In this month’s article I wish to review the June 2017 decision of Lot 8 Investment Ltd v RPS Construction Ltd.
The applicant, Lot 8 Investment Ltd (Lot 8) applied to the High Court to have RPS Construction Ltd’s (RPS) statutory demand set aside, which claimed an amount of $54,067.07, in relation to the first and second payment claims issued by RPS.
RPS was contracted to do building work for Lot 8. RPS completed work between November 28, 2016 and December 31, 2016. RPS issued its first payment claim on January 1, 2017 for $48,034.58, and its second payment claim on February 7, 2017 for $32,494.24 (which was before the first payment claim was due, being February 9, 2017).
The first payment claim was incorrectly required to be paid by January 30, 2017 but, because the parties had not made a prior agreement as to the due date, the Construction Contracts Act 2002 (CCA) required that payment be made within 20 working days, being February 9, 2017. The parties’ building contract was terminated on January 31, 2017.
The purpose of the CCA was recorded in the judgement as being to ensure that payees’ payment obligations are complied with, except for good reason properly authorised by the Act.
A payment claim is to be paid in full unless a valid payment schedule is issued in response within 20 working days. The schedule is required to contain a sufficient explanation of why the payer is paying less than invoiced.
The payment schedules
On February 9, 2017, Lot 8 provided a single payment schedule in response to both of RPS’ payment claims (1 and 2).
The payment schedule was issued within the correct amount of time as required by the Act, being within 20 working days from the date that the first payment claim was issued, and provided reasons for Lot 8’s payment of $34,796.63.
On March 6, 2017, Lot 8 emailed RPS with a second payment schedule in relation to the second payment claim which supported its first payment schedule. The latter payment schedule identified a recent discovery of boxing and foundation work which was incorrectly located, and would need removing/replacing.
RPS argued that Lot 8’s single payment schedule referred to both payment claims 1 and 2, stating that the Act requires a payment schedule to relate to only one claim.
Because Lot 8’s single payment schedule referred to two payment claims, it was impossible for RPS to determine what amount was being paid by Lot 8 in relation to each payment claim.
In response, Lot 8 submitted that the payment schedule was compliant because it was in writing, identified the payment claims to which it related, and indicated the amount for which it accepted liability.
The email that the schedule was sent with further identified Lot 8’s complaints concerning defective work, poor workmanship and overcharging of RPS.
The court looked at the purpose of the CCA, being to prevent claims of poor workmanship without reason. Therefore, unless the payment schedule is compliant with section 21, liability for payment cannot be avoided.
These rules were created for the purpose of protecting payees, and ensuring prompt and proper payment.
The court then examined section 21, together with Loveridge Ltd v Watts & Hughes Construction Ltd, which implies that there should only be one payment schedule responding to each payment claim because of the confusion that would arise if this position were not complied with.
The court held that section 21 does not prevent someone from using a single payment schedule to answer two payment claims, so long as it is delivered within the requisite time frame for responding, and it clearly identifies the work and cost issues affecting both payment claims.
This is to ensure that the scope of any deduction claims are clearly shown and can be understood. Lot 8 was required to have responded to RPS’ first payment claim on February 9, 2017.
It received RPS’ second payment claim on February 7, 2017. Because Lot 8 received the second payment claim within the initial 20 working days, it was allowed to issue a single payment schedule in response to both claims, so long as it complied with section 21.
Lot 8’s payment schedule clearly referred to each payment claim separately, including its calculation of the valuation of works completed by RPS.
The schedule provided sufficient details and reasons in response to the payment claim.
The court further noted that a payment schedule is not required to provide a line-by-line assessment, or to link each aspect of challenge to an analysis of charges made, or to literally comply with section 21.
Accordingly, the court ruled that the payment schedule did comply with section 21 such that the amount sought in the statutory demand was not a debt due by operation of section 23 of the CCA but, rather, a disputed amount. The statutory demand was therefore set aside.
Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.