The recent High Court decision of Justice Wylie in Berg v Franix Construction Limited (CIV2008-404-3421) once again highlights that, in order for contractors to take advantage of the fast track procedure for the payment of debts contained within the Construction Contracts Act 2002, they must first comply with the requirements imposed by the Act.
This particular case examined whether a builder’s failure to serve a payment claim contemporaneously with a notice to residential occupier as is required by section 20 (3) of the CCA, was fatal to his recovery of the sum claimed.
The respondent, in this case, was engaged by Mr Berg to carry out various building works at his home, including the removal and replacement of the current decking and handrails (quoted at $13,000) and the removal and replacement of existing waterproof membranes (quoted at a further $9000).
The respondent commenced work on or about 30 October 2007, and submitted weekly invoices to Mr Berg, who paid the first three invoices totalling some $12,400 upon receipt.
On or about 11 December 2007, the respondent sent a payment claim to Mr Berg, seeking payment of an additional $13,712.96. There was no notice to residential occupier attached to this payment claim, which sets out the process for responding to the claim, and explaining the consequences of either not responding, or not paying the claimed amount.
Mr Berg responded to the payment claim by way of letter, emailed to the respondent on 12 December 2007. The respondent’s reply email, also dated 12 December 2007, then attached to it the notice to residential occupier, required by s 20 (3) of the CCA.
District Court claim
When no payment or payment schedule was forthcoming from Mr Berg in relation to the payment claim served upon him on 11 December 2007, the respondent issued summary judgment proceedings in the District Court in February 2008.
Upon receipt of the proceedings, Mr Berg made an additional payment of $6545.46. The respondent then sought the balance of the payment claim in court, and was deemed to be entitled to summary judgment by Judge Hubble. Mr Berg appealed.
On appeal, Justice Wylie had to consider whether or not the failure of the respondent to comply with s 20 (3) by forwarding the required notice to residential occupier on 12 December 2007, rather than contemporaneously with the payment claim served on 11 December 2007, amounted to more than a “technical quibble”. Section 20 (3) stipulates that:
(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).
Counsel for Mr Berg submitted that the words “must be accompanied by” in s 20 (3) meant that it was mandatory for the required outline and explanation to be delivered simultaneously with the payment claim.
Without the notice, counsel argued that no proper payment claim had been served on Mr Berg and, as a consequence of no payment claim having been served, he was not obliged to file a payment schedule in response.
Conversely, counsel for the respondent submitted that in a broad sense, the notice did accompany the payment claim, albeit not simultaneously. Counsel argued that there had been no prejudice to Mr Berg by the notice being submitted one day after the payment claim itself.
In weighing up the competing submissions, Justice Wylie determined that a failure to comply with s 20 (3) was more than a “technical quibble”.
First, the use of the words “accompanied by” in s 20 (3) dictate that the outline and explanation must be provided simultaneously with the payment claim.
Second, Justice Wylie considered that the consequences for a person who fails to serve a payment schedule in response to a payment claim within the stipulated time are sufficiently serious to warrant, in mandatory terms, that the payment claim is accompanied by the notice to residential occupier.
Moreover, Justice Wylie was unable to conclude that there was no prejudice to Mr Berg as no outline and explanation was given to him at the time he was served with the payment claim, and the email that did annex the notice to residential occupier made no express reference to it. The judge was unable to eliminate the possibility that Mr Berg was confused.
In essence, without the notice to residential occupier attached, the invoice dated 11 December 2007 was defective for failing to comply with s 20 (3), and the payment claim was invalid.
As Mr Berg was not served with a valid payment claim, he was under no obligation to serve a payment schedule in order to avoid liability to pay the amount claimed. Summary judgment originally awarded to the respondent in the District Court was accordingly set aside.
This case serves as a timely reminder to contractors intending to rely on the CCA for the facilitation of regular and timely payments that failure to adhere to the mandatory requirements of the Act will likely result in their payment claims being deemed invalid.
The courts are taking a strict approach to the requirements of the Act, and contractors must take care to ensure their payment claims meet the criteria of s 20 (3) of the CCA prior to serving them on residential occupiers.