The Construction Contracts Act 2002 (CCA) has been in force for 15 years.  It provides for a payment process that, if followed, delivers clear protections not otherwise available to those in the construction industry.  If invoices are issued in the form of payment claims that comply with the CCA, then failure by the payer to either issue a schedule under the CCA or to pay the claim, entitles the claimant to recover the sum invoiced plus all of its legal costs.    This applies no matter the size of the contract or the sum at stake.

In a recent case Floorman Waikato Ltd v McRae[1], FWL provided floor sanding services to M.  There was no written contract.  FWL completed the work and issued an invoice in the form of a payment claim that complied with the requirements of the CCA.  M refused to pay, arguing the claimed sum was not the price agreed and that there were issues with the quality of the work.  M, however, did not issue a schedule under the CCA in response to FWL’s payment claim.

FWL filed a claim for summary judgment in the District Court seeking payment of its payment claim.  The Judge in the District Court declined the claim.  He found it was arguable that there was no contract because the evidence did not establish there was agreement on the price of the work.  He also found that floor sanding was not construction work under the CCA.

FWL appealed to the High Court.  The Judge in the High Court found the District Court was plainly wrong.  Both parties agreed in evidence the work was requested and completed. The Court found it was not necessary for the purposes of this claim to determine which party’s evidence he accepted on price.  Section 17 of the CCA deals with progress payments and provides that if the contract between the parties does not expressly provide for the price of the work, the value of the work must be calculated with regard to the reasonable value of the work.   The work was clearly construction work as defined in the CCA.

The High Court overturned the District Court decision and ordered M to pay FWL’s payment claim in full as well as all of FWL’s legal costs in the District Court.  The result in favour of FWL is clearly correct and resulted from FWL’s invoice being a compliant payment claim under the CCA.  It was unfortunate for FWL that the District Court got it wrong.  However, if FWL had provided a written contract setting out the terms discussed and agreed, including price, it is likely the dispute would never have arisen in the first place.

This case highlights the importance of having a written agreement for construction work. It also illustrates the benefits of issuing invoices that are compliant payments claims under the CCA.  If you wish to have construction contracts prepared or reviewed or wish to ensure that your documentation is compliant with the CCA please contact us.

 

[1] [2017] NZHC 1063, [2017] NZAR 779