With respect, the Court of Appeal did not cite the remainder of Harrison J’s comment at [28] in Metalcraft where His Honour recognised that a payment schedule that “properly quantifies the amount incurred by a principal in remedying the allegedly defective workmanship by a contractor may...constitute a valid reason for withholding payment for that amount.” Accordingly, the homeowner in the pool example needs to properly quantify and justify his reasons for paying less in the payment schedule, ideally by giving “full and unequivocal notice” of all areas of difference/dispute to enable the payee to assess its options (Metalcraft at [15]).
To estimate and quantify the amount of a counterclaim or set-off can be challenging when the relevant information is in the payee’s possession, or the payer has not yet engaged experts to consider the financial consequences of delay, breach of contract or remedying defective works. For those reasons, commentators have argued that it is unfair to require payers to provide “full particulars” of the scheduled amount within the time allowed to prepare a payment schedule (see John Ren “What it takes to be a valid payment schedule under the Construction Contracts Act 2002” (2008) 14 NZBLQ 78).
Helpfully for payers, judicial decisions have consistently acknowledged that the requirement is to “indicate” reasons for withholding payment rather than to state, specify or set out reasons. That suggests a degree of flexibility or that some lack of precision or particularity is permissible (Manchester Industrial Holdings Ltd v Andrew G Hazelton [2016] NZHC 211at [34]). However, the Court in Manchester dismissed the owner’s application for judicial review of a determination on the basis that the adjudicator was right to find that the asserted payment schedule (an email) had insufficient detail to indicate the owner’s reasons for refusing to pay the claimed amount. The email provided no indication of any calculations relied on to quantify the owner’s counterclaims, or how those counterclaims related to the extent specified in the payment claim (at [34]).
Conclusion
A payment schedule is not invalid simply because the payer included a counterclaim, set-off or cross-demand (Cube at [67]). Section 79 should not apply to Stage 1 as indicated by the Court of Appeal in SOL Trustees, and the CCA’s purpose in facilitating payment is not threatened by payers who calculate the scheduled amount with reference to a legitimate claim for set-off. To reduce the invalidity risk under s 21, payers should quantify and justify their counterclaims as best they can in the time available.
Proponents of s 79 are misguided if they believe that this proposition cuts across the “pay now/argue later” regime in the CCA. Stage 1 is concerned with statutory compliance; Stage 2 is concerned with debt recovery; and Stage 3 is concerned with speedy resolution of disputes. Payers can raise a set-off as a reason for paying less in their payment schedule in Stage 1, and they can debate the substantive merits of the claim in Stage 3. Stage 2 proceedings do not accommodate claims for set-off as this would be in breach of s 79.
This article first appeared in Law Talk (July 2016) , the official magazine of the New Zealand Law Society.
Janine Stewart
Janine is an experienced construction and property lawyer having advised on numerous complex construction projects and disputes in New Zealand. She has appeared in arbitration, the High Court and the Court of Appeal. Janine provides expert legal advice and dispute resolution services in all aspects of construction and commercial property disputes. Plus she advises clients on various general commercial issues.