CIV 2007-488-000144












Hearing: 17 and 18 July 2007


Counsel: D Grove for plaintiff

R Bowden for defendant


Judgment: 18 July 2007 at 1530




[on application for summary judgment]





Solicitors: David Shanahan & Associates, PO Box 1801, Whangarei for plaintiff

Urlich McNab Kilpatrick, PO Box 633, Whangarei for defendant






[1] The plaintiff seeks summary judgment against the defendant for a reduced sum, namely $122,680.26 plus interest at 7.5% per annum from 28 February 2007.



[2] The claim is reduced from the amount set out in the statement of claim of

$200,775.17 plus interest and costs.



[3] The claim arises from a subcontract between the plaintiff company and the

defendant company arising from the contract between the defendant company and

Blitzen Investments Limited. Blitzen Investments Limited was developing the

"Ocean View Estate" (ex Tropicana Motel) at Whangarei Heads Road on the shores

of Whangarei Harbour. The work to be performed included the supply and installation of drainage services and concrete footpaths.



[4] The plaintiff's claim is based on the service of a schedule pursuant to s 20 of

the Construction Contracts Act 2002. That schedule claims the amount of

$200,775.17. The plaintiff alleges that the defendant failed to respond as required by

s 21 of the Construction Contracts Act 2002. As a consequence, the defendant

is liable to pay the claimed amount as at 27 February 2007 by the operation of

s 22(b)(ii) of the Construction Contracts Act 2002.



[5] The defendant opposes the application. Two specific grounds appeared in the

notice of opposition dated 10 April 2007 and filed on 11 April 2007. They are as



a) The defendant has already paid the entire amount awarded by the

adjudicator, Mr JC LaHatte, in terms of his award dated 13 November

2007; and

b) That on 27 February 2007 the defendant served, by fax and post, to

the addresses supplied on the claim, a schedule of payments required

by s 21 of the Construction Contracts Act 2002.



[6] The application for summary judgment had its first call scheduled for

16 April 2007. Counsel helpfully conferred and filed a joint memorandum dated

13 April 2007, advising the Court of a timetable for reply affidavits and seeking the

allocation of a ½ day fixture after 7 May 2007. Based on counsel's consent

memorandum, I issued a minute allocating this ½ day fixture and requiring

documents to be filed in terms of r 251A.



[7] On 9 July 2007 the defendant filed three documents. The first is an

application for leave to cross-examine Mr AL Halls, the plaintiff's director. The

second is an amended notice of opposition. The third is a further affidavit of Mr C




[8] The amended notice of opposition introduces a further ground. It alleges:


That the award of the adjudicator, Mr JC LaHatte, and dated 13 November

2006 was occasioned by fraud on the part of the defendant, its directors

and/or agents.


That contains a mistake. The intention is to allege an allegation of fraud on the part

of the plaintiff and its director and agents. I amended the document to reflect that

position with the agreement of both counsel.



[9] Mr Grove opposed both the application to cross-examine and the application

to amend the notice of opposition by adding the new ground which I have set out in

[8] of this judgment.



[10] Extensive documents have been filed, allegedly to deal with an issue which

the defendant seeks to pursue. In short, that issue is that the subcontract

between the plaintiff and defendant was a measure and value contract and that the true

consideration excludes any allowance for preliminary and general and margin. The

evidence explains that the term preliminary and general is widely used in the New

Zealand construction industry. It is an allowance to cover the costs of operating a

construction business such as insurances, programming costs, site staff, office

overheads, utility costs, telephones, temporal works, health and safety, small tools

and so on. The reference to margin is simply a reference to profit margin.



[11] There has already been a finding adverse to the defendant in relation to its

contention that the contract was a measure and value contract. That arose as a result

of the plaintiff serving a notice of adjudication under the Construction Contracts

Act 2002 resulting, ultimately, in the appointment of an adjudicator, Mr JC LaHatte.

Mr LaHatte issued his determination in respect of the specific relief sought by the

plaintiff, namely, that it was entitled to receive from the defendant the sum of

$108,688.87 plus GST for preliminary and general and margin allowance under the

subcontract. Mr LaHatte also found that the parties had agreed:


A fixed price contract and that the plaintiff would be entitled to be paid the

amount agreed.



[12] It is common ground that Mr LaHatte's determination is a determination

pursuant to s 48(1)(a) of the Construction Contracts Act 2002. It is therefore binding

on the plaintiff and defendant by virtue of s 60 of the Construction Contracts

Act 2002.



[13] The defendant's new allegation of fraud is a belated attempt to achieve the

outcome which I have referred to in [10] of this judgment. For reasons which I shall

explain in this judgment, it does not provide a specific answer to the plaintiff's

claim in this proceeding. It follows therefore that, if it does not provide a proper basis for

defence to this proceeding, there is no justification for the permitting of cross-

examination of a deponent as to the nature of the contract and as to that party's

knowledge of the nature of the contract and actions taken as a result.



[14] Cross-examination is not, ordinarily, appropriate in summary judgment

applications. The reasons were explain by McMullin J in Ian Buckeridge Transport

Ltd v Paku (1987) 1 PRNZ 80 at 82:


If there is no material on the papers to raise an arguable defence then

cross examination is not likely to put one in existence, and a defendant

should not be allowed to raise by cross examination what he has been unable

to do or has neglected to do by affidavits sworn for that purpose. Conversely

if a defence is apparent on the papers, there will be no need for

cross examination at all.


In Hurle v Eder (1997) 11 PRNZ 361 the Court declined leave to cross-examine

because it would have effectively resulted in a mini trial, without necessarily

enabling the final determination of the matter. The Court of Appeal in Kidd v van

Herren (1997) 11 PRNZ 422 explained that in relation to interlocutory applications

something abnormal, uncommon or out of the ordinary was required before

cross-examination should be allowed. That does not arise in this case for reasons which I

will explain. That is because the alleged fraud, namely the obtaining of the award of

the adjudicator, Mr JC LaHatte, by an action of the plaintiff or its directors is not

pivotal to a determination of the plaintiff's claim as pleaded in its statement of claim

before me. Accordingly, I refused the application to cross-examine Mr Hall.



[15] This is an application for summary judgment.



[16] The principles applicable when summary judgment is sought are well-

established. Rule 136 of the High Court Rules requires that the plaintiff satisfy the

Court that the defendant has no defence. That was explained by the Court of Appeal

in Pemberton v Chappell [1987] 1 NZLR 1 at 3 as follows:


In this context the words "no defence" have reference to the absence of any

real question to be tried.


That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence.



[17] The Court added at 4:


Satisfaction here indicates that the Court is confident, sure, convinced, is

persuaded to the point of belief, is left without any real doubt or uncertainty.




[18] And, further, at 4:


Where the only arguable defence is a question of law which is clear cut and

does not require findings of disputed facts or the ascertainment of further

facts, the Court should normally decide it on the application for summary

judgment, just as it will do on an application to strike out a claim or defence

before trial on the ground that it raises no cause of action or no defence.



[19] The Court also commented on the position where a defence is not evident on

a plaintiff's pleading and said at 3:


If a defence is not evident on a plaintiff's pleading I am of the opinion that if

the defendant wishes to resist summary judgment he must file an affidavit in

answer raising an issue of fact or law and give reasonable particulars of the

matter which is claimed ought to be in issue. In this way a fair and just

balance will be struck between the plaintiff's right to have the case proceed

to judgment without tedious delay and the defendant's right to put forward a

real defence.



[20] That position was further reinforced in AGC (New Zealand) Ltd v McBeth

[1992] 3 NZLR 54 at 59 where the Court said:


Although the onus is upon the plaintiff there is upon the defendant a need to

provide some evidential foundation for the defences which are raised. If not,

the plaintiff's verification stands unchallenged and ought to be accepted

unless it is patently wrong.



[21] Hypothetical possibilities in vague terms, unsupported by any positive

assertion or positive documents advanced by a defendant will not frustrate the

obligations on a plaintiff to discharge the onus of proof: SH Lock (NZ) Ltd v

Oremland HC AK CP641-86 19 August 1986.



[22] The Court of Appeal in Tilialo v Contractors Bonding Limited CA 50-93 15

April 1994 raised a caution, however, at 7 of the judgment and said:


The Courts must of course be alert to the possibility of injustice in cases in

which some material facts to establish a defence are not capable of proof

without interlocutory procedures such as discovery and interrogatories. That

does not mean that defendants are to be allowed to speculate on possible

defences which might emerge but for which no realistic evidential basis is

put forward.



[23] Rule 136 does create a residual discretion although as expressed by Casey J

in Pemberton v Chappell at 5 it is difficult to conceive:


Of circumstances where the Court should not give judgment for the plaintiff

... It can only be a discretion of the most residual kind.



[24] The discretion was the subject of comment in Jowada Holdings Ltd v Cullen

Investments Ltd CA 248/02 5 June 2003 at [30].



[25] The plaintiff's claim is that it served on the defendant on 28 January 2007 a

schedule pursuant to s 20 of the Construction Contracts Act 2002 claiming the

amount of $200,775.17 including interest up to 27 February 2007. The plaintiff

alleges that its payment claim complies in all respects with the requirements of s 20.



[26] The defendant does not dispute the service of the payment claim. The

defendant raises no issue concerning the claim's compliance with s 20 of the

Construction Contracts Act 2002.



[27] What is in issue is whether the defendant provided a payment schedule which

complies with s 21 of the Construction Contracts Act 2002 and which was served

within the time limit imposed by s 22(b)(ii). It is common ground that the

contract made no specific provision for service of a payment schedule. For that reason,

s 22(b)(ii) applies and the last day for compliance with the plaintiff's payment claim

was 27 February 2007.



[28] The defendant's evidence is that a payment schedule was faxed to telephone

number 09 437 3910 by its shareholder and financial controller, RI Donovan. The

telephone number, however, was disconnected on 1 February 2007 with the result

that the fax could not be received. The defendant has produced no fax confirmation




[29] Section 80 of the Construction Contracts Act 2002 sets out the means by

which notices may be served. The only applicable provision is that which is

contained in s 80(d), namely:


80 Service of notices


(d) the notice or document is sent in the prescribed manner (if any).



[30] The Construction Contracts Regulations 2003 provide in reg 9 for additional

modes of services. Subrule 2 is applicable to the circumstances of this case. It



9 Additional modes of service


(2) A notice or document sent by fax under subclause (1)(a) is, in the

absence of proof to the contrary, served or given if the fax machine

generated a record of the transmission of the notice or document to

the fax machine of the recipient, and the date of the record is taken

to be the date of receipt of that notice or document.



[31] What is apparent is that there has been no service of a payment schedule by

the defendant which complies with any of the modes of service set out in s 80

Construction Contracts Act 2002 or those prescribed.



[32] Section 23 sets out the consequence of not paying the claimed amount where

no payment schedule is provided. For the purposes of this case the consequences are

as specified in s 23(2) namely that the plaintiff may recover from the defendant as a

debt to the plaintiff in any Court the unpaid portion of the claimed amount and the

actual and reasonable costs of recovery awarded against the defendant by the Court

in which the claim was made.



[33] The circumstances surrounding the cancellation of the plaintiff's telephone

number arise by virtue of the plaintiff having been placed into liquidation on

30 January 2007. I have mentioned the fact that s 80 provides various methods for

service of notices under the Construction Contracts Act 2002. The defendant chose,

in the first instance, to attempt service of its payment schedule by fax. It is surprising that the defendant did not take advantage of the advice given to it in a letter faxed to it by Mr Sweeney, who was acting as adviser for the plaintiff, on 31 January 2007. That letter gave advice to the defendant of the appointment of the liquidators and that there were two places which could be treated as addresses for service for the plaintiff company, one being Mr Sweeney's company and the other being the solicitors for the liquidators. In each case, a fax and telephone number and postal address was provided. In short, the defendant had various options available to it for the service of its payment schedule. It failed to comply in a timely way with the requirements of s 22(b)(ii) and therefore must suffer the consequences which are set out in s 23.



[34] The above analysis answers the second ground of opposition, which I have

referred to in [5] of this judgment. That ground simply cannot be sustained on the

evidence provided.



[35] This proceeding is a proceeding pursuant to s 23 for recovery of the debt

being the claimed amount. That position, then, requires a consideration of s 79 of

the Construction Contracts Act 2002. Section 79 provides:


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.



[36] It is common ground that neither (a) or (b) of s 79 apply in this case.



[37] The defendant's case has, at all times, been that it should not pay any of the

sums claimed in the payment claim served on it on 28 January 2007. There is simply

no foundation for the proposition advanced as the first ground for opposing summary

judgment as set out in [5] of this judgment. There is no evidence of any payment

being made in satisfaction of the claim served on 28 January 2007.



[38] The first ground is simply an attempt to relitigate the finding of the

adjudicator as to the nature of the contract. Whether there is a justification for that is

not a matter that provides a specific answer or defence to the debt which arises by

virtue of the service of the payment claim and the failure to provide a payment

schedule in response. If it did, it would frustrate one of the purposes of this




[39] In Marsden Villas Ltd v Wooding Construction Ltd HC AK CIV 2006-404-

002136 25 May 2006 Asher J said the purpose of the Construction Contracts

Act 2002:


[9] The purpose of the Act is set out in s 3 which reads:


3 Purpose


The purpose of this Act is to reform the law relating to

construction contracts and, in particular,--


(a) to facilitate regular and timely payments between the

parties to a construction contract; and


(b) to provide for the speedy resolution of disputes

arising under a construction contract; and


(c) to provide remedies for the recovery of payments

under a construction contract.


[10] The Law Commission Paper which led to the legislation, Protecting

Construction Contractors stated that the Act was "... to have as its

purpose the ensuring of prompt cashflow to contractors ..." (p 11).


[11] A little earlier in the report it was put more graphically:


The basic intention is that instead of the cashflow being held

up for weeks, months and years, pending a final solution, a

decision, described as being "quick and dirty" will be given

to resolve the cashflow situation, leaving a final

determination of financial rights and obligations to be

arrived at later.


[12] In Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd

[1974] AC 689 , 716 the House of Lords quoted Lord Denning in the

Court below:


[t]here must be `cashflow' in the building trade. It is the

very lifeblood of the enterprise.


This was quoted with approval by the New Zealand Court of Appeal

in George Developments Ltd v Canam Construction Ltd [2006] 1

NZLR 177 at [41].


[13] In Gilbert-Ash the House of Lords allowed the appeal against

Lord Denning's decision. Lord Reid commented at p 699 that in a

range of judgments the English Court of Appeal had come near to

laying down a general rule that not only in cases between an

employer and contractor, but also in cases between contractor and

sub-contractor, sums due under an architect's certificate must be

paid at once without waiting for determination of claims for set-off.

This line of authority was disapproved by the House of Lords, at

least as it related to contractor and sub-contractor.


[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.



[40] The summary of the purposes of the Act is the reason why Mr Grove

acknowledged to me that the entry of judgment in this case would not provide an

estoppel if there was a proper foundation for a claim by the defendant of over-

payment or, for that matter, fraud in obtaining the determination of the adjudicator.

The reason is, if there is a foundation for such matters, that may still

be the subject of a determination in proceedings brought by the defendant.



[41] It is appropriate that I comment on the additional ground of opposition which

is set forth in [8] of this judgment. Mr Grove opposed the amendment. He advised

that if it was allowed he would nevertheless wish to proceed with the fixture.

Accordingly, I have allowed the amendment so that, at least, the basic ground

advanced can be considered and in the way it is advanced to see if it might provide a

ground for opposing summary judgment in this case.



[42] I have already recorded that the plaintiff's claim does not rely, on a

jurisdictional basis, on the award of the adjudication of Mr JC LaHatte. It simply is

founded upon the application of ss 20, 21, 22 and 23 of the Construction Contracts

Act 2002 as I have set out. An analysis of the basis of the fraud claim will therefore

not assist the defendant in this case. It is important, particularly having regard to the

way the allegation was made and the time at which it was made, that I refer to the

approach which must be followed when a claim based on fraud is advanced. I adopt

the summary of position set out by Harrison J in Paper Reclaim Limited

v Aotearoa International Limited HC AKL CIV 2004-404-004728 14 February 2005.


[17] It has been said by many Judges, and on many occasions, that a

claim based on fraud is extremely serious. It must be properly

particularised and proven to a high standard, commensurate with the

severity of the allegation. In the context of an attempt to impeach a

judgment on the ground of fraud, the same principles apply

"particulars of the fraud must be exactly given" (Jonesco v Beard

(supra) per Lord Buckmaster at 300, applied in Ongley v Brdjanovic

[1975] 2 NZLR 242 by Beattie J at 244, and in Shannon v Shannon

[2002] 3 NZLR 567 by Potter J at para 51). It follows, in my

judgment, that when filing an application to set aside a judgment a

plaintiff alleging fraud must have an evidential foundation sufficient

to establish a prima facie or arguable case (cf. Owens Bank Ltd v

Etoile Commerciale SA [1995] 1 WLR 44 (PC) at 51C). The

probative value and admissibility of its evidence must be apparent at

that stage.


[18] There is no room for a provisional or equivocal claim, based on

suspicion, to be bolstered by fishing expeditions through the

problematical process of interrogatories and discovery. I agree with

Randerson J when rejecting Mr Judd's submission:


... that, in a proceeding of this kind, the Court is obliged, in

accordance with traditional strike out principles to treat the

plaintiff's allegations in the statement of claim as true. That

is undoubtedly the general principle in cases where a strike-

out application is brought on the ground first in R186(a).

Generally, the Court does not go into the evidence ...

[although it] is not necessarily required to assume the

correctness of factual allegations obviously put forward

without any foundation.


[19] Where a fraud proceeding of this kind is brought, the Court is being

asked to entertain a collateral attack on a solemn and considered

judgment of this Court outside the ordinary processes of appeal.

There is an obligation on the plaintiff to produce some probative

evidence to support its claim when the defendant applies to strike




[43] To the extent that the defendant seeks to challenge the adjudicator's decision,

I have already referred to s 60. For completeness' sake, I note that there have been

no judicial review proceedings in respect of that determination. I was told that there

are proceedings extant in the District Court which are effectively stayed by the

operation of s 248(1)(c) of the Companies Act 1993. Whether those proceedings

should continue is no doubt a matter that the defendant can discuss with the

liquidator of the plaintiff in the first instance and, if not satisfied with the result,

could pursue an appropriate application to the Court. In doing so, if the defendant

is to pursue the allegation of fraud, care must be taken to observe the position that I

have set out. There is certainly no justification for my analysing the matter further in

this judgment.



[44] Mr Bowden undertook an extensive analysis of the background documents.

His purpose, as I have already recorded, was to endeavour to establish that there is a

sound foundation for the proposition that the adjudicator's finding that the contract

was a fixed price contract was wrong. He recognised that the defendant's task,

however, must go beyond that. In short, he recognised the necessity for the

challenge to go beyond simply disclosing an error in the adjudication decision. What

is required is that the error is brought about by the fraudulent conduct of the plaintiff.



[45] In Shannon v Shannon 17 PRNZ 587 the Court of Appeal examined the fraud

exception to the principle of finality of a judgment. The Court confirmed the

stringent requirements that must be met before a judgment can be set aside on the

basis of fraud. There must be:


a) Evidence newly discovered since trial;


b) Evidence that with reasonable diligence could not have been found by

the time of trial;


c) Evidence so material that its production would probably have affected

the outcome of the trial; and


d) Where perjury is alleged, evidence so strong that it would reasonably

be expected to be decisive at the re-hearing.



The Court emphasised that the new evidence relied upon should be put before

the Court at the strike out stage.



[46] Mr Bowden's analysis was based on the actual documents, that is the

schedules of quantities and contract schedules and the payment claims. All of that

material was available to the parties at the time of the adjudication and, indeed, at the

time when the payment claim, which is the foundation for the current proceeding,

was issued. The fact that the defendant's expert had not seen the material does not

assist the defendant's position. The inference is that the very same submissions

that were advanced to me could have been advanced at the time of the adjudication.

Indeed, a consideration of the adjudicator's report indicates that some such

submissions were advanced. That leads me to the conclusion that what has been

placed before me does not provide a sound foundation for the attack which the

defendant seeks to make. That, then, is sufficient to dispose of this additional

ground of opposition to the application for summary judgment in this case.



[47] I acknowledge that Mr Bowden submitted that the existence of such a

defence may justify the exercise of the residual discretion to not enter summary

judgment pursuant to r 136 of the High Court Rules. That there is such a residual

discretion I have already referred to, although it is of very limited scope.

What is apparent in the current context, however, is that the whole purpose of the

Construction Contracts Act 2002 would be lost in a case such as the instant one if a

contractor is denied a judgment. Parliament has set the appropriate policy that is to

be applied in these cases. In my view, there is no proper case for the exercise of the

residual discretion in this case. Further, the fact that defendant may have missed

serving its payment schedule only by a matter of a few days would not justify the

exercise of the discretion on the facts placed before me.





[48] The plaintiff seeks summary judgment for a sum less than that which is set

Out in the payment claim. That arises because the plaintiff does not pursue two items

referred to in the payment claim, namely costs incurred and general damages and the

GST on both. That they are not pursued is understandable and certainly does not

provide any doubt or disclose any basis for not entering summary judgment in

respect of the balance of the claim.





[49] Accordingly, I enter summary judgment for $122,680.26 plus interest at the

rate of 7.5% per annum from 28 February 2007 to the date of judgment.





[50] In accordance with counsel's request, I reserve costs. If agreement cannot be

reached, memoranda in support, opposition and reply shall be filed and served at

seven-day intervals. The Registrar shall refer same to me for decision.






JA Faire

Associate Judge