T R WELSH AND ANOR V GUNAC SOUTH AUCKLAND LTD HC AK CIV 2006-404-7877 [2008] NZHC 99 (11 February 2008)



CIV 2006-404-7877












Hearing: 17 October 2007


Appearances: J Ropati for appellants

H P Holland for respondent


Judgment: 11 February 2008




In accordance with r 540(4) I direct that the Registrar endorse this judgment with the delivery time of 11 am on Monday 11 February 2008



Solicitors: J Ropati, PO Box 37 396 Parnell Auckland

Knight Coldicutt McMahon Butterworth, PO

Box 106 214, Auckland




[1] This appeal from a judgment of Judge Simpson in the Manukau District

Court delivered on 5 December 2006, concerns the interpretation and application of

several aspects of the Construction Contracts Act 2002 (the Act). The issues

requiring the Court's determination are the subject of evidence which is substantially

undisputed. It is convenient therefore to summarise the relevant factual material

in a fashion which largely mirrors the Judge's factual findings.



Factual background


[2] The appellants are directors of Pathway Investments Ltd, a duly incorporated

company which is registered as the proprietor of a dwelling situated at unit L, 24 Mt

Smart Road, Onehunga. In about February 2006, the appellants requested the

respondent contractor to carry out repair and waterproofing work at the property.

The apartment complex of which the unit formed part had suffered damage due to

water ingress. The respondent had undertaken remedial work on a number of other




[3] The respondent was asked to remove cladding from the dwelling and install

waterproofing membranes, particularly around the decking areas. The appellants discussed their requirements with Mr Shepherd, an employee of the respondent. He explained that it was difficult to estimate the extent of the work required, and the length of time it would take, until the exterior cladding had been removed, but other apartments in the complex had required work which cost sums in the region of $50-70,000 per unit. Mr Shepherd indicated that he believed the work requested by the appellants would cost a similar amount, but no formal quotation was given.



[4] The appellants gave a written instruction to the respondent to carry out the

relevant work. In return the respondent provided to the appellants a copy of a document setting out terms and conditions which included the following provisions:


  1. The respondent would charge for the work at an hourly rate of $46 per person, plus materials and GST.


  1. The respondent was to render interim invoices as work progressed. The

invoices fell due on the 20th day of the month following the date of the invoice.



[5] The respondent commenced work in February 2006. As agreed, periodic invoices were rendered as follows:


  1. On or about 28 February 2006, invoice No. 14662 in the amount of

$24,699.98 .


b) On or about 31 March 2006, invoice No. 14701 in the amount of



c) On or about 28 April 2006 invoice No.14735 in the amount of




[6] The invoices were sent to the appellants by registered post on or about the

invoice dates. In terms of the arrangements between the parties, payment was due in

respect of the various invoices on 20 March, 20 April, and 20 May 2006




[7] The work was completed in May 2006, but the appellants have failed to pay

the amounts set out in the invoices.



The District Court proceedings


[8] The respondent issued proceedings in the Manukau District Court in reliance

on the provisions of s 23(2)(a)(i) of the Act. It sought from the appellants the sum of

$58,837.39, together with interest and actual solicitor/client costs, pursuant to

s 23(2)(a)(ii) of the Act. The respondent applied for summary judgment and was

successful in recovering the amount sought. The appellants now appeal against

Judge Simpson's finding that the respondent was entitled to summary judgment.



The District Court judgment


[9] Having recited the factual background and referred to the provisions of s 20

of the Act, Judge Simpson reviewed in brief terms a number of allegations made in

the appellant's affidavits as to inflated costs, defective workmanship and the absence

of proper authority for the respondent to undertake the work. The Judge appears to

have rejected these allegations on their merits. For reasons to be discussed, I am of

the opinion that such issues were not properly before the Court, and were not the

subject of binding rulings. However, ultimately, the Judge's decision turned upon a

single point; namely, whether the respondent's failure to refer, in its first invoice, to

the fact that it constituted a payment claim under the provisions of the Act, was fatal

to the respondent's claim in respect of that invoice. The Judge held it was not. In

reliance on George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR

177 , she held that the Act ought to be applied with "some degree of liberalism" and

that the invoices were "presented in a manner that is consistent with the provisions of

the Act". She therefore held that the respondent's claim for summary judgment had

been made out.



The issues


[10] In this court, counsel advanced arguments on three separate issues:


  1. Whether the first invoice was invalid because it failed to state that it

was a payment claimed pursuant to the provisions of the Act. This

was the issue upon which the District Court judgment turned;


b) Whether all three invoices were defective by reason of the claimed

failure of the respondent to serve upon the appellants, who claimed to

be residential occupiers, the documents required by s 20(3) of the Act.

This point was argued before Judge Simpson, but is not referred to in

her judgment.


c) Whether the respondent, if otherwise unsuccessful, partially or

wholly, in its reliance upon the Act, could nevertheless in this present

proceeding recover the amount sought from the appellants as a simple

debt due in respect of the work carried out.



Legislative purpose


[11] The objectives underpinning the Act and the procedure which lies at its heart,

were succinctly summarised in a judgment of Asher J in Marsden Villas Ltd v

Wooding Construction Ltd [2007] 1 NZLR 807 at [14]-[17]:


[14] The effect of the New Zealand Construction Contracts Act 2002 was

to strongly confirm that such a regime which protected and encouraged

cashflows was right for cases between the principal and contractor. The

intention was to improve the head contractor's ability to obtain payment, by setting up a quick and mandatory payment process. In enacting such legislation, the Legislature set aside the long-established conservative contractual approach to construction contracts which emphasised freedom of contract. The history of these cases is described in Hon. R Smellie CNZM QC, Progress Payments and Adjudication, paras 1 15. The Act has "emphatically vindicat[ed] Lord Denning's approach" (Smellie, para 31.)


[15] Consistent with the Law Commission Paper, the General Policy Statement

which was set out at the beginning of the Explanatory Note accompanying the Bill reads as follows:


This Bill is intended to facilitate prompt and regular payments within the construction industry.


[16] The Act sets up a procedure whereby requests for payment are to be

provided by contractors in a certain form. They must be responded to by the

principal within a certain timeframe and in a certain form, failing which the

amount claimed by the contractor will become due for payment and can be

enforced in the Courts as a debt. At that point, if the principal has failed to

provide the response within the necessary time frame, the payment claimed

must be made. The substantive issues relating to the payment can still be

argued at a later point and adjustments made later if it is shown that there

was a set-off or other basis for reducing the contractor's claim. When there

is a failure to pay the Act gives the contractor the right to give notice of

intention to suspend work, and then if no payment is made, to suspend work.

There is also a procedure set up for the adjudication of disputes.


[17] The Act therefore has a focus on a payment procedure, the results that arise from the observance or non-observance of those procedures, and the quick resolution of disputes. The processes that it sets up are designed to side-step immediate engagement on the substantive issues such as set-off for poor workmanship which were in the past so often used as tools for unscrupulous principals and head contractors to delay payments. As far as the principal is concerned, the regime set up is "sudden death". Should the principal not follow the correct procedure, it can be obliged to pay in the interim what is claimed, whatever the merits. In that way if a principal does not act in accordance with the quick procedures of the Act, that principal, rather than the contractor and sub-contractors, will have to bear the consequences of delay in terms of cashflow.



[12] A contractor wishing to take advantage of the summary procedure prescribed

by the Act, must of course comply with the requirements imposed by the Act, and in

particular those specified in s 20, which deals with payment claims. In some cases

the contractor will need to comply with the letter of the legislative requirements. In

others however, it may be sufficient if there is substantial compliance: George

Developments Ltd v Canam where the Court of Appeal said at [41]-[43]:




[41] We are satisfied that the necessary analysis must be undertaken with

the purpose of the Act in mind. The purpose provision of the Act includes

the fact that the Act was "to facilitate regular and timely payments between

the parties to a construction contract". The importance of such regular and

timely payments is well recognised. Lord Denning MR (quoted in Gilbert-

Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195

(HL) at p 214 per Lord Diplock) said: "There must be a `cash flow' in the

building trade. It is the very life blood of the enterprise."


[42] As is noted in Smellie at p 31, "Although [the s 20(2)] requirements

are mandatory, technical quibbles that they have not been complied with will

probably receive scant attention". The learned author notes the New South

Wales case of Hawkins Construction (Australia) Pty Ltd v Mac's Industrial

Pipework Pty Ltd [2001] NSWSC 815 ; (2001) 163 FLR 18 where Windeyer J considered the validity of a payment claim under legislation equivalent to the New Zealand Act and said at para 8:


"8 [Counsel] contended that the payment claims served on the

plaintiff . . . were ineffective because they did not comply with s

13(2)(a) and (c) of the Act. The arguments were that they contained

the incorrect contract number and abbreviated the name of the Act

under which the claim was made .. . As to the first, while the

contract number may have been wrong in some cases, the claims did

identify the work done. The second argument was that because the

payment claims abbreviated the name of the Act, they did not fulfil

the statutory requirement to name the Act. This argument might have

had some weight in 1800.

In 2001, an argument based on the absence of the word `and' and the letters

`ustry' has no merit. It should not have been put."


[43] We acknowledge that the approach of this appellant was not as

pedantic as those confronting Windeyer J, but the general observation that

technical quibbles should not be allowed to vitiate a payment claim that

substantively complies with the requirements of the Act is critical and needs

to be weighed alongside the "technocratic" interpretation advanced by



The first invoice



[13] Mr Ropati argues that the first invoice, dated 28 February 2006 and claiming

the sum of $24,699.98 (including GST), cannot be the subject of a valid claim under

the Act because it fails to refer to the fact that it constitutes a payment claim, and so

infringes s 20(2)(f). Section 20 provides as follows:


20 Payment claims


(1) A payee may serve a payment claim on the payer for each progress



  1. if the contract provides for the matter, at the end of the

relevant period that is specified in, or is determined in accordance with the terms of, the contract; or


(b) if the contract does not provide for the matter, at the end of

the relevant period referred to in section 17(2).


(2) A payment claim must--


(a) be in writing; and


(b) contain sufficient details to identify the construction contract

to which the progress payment relates; and


(c) identify the construction work and the relevant period to

which the progress payment relates; and


(d) indicate a claimed amount and the due date for payment; and


(e) indicate the manner in which the payee calculated the

claimed amount; and


(f) state that it is made under this Act.


(3) If a payment claim is served on a residential occupier, it must be

accompanied by--


(a) an outline of the process for responding to that claim; and


(b) an explanation of the consequences of--


(i) not responding to a payment claim; and


(ii) not paying the claimed amount, or the scheduled

amount, in full (whichever is applicable).


(4) The matters referred to in subsection (3)(a) and (b) must--


(a) be in writing; and


(b) be in the prescribed form (if any).



[14] It is common ground that the first invoice contains no reference to the Act or

to the fact that the invoice constitutes a payment claim under the Act. In contrast,

the second and third invoices each conclude with the following statement:


This Invoice is made under the `Construction Contracts Act'.


Mrs Holland says that the Judge was right to find that the absence of any such

notation in the first invoice does not vitiate the invoice as a payment claim under the

Act. She argues that the Judge was right to adopt the non-technocratic approach

advocated in George Developments Ltd.



[15] It is important to bear in mind the context in which the observations of

Robertson J, delivering the judgment of the Court of Appeal, were made. That was

not a case concerning s 20(2)(f); rather it involved an argument by the principal that

the contractor had failed to comply with s 20(2)(c), because the payment claim

concerned included both work done prior to the period stated in the claim without

expressly itemising which work had been done in which period, and an item for

extension of time costs, rather than for physical construction work.



[16] The Court, expressly eschewing a "technocratic" approach, held that the Act

was specifically intended to avoid artificial distinctions, and the notice contained

sufficient information to render the recipient sufficiently informed. It could have

obtained further particularisation through a payment schedule response, the Court




[17] There is only limited authority on the application of s 20(2)(f). In Winslow

Properties Ltd v Wooding Construction Ltd HC AK CIV 2006-404-4969 14 December

2006, Cooper J held that a written claim that failed to refer to the fact that it purported to be a payment claim for the purposes of the Act was nevertheless valid, because it was accompanied by a covering letter, the first paragraph of which referred to the

attached claim as "Progress Claim No.18 which is a payment claim under the Construction Contracts Act 2002". Accordingly, Cooper J upheld the judgment of Judge Kerr on that point.



[18] The issue has been confronted head on by Judge Joyce in Civil Construction

Group Limited v Dhuez Ltd DC AK, CIV 2006-004-102 19 May 2006. There the

Judge noted that although the opening words of s 20(2) stipulate certain mandatory

requirements: "A payment claim must ...", the succeeding sub-paragraphs do not

uniformly impose immutable obligations. For example, s 20(2)(d) requires that a

payment claim "contain sufficient details ...". Section 20(2)(c) requires that a

payment claim "identify the construction work and the relevant period ...". Sections

20(d) and (e) respectively require that a payment claim "indicate" certain categories

of information.



[19] Judge Joyce observed that a requirement to "indicate" was not unduly

demanding. Neither was a requirement to provide "sufficient details". But he noted

that there is no such flexibility in s 20(2)(f). The requirement there is that the

payment claim "must ... state that it is made under this Act".



[20] I am in no doubt that Judge Joyce is right. A failure to comply with the sub-

section cannot be regarded as "trifling" or amounting to no more than a "technical

quibble", to use the language appearing in [43] of George Developments Ltd.



[21] The Act provides a summary procedure pursuant to which contractors

Are enabled to obtain "regular and timely payments": s 3(a) of the Act. In part, that

objective is facilitated by requiring principals who are in receipt of a payment claim

under the Act, to respond to the claim within 20 working days after service of the

payment claim, or the time stipulated by the relevant construction contract. A

principal who disputes a claim may serve a payment schedule, which must indicate

the differences between the amount of the payment claim and the principal's

calculation of liability. A principal who fails to respond to a payment claim by

serving a payment schedule within the stipulated time, becomes liable to pay

the amount of the payment claim: ss 21 and 22. It is therefore vital that a person served

with what purports to be a payment claim, be able from the document itself to

ascertain whether it is indeed a document which attracts the consequences set out in s 20(1).

Only if a document is a valid payment claim is the principal obliged to serve a payment schedule in order to avoid automatic liability to pay the amount of the payment claim.



[22] In my view, the requirements of s 20(2)(f) are mandatory, and not subject to

the substantial compliance considerations discussed by the Court of Appeal in

respect of other aspects of s 20. It may be that in a given case a Court might

properly conclude that an omission to comply with s 20(2)(f) is not determinative.

An example might be the case of a major construction project in which a single

payment claim appearing in the middle of a series of similar documents, happens to

omit the necessary reference to the Act. In those circumstances, it could not properly

be said that the principal has been misled, or is in any doubt as to what is intended.

A Court might well then hold that the document ought to be read along with all

previous payment claims in the series. But I express no firm view as to that. It is a

matter for another Court at another time. This case is quite different. The first

invoice is defective because it does not comply with s 20(2)(f). The respondent was

therefore unable to rely upon it for the purposes of the making of a claim pursuant to

the provisions of the Act. This aspect of the appeal accordingly succeeds.



Residential occupiers?


[23] It is common ground that the respondent did not serve upon the appellants the

documents required by s 20(3), namely a written outline of the process for

responding to the payment claim, and an explanation of the consequences of

not responding to it and not paying the claimed amount. That service obligation arises

only if the appellants are residential occupiers for the purposes of the Act. The term

"residential occupier" is defined in s 5 as meaning


... an individual who is occupying, or intends to occupy, the premises that

are the subject of a construction contract wholly or mainly as a dwellinghouse.



[24] Mr Ropati argues that the appellants are caught by the definition and that the

appeal must therefore succeed on this ground also.



[25] The point was argued in the District Court, as both counsel accept (and as is

plain from the synopsis of submissions in the District Court, which were included in

the agreed bundle). But the Judge did not deal with the argument in her reserved

decision. It is proper in those circumstances that this Court nevertheless entertain the

argument. Mrs Holland did not contend otherwise.



[26] In support of his argument Mr Ropati is able to identify only the most flimsy

evidence. The appellants were the original owners of the property. It was

transferred to Pathways Investments Ltd on 14 April 2005. The appellants are the

sole directors and shareholders of that company. There is no evidence as to whether

the appellants were living, or intending to live, in the unit. In the Court papers the

appellants' address is given as Omagh Avenue, Papatoetoe and not the property

concerned. The Papatoetoe address is also the registered office of the company.

There is no evidential basis upon which the Court can properly hold that the

Appellants are "residential occupiers" for the purposes of the Act. Accordingly, this

aspect of the appeal must fail.



Other grounds


[27] Mrs Holland submits that should I conclude (as I have), that the appeal must

partially succeed, nevertheless the respondent is entitled to maintain its judgment by

reference to what she says are the merits of an ordinary claim for debt, outside the

provisions of the Act. To that end she has filed a notice of intention to support the

judgment on other grounds.



[28] As I understand it her argument runs as follows:


a) Paragraph 11 of the statement of claim reads: "Despite demand the

defendants have failed and/or refused to pay the invoiced amounts or

any part thereof, and the sum of $58,837.39 remains due and owing".


b) This allegation is wide enough to encompass not only a claim under

the Act, but also an ordinary contractual claim for debt.


c) The affidavit evidence for the appellants raised a number of

complaints about workmanship, lack of authority on the part of the

respondent, inaccurate estimates and inflated invoices. All of these

allegations were rejected by the District Court Judge.


d) Any defence raised by a defendant to a summary judgment

application must be reasonably arguable if summary judgment is to be



Pemberton v Chappell [1987] 1 NZLR 1. The necessary

analysis must be robust: Bilbie Dymock Corp Ltd v Patel

(1987) 1 PRNZ 84 (CA).


e) Given that the District Court has rejected the appellants' allegations,

summary judgment was appropriate irrespective of any procedural

deficiencies under the Act.



[29] In my view this argument is untenable. The respondent commenced its

proceedings under the Act. Indeed, the statement of claim in the District Court

proceedings is so endorsed. The whole of the statement of claim is devoted to the

procedural prerequisites to a valid claim in debt under the Act. Paragraph 11 cannot

be construed as forming a foundation for a claim, other than as may be authorised by

the Act itself.



[30] Neither can the ambit of the proceeding in the District Court be regarded as

having been widened in some fashion by the choice of the appellants to raise in their

affidavits a range of matters of no relevance to a claim under the Act. The appellants

having chosen not to serve a payment schedule, the complaints raised by them, as Mr

Ropati readily accepts, ought not to have been included in the affidavit material

before the Court. Nothing in the Act affects the right of any party to maintain or

defend any other civil proceedings arising under a construction contract: s 27(1),

and so the merits (if any) of any complaint which the appellants may have against

the respondent remain for determination in other proceedings, if the appellants

choose to pursue the matter. In my view, the findings reached by Judge Simpson in

this proceeding as to the merits of the appellants' complaints are not binding on the

parties, because issues other than those relating to the payment claims themselves

were simply not properly before the Court. That may account for the relatively

truncated complaints which appear in Ms Welsh's affidavit.



[31] My conclusions on this point are reinforced by the provisions of s 79, which



79 Proceedings for recovery of debt not affected by counterclaim, set- off, or cross-demand


In any proceedings for the recovery of a debt under section 23 or section 24

or section 59, the court must not give effect to any counterclaim, set-off, or

cross-demand raised by any party to those proceedings other than a set-off of

a liquidated amount if--


(a) judgment has been entered for that amount; or


(b) there is not in fact any dispute between the parties in relation

to the claim for that amount.



[32] The word "proceedings" where it appears in s 79, includes a civil proceeding

for the recovery of debt by way of summary judgment: Volcanic Investments Ltd v

Dempsey & Wood Civil Contractors Ltd HC AK CIV 2005-404-1320 24 May 2005.



[33] The statutory inability of the appellants to maintain a counterclaim or claim a

set-off against the respondent in the present proceedings is intended to ensure that

proceedings under the Act are kept within their proper boundaries.



[34] The respondent is entitled to maintain a claim in reliance upon its payment

claims, but not otherwise. A wider claim for debt may be commenced separately:

s 27, and no doubt that is a likelihood, given the appellants' partial success on this

appeal. In any such separate proceedings the appellants will be entitled to raise all

available defences, including substantive defences, and as appropriate, to file a






[35] For the foregoing reasons the appeal succeeds in part. The judgment entered

in the District Court is set aside. In substitution the respondent is entitled to

judgment for $34,137.41.



[36] Counsel are asked to file written submissions as to interest and costs, in

accordance with the following timetable:


a) The respondent is to file and serve submissions on or before Friday

22 February 2008;


b) The appellants are to file and serve submissions on or before Friday

7 March 2008;

c) The respondent is to file and serve submissions in reply on or before

Friday 14 March 2008.



[37] Following receipt of counsels' memoranda, I will deliver a further ruling in

respect of interest and costs.





C J Allan J