Claim size doesn’t matter

By - , Build 161

A recent High Court decision has clarified that the Construction Contracts Act 2002 does apply to residential renovations involving homeowners.

THE ABSENCE of agreement on a price does not mean that a construction contract does not exist. Furthermore, the fact that the costs of recovery may be disproportionate to the amount claimed is not a good reason for declining summary judgment.

These were two reasons why the High Court recently overturned a District Court Judge’s decision to refuse a contractor summary judgment in Floorman Waikato Ltd v McRae.

Judge found no agreement on price

The contractor, Floorman, issued a payment claim for the sum of $6,150 plus GST. The respondent, Mr McRae, failed to provide a payment schedule in response. Mr McRae was unhappy with the job, which involved sanding and coating wooden floors at his property. When its invoice went unpaid – except for a small payment of $200 – Floorman issued summary judgment proceedings in the District Court.

The District Court Judge declined to grant Floorman summary judgment because he found Floorman and Mr McRae were not in agreement on the price for the work. It was arguable, therefore, that there was no concluded contract. The District Court Judge had other issues with the claim:

  • He said he had ‘serious concerns’ about whether the Construction Contracts Act 2002 (CCA) applied to the works and observed that Mr McRae was mystified as to why the Act applied. Mr McRae relied on arguments under the Fair Trading Act 1986 and the Consumer Guarantees Act 1993. The Judge said, ‘If the plaintiff is right, the practical affect is for a defendant who has got nothing to do with the construction industry and he has never heard of the Construction Contracts Act 2002, can be handed a bill after the job has been done together with a sheet of paper saying that it is a claim under the Construction Contracts Act 2002 and requiring the matter to be dealt with under the provisions of an Act which they have never heard of. That, seems to me, is fundamentally unfair …’
  • The Judge also explained why he would not have exercised the discretion to award summary judgment. He considered the size of the claim made it disproportionate to use the CCA. He said, ‘It seems to me that the invocation of the Construction Contracts Act 2002 in circumstances where the claim is well within the Disputes Tribunal jurisdiction is inappropriate if the contract involves a lay person and he has no prior knowledge of the provisions which operate in the Construction Contracts Act 2002 in relation to payment disputes about workmanship and the like.’

There was a construction contract

In the High Court, Justice Davidson did not agree that it was reasonably arguable that there was no construction contract. He said the evidence showed Mr McRae instructed Floorman to go ahead and perform the work sanding and apply a polyurethane coating to the floor. It did not matter that there was no agreement on price because the parties had agreed that would be determined by the flooring product that Mr McRae decided to use.

The High Court also disagreed with the District Court Judge that the Act should not apply in the circumstances. Justice Davison noted that the definition of ‘construction work’ in the CCA clearly included ‘restoration and renewal work’.

Where District Court erred

Regarding discretion to refuse summary judgment, the Court acknowledged that the test on appeal was showing that the Judge:

  • had acted on a wrong principle, or
  • had taken an irrelevant matter into account, or
  • had failed to take a relevant matter into account, or
  • was plainly wrong.

Justice Davison found the Judge had been plainly wrong about CCA’s application. The Judge’s view that the CCA did not apply to residential renovations involving homeowners was contrary to the clear legislative intention of the CCA. Furthermore, Floorman had properly explained to Mr McRae the steps he had to take to respond to its claim.

Finally, there was no restriction on Floorman recovering the debt in a Court. The CCA does not refer to any threshold amount for Court proceedings. Therefore, the Judge was wrong to decline summary judgment principally on the basis that there was a disproportionate amount of recovery costs added to the original claim sum.

Purpose of the Construction Contracts Act

Justice Davison said, ‘The legislative purpose of the CCA is to ensure that construction contractors who have performed work are not frustrated in recovering payment for the work by the raising of genuine or tactical grounds of dispute.

‘The CCA provides that where a payment claim is issued, and no steps are taken by the party from whom payment is sought, the amount claimed is recoverable as a debt. That is what happened here …’

Floorman was entitled to judgment of $6,872.50 inclusive of GST and its actual legal costs of recovery as provided by the CCA.

Note

This article is not intended as legal advice. For further information, contact your legal advisor or the Harkness Henry Building and Construction team on (07) 838 2399 or email [email protected]

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