A recent decision of the Court of Appeal serves as a reminder of the serious consequences of failing to issue a valid payment schedule in response to a Construction Contracts Act 2002 (CCA) payment claim.
Super Power Earthmoving Limited v Dreamhome Construction Group Limited [2024] NZHC 2139 particularly highlights that failure to issue a compliant payment schedule – or to pay the claimed amount – can ultimately result in the company being placed into liquidation, even where the underlying debt is disputed.
Participants across the construction sector who issue or respond to payment claims should ensure they understand how to do this in compliance with the CCA and should seek advice where needed to avoid costly mistakes.
What Happened?
The dispute arose from unpaid invoices issued by Super Power Earthmoving Ltd (Super Power) to Dreamhome Construction Group Ltd (Dreamhome) for earthworks allegedly carried out in 2017 under a verbal agreement. Dreamhome disputed liability for the invoices on a number of grounds.
Super Power subsequently re‑issued the disputed invoices as payment claims under the CCA. When Dreamhome did not pay those claims, Super Power issued a statutory demand for the claimed sum plus interest.
Dreamhome neither paid the amount demanded nor applied to set aside the statutory demand. As a result, Super Power relied on the statutory presumption of insolvency that arose under section 287 of the Companies Act 1993 and applied to place Dreamhome into liquidation.
Super Power argued that:
- the invoices complied with the requirements for valid payment claims under the CCA
- because Dreamhome had not issued any compliant payment schedules, the amounts claimed were debts due under the CCA’s “pay now, argue later” regime.
Dreamhome, however, contended that:
- the alleged debts were genuinely disputed
- the payment claims did not comply with the CCA (including failing to adequately identify the construction contract and the work claimed)
- its communications disputing the debt were sufficient to constitute payment schedules.
High Court and Court of Appeal Decisions
The High Court declined Super Power’s application to place Dreamhome into liquidation. It found there was a substantial dispute as to the validity of the underlying debts and accepted that it was at least arguable that:
- the payment claims did not meet the statutory requirements of the CCA
- Dreamhome’s responses may have constituted valid payment schedules.
Super Power then appealed the dismissal of its liquidation application to the Court of Appeal. The Court of Appeal did not overturn the High Court’s decision because it agreed that there was a dispute about whether the payment claims met CCA requirements. Also that it was arguable that Dreamhome’s communications in response were sufficient to be payment schedules under the CCA.
What if no valid payment schedule had been issued?
An interesting aspect of the Court of Appeal’s judgment is its discussion of what the likely outcome would have been if the payment claims had clearly complied with the CCA and no valid payment schedules had been issued.
The High Court had suggested that if that scenario had applied, then the court could still consider the underlying merits of the payment claims (i.e. whether the work claimed for had actually been done etc.) when deciding whether it should place Dreamhome into liquidation rather than treating the claims as debts due.
This point is important because, if the court does not treat a valid payment claim as a debt due in the context of a liquidation application, then the claim cannot be used as a basis for putting a company into liquidation and it becomes a less powerful tool for obtaining payment.
Super Power cited the Court of Appeal’s earlier decision in Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480. That decision indicates that a valid payment claim can ultimately be used to have a company placed into liquidation if it does not pay the debt due, even where the company disputes the merits of the claim. This is a consequence of the “pay now, argue later” regime that is designed to support contractor cash flow. The Court of Appeal’s judgment in Super Power does not delve into the issue in detail but did signal that the same approach should be followed.
Key Takeaways and Action Points
- Issue a payment schedule: Any party served with a CCA payment claim – including developers, homeowners, contractors and advisers – must issue a compliant payment schedule by the due date if they do not intend to pay the claim in full.
- Failure to comply carries serious risk: A company that neither pays the full amount nor issues a valid payment schedule may be deemed insolvent and exposed to liquidation – even if it disputes the claim on its merits.
- Payment claims are a powerful tool: For contractors, subcontractors and some consultants, valid payment claims remain an effective mechanism for securing timely payment.
- Get advice early: Parties unsure of how to issue or respond to a CCA‑compliant payment claim or schedule should seek advice and ensure robust systems are in place.
- Act immediately on payment claims and statutory demands: Any party served with a payment claim or statutory demand should obtain advice straight away, as missing deadlines can have severe consequences, including liquidation.
The members of our Building and Construction team are experts in this field so please contact them if you have questions on payment claims, payment schedules or any other aspects of construction law.
