Construction Contracts Act – Do you have to make payment of a determination if a related adjudication determination is pending?

In this month’s article I wish to review the decision of Alpine Prime Properties Limited v Haskell Construction Limited. The case came before the Courts because Alpine applied to set aside a statutory demand that Haskell had served upon it. 

Facts. 
Alpine is a property developer that owned 4 lots in Paraparaumu. On 2 August 2018 it entered into a contract for the construction of a residential dwelling on one of the lots in Ruapehu Street. The contract price was $800,000 which was to be paid in 9 stages as works progressed. Works commenced in August 2018. By September 2018 Haskell had completed stage 1 (foundations/floor structure) and duly invoiced for these works. The invoice was paid by Alpine. 

In December 2018 Haskell received a revised design including steel. In response Haskell sought to increase the contract price to accommodate the inclusion of the steel. Alpine did not accept the proposed variation to the contract price. Meanwhile Haskell had continued with the construction works, largely completing stage 2 (wall and roof lining) save for the steel work. 

On 13 February 2019 Haskell issued a payment claim for stage 2 asserting it had reached “substantial completion”. A site meeting took place on 26 February 2019 where a disagreement emerged. On 18 April 2019 Alpine purported to cancel the contract pursuant to ss 362N(2)(b) and 362O(a) of the Building Act 2004 alleging substantial breaches of contract by Haskell. On 24 April 2019 Haskell attempted to accept Alpine’s cancellation as though it had been made under cl 15.2.2(c) of the contract which allows cancellation where the parties agree the contract has become impossible to perform or is otherwise frustrated. 

Haskell thereafter submitted the dispute about payment of its payment claim 2 to an Adjudicator appointed under the Construction Contracts Act. Whilst it was ruled that the works were not substantially complete, it was ruled that Alpine owed $133,000.00 to Haskell. The Adjudicator did not consider whether the cancellation by Alpine was justified or amounted to repudiation, or whether damages applied. 

The same Adjudicator did accept a second reference to him from Alpine concerning the issue of cancellation. He ruled that due to breach of contract by Haskell, Alpine was entitled to cancel the contract. But he had no evidence from which he might change his initial assessment of loss as made in his first adjudication. 

Alpine then referred a third adjudication to another adjudicator. This adjudication required the Adjudicator to determine its claim for damages arising from breach of contract by Haskell. This determination was pending at the time these proceedings were brought before the Court. 

Legal framework
These proceedings arrived in the High Court by method of a Companies Act 1993 statutory demand having been served on Alpine by Haskell. Alpine refused to pay and looked to avoid the presumption of insolvency applied by not paying, instead seeking to set aside the demand. 

The fundamental question the Court was required to consider was whether Alpine could resist making payment of the first determination being the sum of $133,000 in favour of Haskell, whilst it waited for the determination of the third Adjudication. Alpine’s case was that it should not be required to make interim payment of the $133,000 because it had a counterclaim for damages resulting from breach of contract that would in all likelihood exceed the amount claimed in Haskell’s statutory demand. Alpine’s claim in the third adjudication being for in excess of $300,000.00. 

Alpine relied upon authority to the effect that an interim payment need not be paid under the CCA where there is a real risk that the creditor will be unable to repay the amount following a final determination on the merits, and the debtor has a strong case that the creditor will ultimately have to repay that amount. 

The Court ruled that the application brought by Alpine, namely to set aside the statutory demand failed, as it could not invoke an unproved counterclaim to avoid the “pay now, argue later” regime for interim payments established by the Construction Contracts Act. Section 79 is clear that only the set off of a judgment can prevent that principle applying or where the liquidated claim a party attempts to set off is mutually accepted by both parties. In terms of the argument raised that Haskell was likely to have to pay the money straight back and was in risk of insolvency itself, the Court said for this to apply proceedings had to have been issued by Alpine which if successful would in turn supersede any interim award. It was clear that the 3rd Adjudication proceeding (if successful), could only amount to an interim award. 

Ultimately, the statutory demand was not set aside, and Alpine was given 20 working days to pay the amount, otherwise Haskell could apply to put Alpine into liquidation. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.