DEMASOL LTD v SOUTH PACIFIC INDUSTRIAL LTD [2022] NZCA 480

DEMASOL LTD v SOUTH PACIFIC INDUSTRIAL LTD [2022] NZCA 480 [13 October 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA46/2022[2022] NZCA 480BETWEEN DEMASOL LIMITEDAppellantAND SOUTH PACIFIC INDUSTRIAL LIMITEDRespondentHearing: 16 August 2022Court: Katz, Wylie and Palmer JJCounsel: AJB Holmes for AppellantP J Crombie and P J Anderson for RespondentJudgment: 13 October 2022 at 9:30 amJUDGMENT OF THE COURTA The appeal is allowed.B The orders made by the High Court are set aside.C SPI's application to set aside the statutory demand is dismissed.D The time for complying with the statutory demand is extended. The statutorytime period of 20 working days is to commence on the day following therelease of this judgment.E The judgment of the High Court in respect of costs is set aside under rr 48(4)and 53J of the Court of Appeal (Civil) Rules 2005.F The amount paid by Demasol to SPI for costs in the High Court is to be repaidby SPI to Demasol within five working days of the date of release of thisjudgment.G The issue of costs in the High Court is referred back to the High Court forconsideration under s 57 of the Senior Courts Act 2016.H SPI is to pay Demasol's costs and disbursements in this Court on anindemnity basis. The reasonable quantum of these costs is to be fixed by theRegistrar in the event that counsel do not agree.____________________________________________________________________REASONS OF THE COURT(Given by Wylie J)Introduction[1] The appellant, Demasol Ltd (Demasol), appeals a decision ofAssociate Judge Sussock setting aside a statutory demand it served on the respondent,South Pacific Industrial Ltd (SPI) under s 289 of the Companies Act 1993.1 Thestatutory demand sought payment of the amount claimed in payment claims served byDemasol on SPI pursuant to s 20 of the Construction Contracts Act 2002 (the CCA).[2] Demasol seeks that this Court should set aside the Associate Judge's orders anddismiss SPI's application to set aside the statutory demand. SPI supports theAssociate Judge's decision and seeks that her orders should not be disturbed.Background[3] SPI was the head contractor in respect of various demolition works at aredundant gas facility owned by a third party in Penrose, Auckland. The facility to bedemolished included a large bin tank which contained asbestos. In October 2020,SPI put out a request for quotes for the demolition of the bin tank.[4] Demasol specialises in asbestos removal. It quoted a price of $100,000 plusGST for the work. Its quote also recorded that "the only thing not included is theasbestos we cannot see". Following negotiations and an exchange of correspondence,Demasol was engaged by SPI as a subcontractor to demolish the bin tank. Theengagement was recorded in a purchase order issued by SPI dated 9 December 2020.The purchase order recorded the quote and noted that additional amounts were payable1 South Pacific Industrial Ltd v Demasol Ltd [2021] NZHC 3597.by SPI depending on the type and volume of asbestos which had to be removed anddisposed of.[5] Demasol carried out the contracted works. This took much longer than theparties initially envisaged. Demasol claimed that the scope of the works had increasedduring the course of the contract. It sought payment for the additional works, claimingthat they were variations to the contract. It said that there were seven variations intotal.[6] Demasol served two payment claims on SPI, one on 27 January 2021 for$114,425.00 inclusive of GST (payment claim 1) and the other on 29 March 2021 for$276,572.29 also inclusive of GST (payment claim 2). SPI did not dispute the claimsby issuing payment schedules as required by the CCA.2 Nor did SPI pay the amountsclaimed. Rather, on 4 April 2021, SPI wrote to Demasol advising that it rejected allbut one of the variations claimed. It also asserted that both it and the third party ownerof the site had claims against Demasol for "non-performance".[7] Demasol considered that the amount claimed in the payment claims had fallendue for payment and, on 27 April 2021, it wrote to SPI seeking payment.SPI responded to Demasol on 30 April 2021, again denying liability for the disputedvariations and asserting claims of its own.[8] On 5 May 2021, SPI made a payment to Demasol of $86,846.85. At the sametime it issued a document described as a payment schedule showing the amounts itaccepted were payable (including for one of the claimed variations) and recording theamounts it claimed it was entitled to deduct from the contract price.[9] On 6 May 2021, Demasol served a statutory demand on SPI for $304,997.29in respect of the amounts claimed under both payment claims 1 and 2.[10] On 20 May 2021, SPI filed a notice of application seeking to set aside thestatutory demand. Four days later, on 24 May 2021, SPI made a further payment of$47,502.39 to Demasol. This payment was made against the balance owing under2 Construction Contracts Act 2002, ss 21 and 22.payment claim 1 and in part payment of payment claim 2. It was said to be for tippingcosts for asbestos from glass blocks and contaminated concrete, and the amount owingfor the variation it accepted. As a result of this payment, the amount that Demasolsays is outstanding and owing to it arises under payment claim 2. Payment claim 1has been paid in full.The judgment[11] After outlining the factual background, the Associate Judge summarised theissues for determination as follows:3(a) Is it reasonably arguable that [p]ayment [c]laim 2 was not a validpayment claim under the CCA?(b) If not, is there any other basis upon which the statutory demand oughtto be set aside?[12] The Associate Judge addressed a preliminary issue regarding privilege (notchallenged on appeal) before summarising the legal principles applicable to SPI'sapplication to set aside the statutory demand. She then turned to consider what isrequired for a valid payment claim. She recorded the requirements for a paymentclaim set out in s 20 of the CCA. She went on to note that s 14 provides that the partiesare free to agree between themselves on a mechanism for determining the number ofpayments required to be made under a construction contract, the intervals betweenpayments, the amount of each payment and the dates when payments become due.She noted that, pursuant to s 14(2), the parties can expressly agree to a single payment.She then referred to the statutory regime for progress payments set out in ss 16 and 17of the CCA. She commented that the operation of ss 14–17 of the CCA depends onthe terms that were agreed. She recorded SPI's submission that the Court ought toconsider the pre-contractual negotiations to determine what was agreed and Demasol'scounter-argument that detailed analysis of the background to the contract wasunnecessary. Referring to the Supreme Court's recent decision in Bathurst ResourcesLtd v L&M Coal Holdings Ltd, she recorded that she would consider thecorrespondence leading up to the contract to assess whether it was reasonably arguable3 South Pacific Industrial Ltd v Demasol Ltd, above n 1, at [10].that payment claim 2 was invalid because it did not comply with the provisions of theCCA.4[13] The Associate Judge then outlined the correspondence leading up to thepurchase order. She found that it was "reasonably arguable that the contract was afixed price contract".5 She went on to consider the payment terms agreed between theparties. She commented that if a single payment term was agreed, the validity of bothpayment claims was in question, because s 20(1) of the CCA provides when a paymentclaim can be served.6[14] The Associate Judge referred to Jamon Construction Ltd v Bricon AsbestosLtd.7 The Court there held that the payment claims in issue were arguably invalidbecause it was reasonably arguable that there was a fixed price contract and that thevalue of the construction work claimed had not been calculated having regard to thecontract price.8 The Associate Judge then referred to Oceania Football ConfederationInc v Engineered Solutions & Systems Ltd.9 She relied on this case as authority for theproposition that payment claims issued in respect of unauthorised variations "cannotbe legitimate" under the contract and on this basis alone could not be valid paymentclaims.10[15] The Associate Judge concluded that it was reasonably arguable that paymentclaim 2 was not valid because much of the amount claimed related to variations thatwere arguably not authorised.11 She further held that in any event, it was reasonablyarguable that both payment claims 1 and 2 were invalid on the basis that a singlepayment on completion was expressly agreed in accordance with s 14(2) of the CCAand the payment claims were not issued in accordance with this agreed term. As we4 At [40]–[41], citing Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85,[2021] 1 NZLR 696 at [89].5 South Pacific Industrial Ltd v Demasol Ltd, above n 1, at [87].6 At [101].7 At [105]–[107], citing Jamon Construction Ltd v Bricon Asbestos Ltd [2015] NZHC 1926.8 Jamon Construction Ltd v Bricon Asbestos Ltd, above n 7, at [47].9 South Pacific Industrial Ltd v Demasol Ltd, above n 1, at [108], citing Oceania FootballConfederation Inc v Engineered Solutions & Systems Ltd [2019] NZHC 1439 at [187].10 At [108].11 At [109].have noted at [10] above, only the validity of payment claim 2 was in issue in theseproceedings, as payment claim 1 had already been paid in full.12[16] Given her conclusion that it was reasonably arguable that payment claim 2 wasnot valid, the Associate Judge set aside Demasol's statutory demand. It seems that shedid so under s 290(4)(a) of the Companies Act because she recorded that, as a result,she did not need to decide whether it was appropriate to exercise the discretionconferred by s 290(4)(c).13The appeal[17] The appeal is brought pursuant to s 56 of the Senior Courts Act 2016.14 Rule 47of the Court of Appeal (Civil) Rules 2005 provides that the appeal proceeds by way ofrehearing. The appropriate approach in such cases was discussed by theSupreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.15 The Chief Justicethere stated:[16] Those exercising general rights of appeal are entitled to judgment inaccordance with the opinion of the appellate court, even where that opinion isan assessment of fact and degree and entails a value judgment. If the appellatecourt's opinion is different from the conclusion of the tribunal appealed from,then the decision under appeal is wrong in the only sense that matters, even ifit was a conclusion on which minds might reasonably differ. In suchcircumstances it is an error for the [appellate] [c]ourt to defer to the lower[c]ourt's assessment of the acceptability and weight to be accorded to theevidence, rather than forming its own opinion.(Footnote omitted.)The issues/submissions[18] The issues raised by this appeal were agreed between the parties. They are asfollows:(a) Is it reasonably arguable that payment claim 2 served by Demasol onSPI on 29 March 2021 was not a valid payment claim under the CCA?1612 At [110].13 At [112].14 Senior Courts Act 2016, s 56(1)(a).15 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.16 This question was broken down into three sub-questions: (a) To what extent was the Court entitled(b) Should the statutory demand served by Demasol on SPI be set asideunder s 290(4)(a) of the Companies Act on the basis that SPI has agenuinely arguable dispute as to whether it is liable to pay the amountclaimed in payment claim 2?(c) Should the statutory demand otherwise be set aside under s 290(4)(c)of the Companies Act?(d) If payment claim 2 was a valid payment claim under the CCA and thestatutory demand is not set aside, is Demasol entitled to its actual andreasonable costs in this Court (as well as in the High Court) unders 23(2)(a) of the CCA?Demasol's submissions[19] Mr Holmes, for Demasol, submitted that it was not reasonably arguable thatpayment claim 2 was not a valid payment claim under the CCA. He argued that itsvalidity fell to be determined by reference to s 20 of the CCA and that payment claim 2complied with that section's requirements. He further argued that whether or not therewere disputes about, for example, the variations, the value of the contract works, orwhether the claimed amounts reflected the amounts payable under the contract, wasirrelevant to the Court's assessment of the validity of payment claim 2. He put it to usthat the contractual terms do not form a gateway through which a payment claim mustpass and that any enquiry into the validity of a payment claim is limited.[20] Mr Holmes further submitted that the Associate Judge erred when she assessedthe validity of payment claim 2 by reference to the parties' pre-contractualnegotiations. He argued that in engaging with this issue, the Associate Judge wasattempting to assess whether the claimed amount matched the Court's view of theamount that should have been claimed. He put it to us that this was a departure fromthe statutory payment claim process; on his argument, as SPI failed to provide ato consider the validity of payment claim 2 against the requirements of the construction contract,and/or s 17 of the CCA? (b) Did payment claim 2 comply with each of the requirements of s 20of the CCA? (c) Is it reasonably arguable that payment claim 2 is invalid if it did not comply withthe requirements of the construction contract and/or s 17 of the CCA?payment schedule within time, the claimed amount set out in payment claim 2 becamepayable pursuant to s 23(2) of the CCA regardless of the merits of the claim that wasmade.[21] Mr Holmes accordingly submitted that the matters raised by SPI do notinvalidate payment claim 2 and that the CCA requires that such issues are raisedthrough the payment schedule process and not in opposition to an attempt to enforcethe debt created under s 23(2) where no payment schedule is issued. He noted that, inany event, the CCA provides avenues through which SPI can dispute the claim butthat, in the interim, the CCA requires that SPI pay the amount claimed. He argued thatthis Court should set aside the Associate Judge's orders and dismiss SPI's applicationto set aside the statutory demand. He sought costs on an indemnity basis.SPI's submissions[22] Mr Crombie, for SPI, submitted that the Associate Judge was not precludedfrom considering the requirements of the contract and s 17 of the CCA when assessingthe validity of payment claim 2. He relied on Jamon Construction Ltd v BriconAsbestos Ltd for the proposition that, on an application to set aside a statutory demandfor a sum of money said to be owing under a construction contract, there is scope forthe Court to decide, albeit on a summary basis, whether it is arguable that the paymentclaim is valid.17 He then took us through the Associate Judge's findings that it was"clearly reasonably arguable that the contract was a fixed price contract",18 that onlyone relatively minor variation was agreed, and that SPI denied that any of the otherclaimed variations were approved. He argued that, on these findings, it was reasonablyarguable that payment claim 2 was not a valid payment claim.[23] Mr Crombie further submitted that, assuming the parties expressly agreed to asingle payment after completion pursuant to s 14(2), the payment claim did not complywith the requirements of the contract and that it is reasonably arguable that it did nottherefore comply with the requirements of s 20(1). He also dealt with whether or notDemasol was entitled to a progress payment. He argued that, for s 17(4) to apply, there17 Jamon Construction Ltd v Bricon Asbestos Ltd, above n 7.18 South Pacific Industrial Ltd v Demasol Ltd, above n 1, at [87].must be "authorised variations" in accordance with s 17(3). He said that, apart fromthe one variation authorised by SPI, none of the other variations were approved andtherefore the work was not capable of being valued under s 17(1)(b). He submittedthat, where the default provisions apply, the Court is entitled to have regard to therequirements of s 17 in determining whether a payment claim is valid and that it is notsufficient to have regard solely to the requirements of s 20.[24] Mr Crombie confirmed that SPI relied upon s 290(4)(a) of the Companies Act,on the basis that there is a dispute as to whether the debt claimed by Demasol is owingor due because it is reasonably arguable that payment claim 2 is not a valid paymentclaim. Alternatively, SPI relied on s 290(4)(c). In this regard, it was submitted that itwould be unjust if Demasol is entitled to proceed with liquidation proceedings inreliance on a failure by SPI to issue a payment schedule given that there was a fixedprice contract for the work, the job was supposed to have taken three to four weeks tocomplete but took nearly three months, and because Demasol has sought to chargemore than double the contract price for variations that were not authorised.Mr Crombie urged us to uphold the Associate Judge's decision.AnalysisSection 290(4) of the Companies Act[25] SPI's application to set aside the statutory demand was brought pursuant tos 290(4) of the Companies Act. It provides as follows:290 Court may set aside statutory demand(4) The court may grant an application to set aside a statutory demand ifit is satisfied that—(a) there is a substantial dispute whether or not the debt is owingor is due; or(b) the company appears to have a counterclaim, set-off, orcross-demand and the amount specified in the demand less theamount of the counterclaim, set-off, or cross-demand is lessthan the prescribed amount; or(c) the demand ought to be set aside on other grounds.[26] Relevantly, this Court has summarised the applicable principles as follows:19[16] The general principles under s 290(4) are well settled:(a) The onus is on the applicant seeking to set aside the statutorydemand to show that there is arguably a genuine andsubstantial dispute as to the existence of the debt. The Court'stask is not to resolve the dispute but to determine whetherthere is a substantial dispute that the debt is due.(b) The mere assertion that a dispute exists is not sufficient.Material short of proof is required to support the claim thatthe debt is disputed.(c) If such material is available, the dispute should normally beresolved first in ordinary civil proceedings before anystatutory demand is issued.(e) It is not usually possible to resolve disputed questions of facton affidavit evidence alone, particularly when issues ofcredibility arise unless such evidence is contrary to theavailable documents or earlier statements made by the parties.[27] As the Associate Judge noted, statutory demands issued in respect of amountsowing under construction contracts must be considered in the context of the provisionsof the CCA. It was common ground that, given s 79 of the CCA (which sets out thelimited circumstances in which a counterclaim, set-off or cross demand can affectproceedings for recovery of a debt),20 the only paragraphs of s 290(4) that could berelied on by SPI were s 290(4)(a) and (c).The CCA[28] The Construction Contracts Bill was introduced on 15 May 2001. The Bill wasbased on work undertaken by the Law Commission and by a working party made upof representatives from various sectors of the construction industry. It received itsthird reading on 19 November 2002 and it was assented to on 26 November 2002.It came into effect as from that date. It applies to all construction contracts enteredinto on or after 1 April 2003 (as well as to existing contracts renewed after that date).2119 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 (footnote omitted).20 See also Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243at [63]–[64].21 See Building Law in New Zealand (online ed, Thomson Reuters) at [CCIntro.01]–[CCIntro.02].[29] It was common ground that the CCA applied to the purchase order of9 December 2020. It is a construction contract as defined in the CCA, entered intoafter the date of commencement of the CCA.22[30] The purpose of the CCA is set out in s 3. That section provides as follows:3 PurposeThe purpose of this Act is to reform the law relating to constructioncontracts and, in particular,—(a) to facilitate regular and timely payments between the partiesto a construction contract; and(b) to provide for the speedy resolution of disputes arising undera construction contract; and(c) to provide remedies for the recovery of payments under aconstruction contract.[31] This Court has held that any analysis of the CCA "must be undertaken with thepurpose of the Act in mind" and that a "technocratic" or "formalistic" interpretationwould undercut Parliament's intent that cashflow in the construction industry bemaintained.23[32] Payments under construction contracts are dealt with in pt 2 of the CCA.Conditional payment provisions in construction contracts are prohibited but otherwisethe CCA provides that parties to a construction contract are free to agree on thepayment provisions in their contract.24 They can expressly agree to a single payment.25If the parties fail to agree, the default provisions set out in ss 16–18 of the Act apply.Section 16 confers on a party who has agreed to carry out construction work under aconstruction contract the right to progress payments, calculated in accordance withs 17. Section 17 in turn provides how the amount of each progress payment must becalculated. Section 18 sets out when a payment, as defined in s 19, becomes due andpayable.22 Construction Contracts Act, s 5 definition of "construction contract" and s 9.23 George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 (CA) at [41] and [52].24 Construction Contracts Act, ss 13 and 14.25 Section 14(2).[33] Subpart 3 of pt 2 of the CCA deals with the procedure for making andresponding to payment claims. It contains its own interpretation section — s 19.Relevantly, the words "claimed amount" are defined to mean "an amount of apayment, specified in a payment claim, that the payee claims to be due".[34] Section 20 deals with the making of payment claims. It provides as follows:20 Payment claims(1) A payee may serve a payment claim on the payer for a payment,—(a) if the contract provides for the matter, at the end of therelevant period that is specified in, or is determined inaccordance with the terms of, the contract; or(b) if the contract does not provide for the matter in the case of aprogress payment, at the end of the relevant period referred toin section 17(2); or(c) if the contract does not provide for the matter in the case of asingle payment expressly agreed under section 14(1)(a),following the completion of all of the construction work towhich the contract relates.(2) A payment claim must—(a) be in writing; and(b) contain sufficient details to identify the construction contractto which the payment relates; and(c) identify the construction work and the relevant period towhich the payment relates; and(d) state a claimed amount and the due date for payment; and(e) indicate the manner in which the payee calculated the claimedamount; and(f) state that it is made under this Act.(3) A payment claim must be accompanied by—(a) an outline of the process for responding to that claim; and(b) an explanation of the consequences of—(i) not responding to a payment claim; and(ii) not paying the claimed amount, or the scheduledamount, in full (whichever is applicable).(4) The matters referred to in subsection (3)(a) and (b) must—(a) be in writing; and(b) be in the prescribed form (if any).[35] Section 21 deals with responses by a party served with a payment claim. Itprovides as follows:21 Payment schedules(1) A payer may respond to a payment claim by providing a paymentschedule to the payee.(2) A payment schedule must—(a) be in writing; and(b) identify the payment claim to which it relates; and(c) state a scheduled amount.(3) If the scheduled amount is less than the claimed amount, the paymentschedule must indicate—(a) the manner in which the payer calculated the scheduledamount; and(b) the payer's reason or reasons for the difference between thescheduled amount and the claimed amount; and(c) in a case where the difference is because the payer iswithholding payment on any basis, the payer's reason orreasons for withholding payment.[36] A payer becomes liable to pay the claimed amount if he or she does not servea payment schedule on the payee within the time limit specified in the CCA.26 To thisend, s 22 provides as follows:22 Liability for paying claimed amountA payer becomes liable to pay the claimed amount on the due date forthe payment to which the payment claim relates if—(a) a payee serves a payment claim on a payer; and(b) the payer does not provide a payment schedule to the payeewithin—26 The payee also acquires the right to suspend the contract works: s 24A.(i) the time required by the relevant constructioncontract; or(ii) if the contract does not provide for the matter,20 working days after the payment claim is served.[37] The legal consequences of not paying a claimed amount where no paymentschedule is provided are set out in s 23. Relevantly, that section provides as follows:23 Consequences of not paying claimed amount where no paymentschedule provided(1) The consequences specified in subsection (2) apply if the payer—(a) becomes liable to pay the claimed amount to the payee undersection 22 as a consequence of failing to provide a paymentschedule to the payee within the time allowed bysection 22(b); and(b) fails to pay the whole, or any part, of the claimed amount onor before the due date for the payment to which the paymentclaim relates.(2) The consequences are that the payee—(a) may recover from the payer, as a debt due to the payee, in anycourt,—(i) the unpaid portion of the claimed amount; and(ii) the actual and reasonable costs of recovery awardedagainst the payer by that court; and(4) In any proceedings for the recovery of a debt under this section, thecourt must not enter judgment in favour of the payee unless it issatisfied that the circumstances referred to in subsection (1) exist.[38] Commenting on the statutory scheme put in place by ss 20–23, this Court hasobserved:27What is plain is that ss 20 to 23 of the Act are designed to facilitate regularand timely payments between the parties to a construction contract. If aproperty owner does not respond to a payment claim by serving a payment27 Salem Ltd v Top End Homes Ltd CA169/05, 12 December 2005 at [22]. See also Willis TrustCompany Ltd v Green HC Auckland CIV-2006-404-809, 25 May 2006 at [20]; andGeorge Developments Ltd v Canam Construction Ltd, above n 23, at [41], citingGilbert--Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL) at 716 perLord Diplock, quoting a statement by Lord Denning MR in Modern Engineering (Bristol) Ltd vGilbert-Ash (Northern) Ltd (1973) 71 LGR 162 at 167.schedule, then the contractor is entitled to recover the amount of his claim asa debt due. Put colloquially, the payer is under an obligation to pay first andargue later. This, we are satisfied, is the intention of the legislation. No doubtit reflects the philosophy that cashflow is the very life blood of the buildingindustry. Contractors (and their sub-contractors in turn) are entitled to bepromptly paid where they have invoked the payment regime under the Act andthe payer has not responded as the Act requires.[39] It is noteworthy that the CCA also provides for the adjudication of disputes.Any party to a construction contract has the right to refer a dispute to adjudication andcan exercise that right even though the dispute is the subject of proceedings betweenthe same parties in a court or tribunal.28Section 290(4)(a) of the Companies Act — was it reasonably arguable that paymentclaim 2 was not a valid payment claim?[40] Demasol served a payment claim on SPI.[41] The Associate Judge sought to consider the contract between Demasol and SPIto determine whether Demasol was entitled to serve the claim. In our view, she erredin undertaking this enquiry. Section 20(1) of the CCA deals with when a payee mayserve a payment claim. If the construction contract provides for the matter, a paymentclaim can be served at the end of the period specified in or determined in accordancewith the contract.29 If the contract does not provide for the matter, in the case of aprogress payment, a payment claim can be served at the end of the relevant periodreferred to in s 17(2) — that is, the period commencing on the day of the month onwhich the construction work was first carried out and ending on the last day of thatmonth, and each month thereafter.30 In the case of a single payment expressly agreedunder s 14(1)(a), if the contract does not provide for the matter then a payment claimcan be served following the completion of all of the construction work to which thecontract relates.31[42] There was considerable debate before the Associate Judge as to which of thesevarious provisions applied. We are not persuaded that it makes any difference for28 Construction Contracts Act, s 25(1).29 Construction Contracts Act, s 20(1)(a).30 Sections 20(1)(b) and 17(2).31 Section 20(1)(c).present purposes. If SPI wished to contend that Demasol was not entitled to serve apayment claim on it when Demasol did so, that was a point it could and should havetaken by way of response in a payment schedule. However, SPI failed to file apayment schedule, and instead sought to raise the issue, along with others, only whenDemasol took steps to enforce the debt in reliance on s 23(2)(a) of the CCA.[43] The payment claim was some 31 pages long. It met each of the requirementsof s 20(2), 20(3) and 20(4). It was in writing. It identified the construction contractto which it related by reference to SPI's purchase order number as well as by referenceto the location of the contract works. It identified the construction work carried out,including each of the variations claimed and the relevant periods to which the paymentsought related. It specified the total amount claimed. It specified a due date forpayment. It set out the manner in which Demasol had calculated the claimed amount.It contained copious detail in this regard and had attached receipts from third partyproviders. It stated that it was made under the CCA. It was accompanied by theprescribed information, namely an outline of the process for responding to the claimand an explanation of the consequences of not responding and not paying.[44] The requirements set out in s 20(2) of the CCA were summarised by this Courtin CJ Parker Construction Ltd (in liq) v Ketan as follows:32[26] A payment claim must be sufficiently detailed and comprehensible toenable a payer to understand the basis on which the claim is made. Only thencan the payer decide whether to accept it or to put the payee on notice of adispute by providing a payment schedule in response which explains thepayer's reasons for disagreeing with the claim. This requirement is implicitin the payee's obligation to provide a claim that indicates "the manner inwhich the payee calculated the claimed amount" and in the payer's obligationto respond by giving reasons for the difference between the amount claimedand the amount the payer is prepared to pay.[45] In our clear view, payment claim 2 complied with the statutory requirements.There was more than sufficient information provided from which SPI could ascertainwhat the claim was, the basis on which it was made and what steps SPI had to take ifit wanted to contest the claim.32 CJ Parker Construction Ltd (in liq) v Ketan [2017] NZCA 3 (footnotes omitted).[46] SPI belatedly disputed a number of matters raised in the payment claim. It:(a) disputed the value of the works completed;(b) denied that the claimed amount reflected the amount payable under thecontract;(c) disputed whether its own terms and conditions which it attached to thepurchase order formed part of the contract;(d) disputed whether the quoted price provided by Demasol covered onlythe removal of visible asbestos or whether it extended to concealedasbestos;(e) queried whether the amount of perlite insulation removed by Demasolexceeded the allowance made in the original scope of works it issuedand on which Demasol had quoted;(f) disputed whether the contract allowed for progress payments orrequired that there be a single payment for the work undertaken;(g) disputed all but one of the variations claimed, asserting that they wereunauthorised and therefore fell outside the variation provisionscontained in s 17 of the CCA; and(h) asserted that it had its own claim against Demasol for non-performance.[47] Mr Crombie responsibly accepted that all of these issues could have beencovered in a payment schedule. We agree with Mr Holmes that the disputes raised bySPI are irrelevant in the present context. In our view, the only enquiries required inrelation to SPI's application to set aside the statutory demand were:(a) whether the payment claim complied with s 20 of the CCA; and(b) whether SPI had provided a payment schedule contesting its liability orpaid the amount claimed by the due date.The general merits of Demasol's payment claim were not open for consideration andwere irrelevant in the statutory demand context.33 In our view, the Associate Judgeerred when she embarked on an enquiry into the terms of the contract and the quantumand merits of payment claim 2.[48] The purchase order did not specify a time within which any payment schedulewas required from SPI. It follows, pursuant to s 22(b)(ii) of the CCA, that SPI had20 working days to provide a payment schedule after the payment claim was served.It did not do so. Nor did it pay Demasol the amount claimed. The consequences ofthese failures are spelt out in ss 22 and 23. Pursuant to s 22, SPI became liable to paythe claimed amount on the due date for payment. The due date for payment fell to becalculated by reference to s 18 of the CCA. It was 20 working days after the paymentclaim was served.[49] Because SPI became liable to pay the claimed amount to Demasol under s 22as a consequence of failing to provide a payment schedule to Demasol, and becauseSPI failed to pay the claimed amount on or before the due date for payment, theprovisions of s 23(1) applied, with the consequence that Demasol became entitled torecover from SPI, as a debt due to it, in any court, the unpaid portion of the claimedamount and its actual and reasonable costs of recovery (once they were awarded bythe court).34 Given the provisions of the CCA, there could be no substantial disputeregarding the debt owing by SPI to Demasol.[50] This consequence may seem harsh, but it is mandated by the CCA. We agreewith the conclusion reached by Asher J in Marsden Villas Ltd v Wooding ConstructionLtd, where the Judge commented as follows:35[16] The Act sets up a procedure whereby requests for payment are to beprovided by contractors in a certain form. They must be responded to by theprincipal within a certain time frame and in a certain form, failing which theamount claimed by the contractor will become due for payment and can beenforced in the Courts as a debt. At that point, if the principal has failed toprovide the response within the necessary time frame, the payment claimedmust be made. The substantive issues relating to the payment can still be33 Salem Ltd v Top End Homes Ltd, above n 27, at [24]–[25] (in the context of an appeal against entryof summary judgment).34 Section 23(2).35 Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 (HC).argued at a later point and adjustments made later if it is shown that there wasa set-off or other basis for reducing the contractor's claim. When there is afailure to pay the Act gives the contractor the right to give notice of intentionto suspend work, and then if no payment is made, to suspend work. There isalso a procedure set up for the adjudication of disputes.[17] The Act therefore has a focus on a payment procedure, the results thatarise from the observance or non-observance of that procedure, and the quickresolution of disputes. The processes that it sets up are designed to sidestepimmediate engagement on the substantive issues such as set-off for poorworkmanship which were in the past so often used as tools for unscrupulousprincipals and head contractors to delay payments. As far as the principal isconcerned, the regime set up is "sudden death". Should the principal notfollow the correct procedure, it can be obliged to pay in the interim what isclaimed, whatever the merits. In that way if a principal does not act inaccordance with the quick procedures of the Act, that principal, rather than thecontractor and sub-contractors, will have to bear the consequences of delay interms of cash flow.[111] The non-provision of the payment schedule is one of the crucialhinges of the Act. The structure appears to be that there will be absolute andirreversible consequences resulting from the non-provision of such a paymentschedule. This appears to be consistent with the purpose of the Act to facilitateregular and timely payments, and the approach of the Court of Appealin [George Developments Ltd v] Canam. In Canam, the focus was on theprovision of the progress payment claim, rather than the provision of paymentschedules. However, it appears to have been the assumption that the severeconsequences of the non-provision of a payment schedule in time wereabsolute.[51] The Associate Judge relied on two decisions — Jamon Construction Ltd vBricon Asbestos Ltd and Oceania Football Confederation Inc v Engineered Solutions& Systems Ltd.36 We comment on each in turn.[52] In Jamon, Associate Judge Matthews was dealing with an application to setaside a statutory demand. One of the defences raised by Jamon was that it did nothave a contract with the respondent, Bricon Asbestos Ltd, or, in the alternative, thatany contract it had with Bricon was a fixed sum contract and that it had not beenvaried. After discussing the various provisions contained in the CCA, theAssociate Judge commented that there is potential for the way in which the Court isrequired to apply the payment provisions of the CCA and the law relating to setting36 Jamon Construction Ltd v Bricon Asbestos Ltd, above n 7; and Oceania Football ConfederationInc v Engineered Solutions & Systems Ltd, above n 9.aside statutory demands to collide.37 He took the view that even if a company doesnot respond to a payment claim by serving a payment schedule, it is nevertheless opento it to establish on a sound arguable basis that no valid payment claim was issued.38[53] We do not consider that the approach in Jamon is soundly based. The CCAcontains its own procedure for responding to payment claims. The CCA deems anamount claimed to be a debt, if no payment schedule is issued and the amount claimedis not paid. It requires that payment be made in such circumstances. The payee isentitled to enforce that debt. The CCA does not however shut the payer out fromdisputing the amount claimed. Rather, it requires that the payer pay first and arguelater. The law relating to the setting aside of statutory demands is not totally deniedby the CCA. If, for example, a payment schedule has been issued, and the disputebetween the payer and the payee has not been resolved, then s 23(2)(a) would notapply, there would be a substantial dispute as to whether or not the amount claimedwas owing or due and s 290(4)(a) of the Companies Act could be invoked to set asidea statutory demand based on the payment claim.[54] In Oceania Football Confederation, Associate Judge Smith was also dealingwith a statutory demand made after the payer failed to provide payment schedules tothe payee. Associate Judge Sussock, in the judgment under appeal, considered thatAssociate Judge Smith had held that payment claims issued in respect of variationswhich had not been authorised could not be legitimate and that, on that basis alone,they could not be regarded as valid payment claims. She cited [187] of AssociateJudge Smith's decision.39 With respect to Associate Judge Sussock, in the paragraphreferred to, Associate Judge Smith was reciting counsel's argument. He did not makethe finding attributed to him by Associate Judge Sussock. Rather, Associate JudgeSmith's findings were consistent with the view we have formed in this case. He saidas follows:[216] To the extent that [another case before an Associate Judge] might holdthat there is nothing preventing a Court dealing with a summary judgment orstatutory demand proceeding based on a payer's failure to provide a paymentschedule under the CCA from enquiring into the merits of the claim, includingwhether or not the payee has complied with this or that provision in the37 Jamon Construction Ltd v Bricon Asbestos Ltd, above n 7, at [43].38 At [44]–[45] and [47].39 South Pacific Industrial Ltd v Demasol Ltd, above n 1, at [108]–[109].construction contract, I would respectfully disagree with the learnedAssociate Judge. In my view, the CCA's objective of securing timelycashflow to contractors and subcontractors in the construction industry, and inparticular the "sudden death" provisions of ss 22 and 23 that apply where apayer has failed to submit a payment schedule, could easily be compromisedif the Court were to entertain on a s 23 enforcement claim an argument to theeffect that the money is not owing on account of some breach of theconstruction contract by the payee.[217] In my view the correct approach was summarised byAssociate Judge Sargisson in GPW Investments Ltd, where [h]er Honoursaid:40Ordinarily, a court is not entitled to interrogate the merits of a Payment Claimthat has crystallised as an enforceable debt under the [CCA]. If the payer hasnot provided a Payment Schedule in time, the court will not (and cannot)interfere on the basis of a dispute over the amounts claimed.[219] Any challenge must be based on an alleged defect in the payee'scompliance with the statutory requirements of the CCA, not with someadditional requirements the construction contract might impose.We agree with these observations. They accurately state the law.[55] This analysis answers the first two issues raised by this appeal. In our view, itwas not reasonably arguable that the payment claim served by Demasol on SPI on29 March 2021 was not a valid payment claim under the CCA. There was nogenuinely arguable — or substantial — dispute as to whether SPI was liable to pay theamount claimed in payment claim 2 and the Associate Judge erred when she set asidethe statutory demand issued by Demasol under s 290(4)(a) of the Companies Act.Section 290(4)(c) of the Companies Act — should the statutory demand otherwise beset aside?[56] We can deal relatively briefly with the third issue — should the statutorydemand otherwise be set aside under s 290(4)(c) of the Companies Act? Under thisprovision, the Court must consider whether a creditor's prima facie right to liquidatea defaulting company is outweighed by some factor making it plainly unjust for aliquidation to ensue.4140 GPW Investments Ltd v Dreamhome Construction Group Ltd [2017] NZHC 2057 at [30].41 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3]per Tipping J.[57] In our view, there are no such factors in the present case. Demasol isprima facie entitled to enforce its statutory demand and, if no payment is made, toappoint a liquidator of SPI. Allowing that consideration be given to SPI's substantivedisputes by setting aside the statutory demand under s 290(4)(c) would be contrary tothe CCA and would undermine its purposes. SPI is not shut out from the CCA'sadjudication processes or from other proceedings. It can prosecute the variousdisputes it has put in issue notwithstanding payment to Demasol. It simply has to paynow and argue later.Costs[58] We now turn to the final issue raised by the parties — is Demasol entitled toan order requiring SPI to pay its actual and reasonable costs in this Court (as well asin the High Court) under s 23(2)(a) of the CCA?[59] Section 23(2)(a) is set out above. One of the consequences of not paying aclaimed amount where no payment schedule is provided is that the payee can recoverfrom the payer not only the unpaid portion of the claimed amount but also "the actualand reasonable costs of recovery awarded against the payer by that Court".[60] The word "Court" used in the CCA extends only to the High Court and theDistrict Court (where the amount claimed does not exceed that Court's jurisdiction).42Accordingly, in this Court there is no statutory entitlement to actual and reasonablecosts.43[61] The issue of the appropriate costs on the appeal is however for this Court andwe are in no doubt that we have jurisdiction to award to Demasol its actual andreasonable costs. Relevantly, r 53 of the Court of Appeal (Civil) Rules provides asfollows:53 Costs at discretion of CourtThe Court may, in its discretion, make any orders that seem justconcerning the whole or any part of the costs and disbursements of—42 Construction Contracts Act, s 5.43 Salem Ltd v Top End Homes Ltd CA169/05, 4 April 2006 [Salem recall judgment].(a) an appeal; The power to order costs extends to actual and reasonable costs.44 Section 23(2)(a) isrelevant to the costs issue. This Court, in its costs decision in Salem Ltd v Top EndHomes Ltd, observed as follows:45Where, as here, a statutory cause of action is asserted and the statute expresslycontemplates actual and reasonable costs in the courts of first instance, it is ashort step to the proposition that this Court may do likewise in relation toappeal costs. That is to say that while on its terms s 23(2)(a)(ii) does not applyto this Court, the spirit of the provision may find expression through thebreadth of the Court's discretion as to costs.[62] SPI had judgment in its favour and it could be expected to defend it. However,its arguments did not engage with the plain meaning of the CCA or thewell-established authorities in the High Court and this Court. Rather, they wereprimarily directed at the merits as SPI perceives them to be. They were not relevant.Given this, and the terms of s 23(2)(a) of the CCA, we consider that, in this Court, anaward of actual and reasonable costs in Demasol's favour is appropriate. However,we have no information as to Demasol's actual and reasonable costs. Accordingly, itis appropriate to make directions requiring Demasol to file an affidavit detailing itscosts, giving SPI the opportunity to object to the same and, in the event of a dispute,directing that Demasol's claim for costs be referred to the Court for determination.[63] Because we are allowing the appeal, it is appropriate to set aside the costs ordermade by the Associate Judge. As a result, SPI must repay the costs awarded by theAssociate Judge and already paid by Demasol. As for costs in the High Court, theappropriate course is to remit that issue back to the High Court under s 57 of theSenior Courts Act. While Demasol is entitled to its actual and reasonable costs, theHigh Court has previously held that some proportionality is required in determining apayee's entitlement to costs under s 23(2)(a) of the CCA.46 It is for the High Court toconsider Demasol's entitlement to costs, taking into account s 23(2)(a) and the mattersdealt with in this judgment.44 Court of Appeal (Civil) Rules 2005, r 53E.45 Salem recall judgment, above n 43, at [9].46 Herbert Construction Company Ltd v Alexander HC Napier CIV-2011-441-500, 29 February 2012at [35]; Watts & Hughes Construction Ltd v Complete Siteworks Co Ltd [2014] NZHC 2600,(2014) 22 PRNZ 238 at [13]; and see CBC Construction (Auckland) Ltd v Auckland Concrete Ltd[2019] NZHC 1104.Result[64] For the reasons set out above, we allow the appeal and make the followingconsequential orders:(a) the orders made by the High Court are set aside;(b) SPI's application to set aside the statutory demand is dismissed;(c) the time for complying with the statutory demand is extended. Thestatutory time period of 20 working days is to commence on the dayfollowing the release of this judgment;(d) the judgment of the High Court in respect of costs is set aside underrr 48(4) and 53J of the Court of Appeal (Civil) Rules 2005;(e) the amount paid by Demasol to SPI for costs in the High Court is to berepaid by SPI to Demasol within five working days of the date ofrelease of this judgment;(f) the issue of costs in the High Court is referred back to the High Courtfor consideration under s 57 of the Senior Courts Act 2016;(g) SPI is to pay Demasol's costs and disbursements in this Court on anindemnity basis. The reasonable quantum of these costs is to be fixedby the Registrar in the event that counsel do not agree.Solicitors:Kennedys, Auckland for AppellantCooney Lees Morgan, Tauranga for Respondent