Most Read Contributor in New Zealand, September 2016
The importance of communicating clearly when choosing
whether to exercise a contractual election in a construction
contract has been reinforced by the Court of Appeal in a decision
which was welcomed by the subcontractor as "a win for the
We look at the Court of Appeal judgment and reprise the history
At issue was a disputed payment claim in relation to the
construction of a supermarket carpark in Christchurch. The claim
had been submitted by Siteworks to the head contractor (Watts &
Hughes) three days after its "Due Date" on the 25th of
Under clause 5(c) of the Master Builders Standard Form of
Subcontract, Watts & Hughes had a discretion to treat a late
payment claim as if it had been received on the 25th of the
following month (the next Due Date), postponing its obligation to
issue a payment schedule by a month.
Watts & Hughes, however, had failed to provide a payment
schedule to Siteworks by the Due Date and had also failed to make
the claimed payment of $306,077.23.
re-entered the site and (until stopped by Police) dug up metal
that had been laid for transport to another site, and
issued a statutory demand to Watts & Hughes to recover the
The High Court found that Watts & Hughes had immediately to
pay the outstanding amount to Siteworks because they had failed to
communicate to Siteworks that the late payment claim would be
treated as if submitted in the next monthly "round". (See
Chapman Tripp's commentary
Watts & Hughes appealed to the Court of Appeal.
Watts & Hughes made various arguments on appeal, primary
among which was that, because the payment claim had been submitted
late, it was invalid.
Watts & Hughes therefore did not need to communicate that
the invalid claim would be treated as if submitted in the next
monthly round because the onus was on Siteworks to do so. To submit
the claim validly, Siteworks itself had to include it in the next
The Court rejected this argument and found that a late payment
claim was still a valid one (according to the Subcontract and
provisions of the CCA). Otherwise, the election which the
Subcontract gave Watts & Hughes would be rendered null and
The onus remained on Watts & Hughes to communicate clearly
to Siteworks whether it would be treating the claim in the next
monthly round or not. Siteworks was entitled to know where they
stood on any given date and whether or not Watts & Hughes owed
The Court of Appeal went on to affirm an earlier decision of
Justice Asher in the High Court in which it was said "severe
consequences" could result if head contractors failed to issue
payment schedules in time.
The work which had been dug up
Watts & Hughes further tried to argue that because Siteworks
had dug up some of the metal it had laid in the carpark, it was
debarred from submitting a payment claim in respect of it because
the work dug up had not been "carried out" under the
The Court again rejected this argument on the grounds that Watts
& Hughes had not disputed this work when they had eventually
issued a payment schedule and because the dug up work (valued at
$70,000) was only a fraction of the total work claimed (valued at
Clear communication is still essential
The Court of Appeal's judgment confirms our earlier advice
that parties must clearly communicate the choices they make to
exercise (or not) contractual elections to affected parties like
Otherwise, the Court may take the matter out of the electing
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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