Sudden death ‘pay now, argue later’ rules in the Construction Contracts Act came into play with disgruntled clients of Homebuild Homes ordered to pay immediately a disputed $45,000 invoice. Arguing about validity of the work done did not amount to a statutory ‘payment schedule’ which would otherwise halt liability to pay while their dispute was sorted out.
In September 2020, the Birchlers signed a $750,000 contract with Homebuild Homes Ltd for construction of a new home at Halcombe, just north of Feilding. Their fixed-price contract was subject to any additional costs resulting from engineering variations to foundations, floors or framing.
Fourteen months later, they received a $45,100 invoice for extra work; primarily foundations. The Birchlers’ email in response requested a full breakdown of all ‘out of contract pricing’ and criticised what they called grossly over-engineered foundations.
They were sued after refusing to pay. The High Court confirmed a lower court ruling that the Birchlers were liable to pay upfront and then argue later.
The Construction Contracts Act sets out a precise statutory dance for construction payments.
First move is a ‘payment claim.’ If there is no immediate response, the amount claimed becomes an enforceable debt, with customers at this point not allowed to challenge with their own claim.
To avoid immediate liability by default, customers must quickly respond with a ‘payment schedule;’ disputing the amount claimed, setting out what is in dispute and why payment will not be made, or part-payment made only. Importantly, a client’s payment schedule must specify a ‘scheduled amount:’ the amount the client is currently willing to pay, even if that amount is zero.
The Birchlers claimed in the High Court that their emails with Homebuild responding to the disputed $45,100 invoice amounted to a valid Construction Contracts Act payment schedule and they did not have to make immediate payment.
Justice Radich ruled a payment schedule can be delivered in an email, but just complaining about a bill is insufficient. The Birchlers’ email did not specify a ‘scheduled amount.’ And stating simply that the foundations were ‘grossly over-engineered’ was insufficient to clearly specify what was in dispute such that Homebuild could assess its options.
The essence of Construction Contracts Act payment rules is that a customer can dispute the reasonableness of a builder’s work, but if a ‘payment schedule’ is not delivered, or not delivered in time, the customer must first pay and argue later.
Birchler v. Homebuild Homes Ltd – High Court (13.09.23)
23.155