could not be used by Melbourne Ltd to block forcible liquidation of the company for non-payment of a Construction Act debt, Judge Paulsen ruled.
Melbourne Ltd v. Bartlett Concrete Placing Ltd – High Court (26.07.22)
22.131