On 3 February 2017, the Court of Appeal released its decision in the case of CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA 3.

Observing that the consequences for not complying with the scheme under section 23 of the Construction Contracts Act 2002 may be draconian, Justice Toogood observed that “a pragmatic, common sense and contextual approach” was required when considering the validity of a payment claim in terms of section 20.  More critically, the Court of Appeal has perhaps thrown a lifeline to owners who are unable to provide a valid payment schedule for an amount less than claimed, if the payment claim itself provides insufficient information.

Toogood J went on to say:

[26] A payment claim must be sufficiently detailed and comprehensible to enable a payer to understand the basis on which the claim is made. Only then can the payer decide whether to accept it or to put the payee on notice of a dispute by providing a payment schedule in response which explains the payer’s reasons for disagreeing with the claim. This requirement is implicit in the payee’s obligation to provide a claim that indicates “the manner in which the payee calculated the claimed amount”17 and in the payer’s obligation to respond by giving reasons for the difference between the amount claimed and the amount the payer is prepared to pay.18

[27] Each case falls for determination on its particular facts but, if anything, the requirements for a valid payment claim under a construction contract that does not provide expressly for a contract price, labour rates or prices for materials and services (a s 17(4) contract) may be more onerous than in cases where the contract price or other prices are agreed. The payee must indicate to the payer an objectively understandable basis upon which the value of the work claimed is said to be “reasonable”. Merely setting out general figures without some reference to ascertainable factors in their calculation will not be sufficiently detailed and comprehensible in most instances where the contract falls under s 17(4). The price of relevant consumables, hourly rates or hours worked may need to be listed. Given the draconian consequences for a payer if they fail to respond by providing a valid payment schedule within the statutory time period,19 compliance with such a requirement would not impose on a payee an unreasonable burden inconsistent with the overall statutory purpose.

For those situations where the basis of claiming and assessing payment is not laid down in the contract, then following this judgment, a valid payment claim would need to set out in more detail than had been the case in this dispute; it needed to show how the “reasonable value of the work” had been calculated.

The respondent, Dr Ketan, had responded to the contractor’s invoice with an email disputing the claim and asserting that the contractor had been overpaid by some $45,000.00 based on a quantity surveyor’s report, which had already been provided to the contractor.  Regrettably, the Court did not go on to consider the validity of the payment schedule, but Toogood J did comment, in relation to the obligations in section 21:

[24] It can be seen that a payer who elects to provide a payment schedule stating an amount less than the claimed amount must respond to the payment claim by indicating the manner in which the scheduled amount has been calculated and give a reason or reasons for the difference between the amounts and for withholding any payment. These obligations correspond to those of the payee under s 20.

[29] … a payer who has not been provided with sufficient information to understand the manner in which a claim has been calculated cannot reasonably be required to provide a payment schedule which complies with the obligation to indicate the reasons for any difference between the amount claimed and the amount the payer considers ought to be paid.

In George Developments v Canam [2006] 1 NZLR 177 the payee was entitled to rely on previous payment claims for that context; there was no such context in this case.

There is a suggestion in Toogood J’s reasoning that there is symmetry between considerations of the validity of payment claims and payment schedules, which was also raised by Justice Venning in SOL Trustees Ltd v Giles Civil Ltd [2014] NZCA 539.  While it is sensible to comment that a payment claim must provide sufficient information for the payer to understand the basis upon which the claim has been made, it is to be hoped that Venning J’s obiter at paragraph [45] that deductions in any payment schedule might be constrained by the same restrictions on set-off in section 79.  Thankfully, Justice Toogood did not go so far as to endorse that view.

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