CCA’s payment regime is strict, but not that strict

High Court holds that a single payment schedule can dispute more than one payment claim

A recent High Court decision, Lot 8 Investments Limited v RPS Construction Limited [2017] NZHC 1400, has adopted a flexible approach to the payment claim/payment schedule regime under the Construction Contracts Act 2002 (CCA) and what will be regarded as a complying document.

Lot 8 Investments Ltd (Lot 8) contracted with RPS Construction Ltd (RPS), to undertake certain building work. RPS issued two separate payment claims to Lot 8 for work done during different periods. Lot 8 disputed both payment claims in a single payment schedule. RPS treated this as Lot 8 failing to comply with the payment regime under the CCA and made a statutory demand for the claimed amounts. The High Court had to decide whether a principal could dispute more than one payment claim in a single payment schedule. Ultimately, the Court held that it could.

Read the case here.

The strict regime

The payment regime under the CCA is strict and prescribes for payment to be made even if a principal complains about, for example, poor workmanship by the contractor. Instead, when a contractor issues a valid payment claim, the principal must pay it in full unless it responds with a valid payment schedule within 20 working days (or within the time provided by the contract). Under s21 of the CCA, the payment schedule must identify the payment claim to which it relates and state the amount the principal is willing to pay (the “scheduled amount”). Where this amount is less than the amount claimed, the payment schedule must indicate the manner in which the principal calculated the scheduled amount and the reasons justifying payment of a lower amount.

But not that strict

Lot 8 argued that its payment schedule was compliant in all respects and it did not matter that it referred to two claims.

RPS argued that the payment schedule was invalid as the CCA requires one payment schedule to be issued for each payment claim.

The Court acknowledged that there were good reasons to support RPS’ view. Section 21 of the CCA provides that a payment schedule “must identify the payment claim to which it relates”, suggesting a payment schedule can only refer to one payment claim. The Court also referred to the High Court case of Loveridge Ltd v Watts & Hughes Construction Ltd CIV 2011-470-275, 29 September 2011 which held at [26]:

“the legislature has made it clear that there will be only one payment claim relating to each progress payment and one payment schedule responding to it. I also consider that unnecessary confusion would result unless the clear position is adhered to.”

Despite this, the Court held that the legislation did not preclude a single payment schedule from dealing with two payment claims being issued, provided the other requirements are complied with. The Court distinguished Loveridge, saying the case was concerned specifically with payment claims, rather than payment schedules.

Err on the side of caution

Lot 8 Investments Limited v RPS Construction Limited indicates that courts are likely to show some flexibility when it comes to the form payment schedules must take under the CCA. However, our view remains that, where practicable, best practice is to issue one payment schedule for each payment claim received to reduce the risk of non-compliance.

For advice on how the CCA payment regime applies to your contracts, speak to one of our experts.

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