What are Payment Claims and why sho

Geoff Hardy has 45 years’ experience as a commercial lawyer and is a partner in the Auckland firm “Martelli McKegg”. He guarantees personal attention to new clients at competitive rates. His phone number is (09) 379 0700 and email geoff@ martellimckegg.co.nz.

When you do joinery work for clients, you invoice them from time to time. Sometimes, your clients don’t pay those invoices, either because they can’t, or they don’t believe they should. There are various ways in which you can make them pay you, or at least resolve the underlying dispute that is causing them not to pay you. Those methods range from negotiation, mediation, Disputes Tribunal claims, adjudication, arbitration, and suing in the courts. Because none of them is perfect, you may as well take advantage of everything that’s available to you. And there’s one more option that you can use if you make the effort, and that is to turn your invoices into payment claims under the Construction Contracts Act (the “CCA”). You’re mad if you don’t.

Why? Because payment claims are like invoices on steroids. They have super powers that ordinary invoices don’t have. Parliament intended it that way, because Parliament was concerned that it was too easy for unscrupulous clients to withhold money from the contractors and subcontractors below them, based on fictitious reasons. So in 2002 Parliament introduced this new method to force them to either pay up, or explain why not.

What you do is, you take your invoice and you modify the wording of it so that it becomes a CCA payment claim. Then you “serve it” on your client. They have to respond to it with a payment schedule by a certain deadline. That payment schedule has to say how much of the claim they will pay. If it’s not 100% of the claim, they have to say why. Then they have to pay the amount that they promised, by the due date. And if they don’t respond by the deadline, they have to pay 100% regardless.

What if they don’t pay? You can sue them in court and recover your legal costs off them. It’s a process known as summary judgment so it is quicker and cheaper than most court cases. Having said that, no court case is quick and no court case is cheap, so you may be wondering why you would bother. The answer is, that once they are served with court papers, they take it seriously, and they consult a lawyer. Their lawyer will look at the situation, and if you have done everything right, the lawyer will advise your clients that they are likely to lose. Faced with that, they generally pay up promptly, to avoid losing in court and having to pay not only their own legal fees, but yours as well.

It doesn’t matter if they have a counterclaim against you. They can’t even raise it in these proceedings. It’s a “pay now, argue later” system, and it’s all about who gets to have the money in the short term. The underlying dispute can then be resolved afterwards, and if the clients are on solid ground they may well claw some or all of that money back from you. But in the meantime, you can use it to pay your subcontractors and suppliers, and your legal fees for that matter. And you will have given your clients a taste of defeat, and undermined their confidence a little, making it all the more likely that you will be able to negotiate a satisfactory settlement of the dispute.

To turn your invoices into payment claims, there are nine criteria in the CCA you have to satisfy. Some are easy, but others require more effort. Once you’ve got the hang of it you’ll be okay, but you must not cut corners and you must not be lazy. The idea is to explain very clearly what you are claiming and why. These are the nine criteria:

1. It must be in writing

2. It must say “This is a payment claim under the Construction Contracts Act 2002”

3. It must identify the relevant construction or joinery contract

4. It must identify the construction or joinery work you are charging for

5. It must identify the period of time during which the work took place

6. It must state a claimed amount

7. It must state the due date for payment

8. It must indicate the manner in which the claimed amount was calculated

9. And it must have Form 1 attached to it

You will need a bit of help to get it right at the outset, and you will need to keep up with any law changes that affect payment claims. We can help you with both of those. The important point is, this is one of those situations where you need to get it 100% right. There is no point in spending