In this update, we consider a recent High Court case, Hellaby Resources Services Limited v Body Corporate 197281 [2021] NZHC 554, of particular interest for two key reasons:
- it is a rare example where a stay of enforcement was granted for a debt due under the Construction Contracts Act 2002 (CCA); and
- it clarifies that the mandatory dispute resolution process set out in NZS 3910:2013 ceases to apply one month after the final payment schedule is issued (unless the dispute is referred to adjudication).
TBS and the Body Corporate entered into a NZS 3910:2013 construction contract. The Body Corporate later refused to pay the balance of the agreed price on the basis that certain areas of work remained defective.
TBS applied for:
- summary judgment against the Body Corporate for payment of the balance; and
- a stay of the counterclaim raised by the Body Corporate on the basis that the counterclaim for defective works had to be referred to arbitration.
Summary judgment: stay of enforcement
The Body Corporate had no arguable defence to TBS's application for summary judgment because the amount claimed was a scheduled amount and therefore a debt due pursuant to s 24 of the CCA.
Nevertheless, the Court decided to order a stay of execution of the summary judgment because:
- the Body Corporate had a credible counterclaim that the remediation work was defective; and
- there was a real risk that the Body Corporate would be unable to pursue the counterclaim due to a lack of funds; or if it was able; it would be fruitless because TBS had already sold its business and was now a shell company.
Dispute process under NZS 3910
TBS applied unsuccessfully for a stay of the counterclaim on the basis that the contract contained an arbitration agreement.
The Court found that for one month after issuance of the final payment schedule, the mandatory dispute resolution process under cl 13 (commencing with a referral to the Engineer) continues to apply. However, following that date (unless the dispute is referred to adjudication) the mandatory referral of disputes pursuant to cl 13 ceases to apply. After that date, either party is free to pursue its claims in court.
Talk to one of our experts
The dispute resolution process in each case depends on the particular terms of the contract. Please contact one of our experts if you would like to discuss this update or any queries you have regarding your construction contract.