Construction Contract Act 2002 revisited – What constitutes a payment schedule?

Construction Advantage Ltd v Eljayej Holdings Limited

In this month’s article I wish to look at a recent case that was primarily focused upon section 21 of the Construction Contracts Act 2002, and what constitutes a valid payment schedule.  

Facts.

Construction Advantage Ltd (CAL) applied for summary judgment for payment of the amount claimed in its final payment claim on the basis that the payment schedule issued by Eljayej Holdings Limited (EHL) was not a valid payment schedule. CAL was looking to take advantage of the deeming provisions in the Act, whereby if a payment schedule was not responded to within the requisite time frame, then the amount claimed in the payment claim becomes due and owing as a debt due, utilising sections 22 and 23 of the Act.  

The key requirements of section 21 are that:

  1. A payer must respond to a payment claim in writing;

  2. Identify the payment claim to which it relates;

  3. State a scheduled amount

  4. If the scheduled amount is less than the claimed amount, the payment schedule must indicate:-

  5. The manner in which the payer calculated the scheduled amount;

  6. The payer’s reason or reasons for the difference between the scheduled amount and the claimed amount; and

  7. In a case where the difference is because the payer is withholding payment, the payer’s reason for withholding payment.  

The key enquiry in this decision became one of assessing whether the payer EHL had indicated reasons for the difference between the scheduled amount and the claimed amount, noting that EHL had indicated a scheduled amount of nil.

The Court first considered the Australian decision of Multiplex Construction Pty Ltd v Luiken which had considered the meaning of the words “indicate” in the context of payment claims. It was held that the payer need not provide full particulars of the reasons, but rather the essence of the reason for non-payment is sufficient to enable the claimant to make an informed decision whether or not to pursue the claim and to understand the nature of the case it must meet in adjudication.  

It then referenced the Court of Appeal decision Fletcher Construction Co Ltd v Spotless Facility Services (NZ) Ltd as authority for the courts using a pragmatic, common sense and contextual approach to whether a payment schedule complies with the Act.  


Analysis of the payment schedule received from EHL.

The payment schedule received from EHL was criticised by CAL as being non-compliant because it was devoid of any reasons for paying less than the claimed amount. Instead, CAL argued it referenced prior correspondence only as setting out the reasons for paying a Nil amount. In particular CAL said that one of the letters referred to was a without prejudice communication that was again short on detail. It also made the point that some of the correspondence referred to by EHL which sought further information from CAL, CAL had subsequently produced.  


Decision reached.  

Having worked through the correspondence that was referenced in the payment schedule, the Court concluded that the onus was upon CAL (in the context of a summary judgment application) to establish that it was not reasonably arguable that the payment schedule sufficiently indicated the reasons for the nil balance. The Court ruled that the payment schedule referred to previous letters specifically, and those letters referred to earlier correspondence, all of which could be read to constitute the payment schedule, as there was a common understanding as to what the correspondence was because of the reference to the date. In particular one of these letters expressly recorded the reason for disputing the variations, noting that the contract required any variations issued to be in writing. The Court ruled that there is no question that the payment schedule sufficiently indicated both the reasons for why the scheduled amount was less, because the variations are disputed, and the dispute arises because EHL contends these have not been properly claimed in accordance with the contract or evidenced as required. The requirement is not for EHL to indicate the reasons to allow CAL to understand the dispute itself but simply to allow CAL to assess whether to accept the deduction or follow the dispute resolution provisions. It is not for the payment schedule to provide the payee with a common understanding of the dispute, but rather a common understanding of the references providing the reasons for the dispute. This threshold the Court ruled EHL had reached. Summary judgment was declined.  

Postscript.

This decision appears to read down the onus upon the payer to provide a detailed account of why it is not paying the full amount of a payment claim and allows the payment schedule to call up prior documents and correspondence referred to therein.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. or Building Today to anyone who relies on the information in this article.