Construction Contracts Act 2002 — Payment Claim/Payment Schedule

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The recent High Court case, Invent Solutions Ltd v Chan Developments Trustee Ltd & Others (CIV 2008-485-2834), considered whether payment claims served by the plaintiffs complied with the requirements of the Construction Contract Act 2002.

The judgment also discussed the validity of the payment schedule provided in response to these payment claims.

Background
The plaintiff company carried on business as a building contractor and the defendant company was a property development company.
On 14 September 2008, the two parties entered into a construction contract under which the defendant would pay the plaintiff to undertake and manage construction work at the property known as the Potala Villas development project.

From 5 November 2008 to 6 November 2008, three invoices were issued to the defendant. On 7 November 2008, the parties entered into an Exit Agreement which terminated the construction contract.

However, on 14 November 2008 Raymond Chan, the director of the defendant company, wrote to the plaintiff informing him that the defendant was dissatisfied with the work the plaintiff had carried out at the property, and that there would not be payments made for the amounts claimed in the invoices.

The letter contained a scheduled amount of “nil” which was arrived at by deducting the estimated cost of bringing up the work so that it complied with the contract, from the amount claimed in the invoices.
Following these events, two further payment claims were served on the defendant. One was issued on 18 November 2008 and the last one was issued on 25 November 2008.

Issues
The Construction Contracts Act 2002 provides specific provisions to ensure contractors and principals follow legitimate processes when facilitating payments and contractual obligations.
Here, the court was faced with two main issues to be considered in light of the Act. First, whether the payment claims contained sufficient detail to comply with the provisions of the Construction Contracts Act 2002.

Second, the issue was whether the payment schedule contained sufficient detail and reason to justify a non payment.
Section 20 sets out the criteria that must be contained in payment claims. 

The defendants argued that the invoices did not comply with the section 20 requirements for the following reasons:
• there were errors in the invoices, such as referring to the “Construction Contracts Act 2003” instead of 2002,
• they failed to state the correct due date for payment pursuant to the construction contract,

• some invoices did not adequately identify the construction contract to which they related,
• some invoices did not indicate the manner in which the claimed sum was calculated in sufficient detail, and the amount claimed was not broken down in detail.

The second question was whether Mr Chan’s letter fulfilled the requirements of section 21(3).
The letter reasoned that the defendant company would withhold payment until more detailed information was obtained because of the dissatisfaction with the work done, and alleged non-compliance with the construction contract.

It also suggested that the defendant calculated the scheduled amount of “nil” by deducting the estimated cost of bringing up the work so that it complied with the contract, from the amount claimed in the invoices.

The plaintiff argued that this letter did not constitute a valid payment schedule under section 21(3) as:
• allegations of non-compliance and unsatisfactory work were stated generally and did not point to particular aspects of the work, and
• the source and quantification of the estimate were also unclear and unsubstantiated.

Decision

Associate Judge D I Gendall considered both the issues in light of earlier judgments and applied the purpose and wording of the Act.

• He dismissed the argument that the reference to the Act with the incorrect year and the error of incorrect due date for payments invalidated the invoices because “there is no suggestion in the present case that these acknowledged errors misled the defendants . . . the errors are minor technical quibbles and do not invalidate the payment claims”.
• He agreed that, ideally, a payment claim would provide greater detail than seen in some of the invoices that the defendant argued were non-compliant. However, he found that “. . . the invoices are not so vague as to be clearly non-compliant with section 20 of the Act . . . not so vague that the defendant was precluded from issuing a payment schedule in accordance with the statutory regime”.

• In respect of the payment claim which the defendants claimed contained a lack of detail in the amount claimed, he held this was a valid payment claim as it refers to the exit agreement which sets out liability for the amount.

As to the validity of the payment schedule, the judge held that the letter fulfils the basic requirements of a payment schedule as is more fully set out in section 21(2) of the Act.
However, as to its satisfaction of section 21(3), he determined that the letter was not a valid payment schedule. It was decided that the letter expressed some general dissatisfaction with the plaintiff’s workmanship and performance under the construction contract.

However, it did not itemise any specific matters of concern as the Act requires. “Thus, the defendants did not effectively respond to the payment claims by providing a proper payment schedule to the plaintiff under s21 of the Act.”

Furthermore, no specific complaints are detailed, and the letter simply stated that there was a comprehensive report of all areas of non-compliance being prepared, which was never provided.

The judge concluded that an assurance from a defendant that more detail would be provided in the future does not make up for a lack of actual detail in a purported payment schedule.
This case serves as another strong reminder not to treat a payment claim lightly for, otherwise, a person who does may find that he or she is liable for the full amount sought.