BuildLaw BuildLaw: Issue 23, March 2016 | Page 4

BuildLaw: In Brief

The construction sector is in good shape with $1.6 billion of new construction work consented in December 2016 comprised of $1.0 billion of residential work and $555 million of non-residential work
Statistics New Zealand report the total value of all building consents (including alterations and additions) totalled $16.4 billion for the 12 months to 31 December 2015 – up $1.8 billion from 2014. The value of residential buildings was $10.5 billion — up $998 million (10%) and the value of non-residential buildings was $5.9 billion — up $814 million (16%). The largest increase was in building consents for education buildings which were valued at $1.1 billion – up 58 percent from 2014.
For the first time on record, the value of non-residential building consents in Canterbury was higher than in Auckland.
A total of 27,132 new dwellings were consented in the 2015 year – up 9.8 percent from 2014 and the highest since 2004 when 31,423 new dwellings were consented. The 2015 total comprised 10,038 houses (up 3.7%), 3,656 townhouses/flats/units (up 34%), 2,539 apartments (up 48%) and 1,899 retirement village units
Just when you’d hope it couldn’t get any worse, more grief for Cantabrians as Stonewood Homes Ltd and Stonewood New Zealand Ltd were placed into receivership owing about $15 million to unsecured creditors partway through building 100 plus homes. Notwithstanding the strong position of the industry, KordaMentha was appointed as the receiver of both companies – Stonewood New Zealand is the master franchisor for Stonewood Homes in New Zealand and one of the largest home building companies in the region. It has since been reported that adult entertainment and property investors, John and Michael Chow, have joined forces with corporate finance specialist, Clint Webber, to buy the troubled national franchisor’s business and the Christchurch franchisee from the receivers for an undisclosed sum. It is reported that the receiverships will not affect any of the other independently owned Stonewood franchises.
No doubt this will be a nightmare time for the Stonewood Homes customers affected by the failure who have paid deposits and progress payments on their unfinished homes, for the Registered Master Builders Federation as it deals with a multitude of claims under its Master Build Guarantee scheme, and for the unsecured contractors and suppliers who once again will be the major losers in the failure of a substantial but undercapitalised building company.
Once again these receiverships highlight the need for contractors and suppliers alike to ensure they are paid promptly and not to extend credit (albeit not intentionally) to building companies and employers who can’t or won’t meet their payment obligations. At the first sign of non-payment, contractors should immediately exercise their rights and entitlements under the Construction Contracts Act 2002 to suspend works and to initiate an adjudication proceeding for recovery of the unpaid amount(s). Promises of payment seldom eventuate as debt increases!
Torchlight Fund No. 1 LP (in rec) v Johnson [2015] NZHC 25 provides a recent statement of the application of the law on penalties following the UK Supreme Court decision in two conjoined appeals: Cavendish and ParkingEye (see BuildLaw Issue 22). Two issues arose, namely whether the penalty doctrine was engaged by the ‘late fee’ clause and, whether the clause was a penalty rather than a genuine pre-estimate of loss.
While the Court acknowledged the freedom to contract, it found the clause was a penalty and unenforceable because it was collateral to the breach and therefore an obligation arising