Introduction 

The High Court has clarified key aspects of the Construction Contracts Act 2002 (CCA) in two recent decisions: Construction Advantage Ltd v Eljayej Holdings Ltd [1] and Chillex Services Ltd v Best Air Conditioning Ltd [2].

These cases offer practical guidance on payment claims, payment schedules, and the use of statutory demands to recover outstanding amounts due under construction contracts.

Background

In Construction Advantage Ltd v Eljayej Holdings Ltd, Construction Advantage Ltd (CAL) sought summary judgment against Eljayej Holdings Ltd (EHL) for a final payment claim of $417,859.26. EHL responded with a payment schedule certifying a nil amount, referring to earlier correspondence to justify withholding payment. When applying for summary judgment, CAL argued EHL’s payment schedule did not meet the requirements of section 21 of the CCA, which requires clear reasons for non-payment.

In Chillex Services Ltd v Best Air Conditioning Ltd, Chillex Services Limited (Chillex) sought to set aside a statutory demand issued by the subcontractor, Best Air Conditioning Ltd (in liquidation) (Best Air), based on two payment claims. CSL argued that the claims were invalid, that it had issued compliant payment schedules, and that there was a substantial dispute as to the debt. The Court agreed and set aside the statutory demand.

Key findings

The decisions reinforce several key principles under the CCA:

1. Sufficiency of reasons in payment schedules: In Construction Advantage, the Court confirmed that a payment schedule must clearly state the reasons for withholding payment. This enables the payee to assess whether to accept the deduction or pursue dispute resolution. If the payment schedules refer to documents, under section 21 of the CCA these must be clearly identified, contain sufficient detail to explain the reasons for withholding payment, and the parties share an understanding about what was referenced.
2. Summary judgement threshold: The Court declined summary judgement in Construction Advantage. In its decision the Court held that the sufficiency of the payment schedule and the underlying dispute warranted a full hearing. This confirms that the usual high threshold for summary judgment continues to apply in disputes under the CCA, particularly where the sufficiency of payment claims and/or payment schedules is disputed.
3. Timing and validity of statutory demands: In Chillex Services, the Court held a statutory demand issued before the contractual due date for payment was issued prematurely and was invalid because the amount was not yet due and owing. Additionally, the statutory demand was based on payment claims that failed to state a due date for payment, which is required under section 20 of the CCA.
4. Role of payment schedules in disputes: The Court in Chillex Services confirmed that once a valid payment schedule is issued, the payee cannot rely on the 'pay now, argue later' regime to enforce as a debt the amount sought under its payment claim. Instead, disputes as to whether an amount is in fact payable or as to the merits of reasons provided for withholding payment must be resolved through adjudication or litigation.
5. Use of set-offs: In Chillex Services, the Court confirmed the scope of section 79 of the CCA, which limits the use of set-offs only in debt recovery proceedings under sections 23, 24, or 59 of the CCA. These sections apply where a valid payment claim has been issued, no valid payment schedule has been provided, and the payer has failed to pay. In those cases, the payer generally cannot raise a counterclaim, set-off, or cross-demand unless it is for a liquidated, undisputed amount. However, where a valid payment schedule has been issued, section 79 does not apply, and the payer may raise set-offs in defending the broader contractual claim.

Our comments

These decisions provide timely reminders for principals, contractors, and consultants alike. They highlight the importance of procedural compliance and record keeping in construction projects. In particular, we highlight the following:

1. Drafting and responding to payment claims: Parties must ensure payment claims strictly comply with section 20 of the CCA, including stating the due date for payment. We also reiterate that the information in Form 1, available as an easy printout from the MBIE website here, must be included when issuing payment claims. Similarly, payment schedules must clearly indicate the reason(s) for any deduction or withholding of payment as required by section 21 of the CCA.
2. Managing correspondence: Where payment schedules reference earlier correspondence, it is essential that these documents are clearly identified and that the parties have a shared understanding of their content. Vague or generic references may not suffice. If in doubt, consider including copies of this correspondence when issuing payment schedules.
3. Statutory demands as a recovery tool: The Chillex Services decision highlights the risks of using statutory demands to recover disputed construction debts. Courts will carefully scrutinise the validity of the underlying payment claims and the timing of the demand. If there is a substantial dispute over whether the debt is due and owing, previous cases indicate that the demand will be set aside.
4. Dispute resolution planning: These cases reinforce the importance of ensuring that you have a plan to manage disputes before they arise, including maintaining clear records and complying with contractual procedures and timeframes. In view of its short deadlines and requirement to make payment fast following a decision, adjudication under the CCA should also be considered as a primary mechanism for resolving payment disputes.

Footnotes:

[1] Construction Advantage Ltd v Eljayej Holdings Ltd [2025] NZHC 1749

[2] Chillex Services Ltd v Best Air Conditioning Ltd [2025] NZHC 1729