Revisiting payment claims under the Construction Contracts Act: Service

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The Christchurch High Court decision of Arnold Jenson (2005) Ltd v Trevor James Bills & Others (CIV-2008-409-001349) covered the issue of what constitutes valid service of a payment claim under the Construction Contracts Act 2002 (CCA).

Whilst Justice Fogarty ultimately refused to allow an appeal of this matter from the Christchurch High Court to the Court of Appeal, the case does serve as a timely reminder to those involved in the construction industry that compliance with the service provisions of the CCA is vital.
Failure to serve a payment claim in accordance with the provisions of the CCA will often mean any resulting litigation will be unsuccessful.

The factual case

In this case, the Applicant, Arnold Jensen (2005) Ltd (Arnold Jensen) was a contractor who obtained summary judgment of $52,579.75, together with interest, against the respondent under the CCA.

Summary judgment is appropriate where payment claims have been validly served on a party and that party has not, within the statutory time limit, filed a payment schedule in response, showing the sum in dispute.

What makes this case different is that, originally, Arnold Jensen had not served the respondent with payment claims that satisfied the criteria of the CCA, as they were not accompanied by the Notice to Residential Occupier.

Despite this error, the parties engaged legal representation and opted to attend alternative dispute resolution (ADR) over the sum in dispute.
Alternative dispute resolution failed, and the applicant then took the opportunity to reissue the payment claims, together with the required Notices to Residential Occupier.

The compliant payment claims were posted to the Post Office box of the respondent who was overseas at the time. Upon his return, the respondent sent the payment claims to his solicitors who filed a payment schedule outside of the statutory time limit.

The applicant then obtained summary judgment in the District Court on the basis that valid payment claims had been served and not responded to appropriately.
On appeal, the High Court looked at s80 of the CCA which deals with the service of notices and held that in the course of the ADR process, the respondent had appointed a solicitor and prescribed service on his solicitor — the applicant was required to serve the payment claims on the respondent’s solicitor and could not take advantage of the alternative means of service under s80 of the Act.

The High Court set aside the judgment in favour of Arnold Jensen.
The applicant then appealed to the High Court on the basis that the court had been incorrect in its interpretation of s80 of the CCA.

The right to appeal is underpinned by the notion that the appeal must raise some question of law or fact capable of serious argument and involve some interest, whether public or private, of sufficient importance to outweigh the cost and delay of a further appeal.

Whilst Justice Fogarty agreed that the issues raised by the applicant on appeal, including the need for a justification as to why the High Court determined that a “prescribed manner” displaces the alternative methods of service set out in s80 of the Act, were of some public interest.
Ultimately, the cost factor involved in appealing a $52,579.75 claim that had already been through ADR, the District Court and the High Court was too high. 

Service provisions of the CCA

The case highlights how important it is to serve a payment claim in accordance with the Act. When serving a payment claim under the CCA, there are two important sections that must be considered. The first is s20, which outlines the requirements for the payment claim itself.

In summary, a payment claim must:
• be in writing,
• contain sufficient details to identify the construction contract to which the progress payment relates,

• identify the construction work and the relevant period to which the progress payment relates,
• indicate a claimed amount and the due date for payment,

• indicate the manner in which the payee calculated the claimed amount, and
• state that the payment claim was made under the CCA.

In addition, any payment claim served on a residential occupier must be accompanied by an outline of the process for responding to the claim, and an explanation of the consequences of not responding to the claim and/or not paying the claimed amount.

Once a payment claim has been prepared, it then needs to be served in accordance with s80 of the CCA, which stipulates that a notice or document under the CCA is sufficiently served if:
• it is delivered to the person,
• it is left at that person’s usual or last known place of residence or business in New Zealand,

• is posted in a letter addressed to the person at that person’s place of residence or business in New Zealand, or
• it is sent in the prescribed manner, if any.

As the implications for not paying a payment claim or responding in the necessary way are serious, it is often the case that a payer will argue that service was never affected against them.

To avoid this, we would always recommend that a payment claim is served personally on a payer, preferably by a process server. In that way proof of service can easily be satisfied by way of an affidavit of service.

The other forms of service prescribed by the Act are more difficult to prove.