‘Communication’ of the right to elect—more lessons from Watts & Hughes Construction v Complete Siteworks Company

Further to our recent post regarding a subcontractor’s success in the High Court under the payment provisions in Construction Contracts Act (CCA), we would like to highlight an interesting issue discussed in that case around communication of an election option in a contract.

As mentioned previously, the subcontractor, Complete Siteworks, obtained judgment in the High Court for payment of $306,077.23 by the head contractor, Watts & Hughes, being the amount claimed in payment claim No. 6.

The parties’ contract provided a right of election to Watts & Hughes if Complete Siteworks was late in submitting a monthly payment claim. This election was that Watts & Hughes could choose to treat the late claim as being received on the payment claim due date for the next month (thereby postponing the due date for payment or provision  of any payment schedule by a month).

Complete Siteworks submitted payment claim No. 6 on 28 February, six days later than required by the contract. This six-day tardiness was not unusual, as all other previous payment claims were similarly late. Watts & Hughes had warned Complete Siteworks about this, however Watts & Hughes had never previously elected to treat the payment claim as received the following month (as it was entitled to do, pursuant to the contract), and paid the claims on time.

Watts & Hughes argued that the clause in the contract did not require it to communicate to Complete Siteworks whether it was electing to exercise its discretion when late payment claims were received. Alternatively, Watts & Hughes argued that if communication was required, the fact it had not paid payment claim No. 6, when previously payment had been timely, and that it had warned Complete Siteworks about the timeliness of payment claims, were all sufficient to constitute communication under the contract.

The Court examined the relevant authorities which said that communication of the decision is an essential part of a valid election, although the communication may in some cases be imputed by law (even if this is contrary to the party’s subjective intention). Also, the party with the right to elect may lose this right if it is not exercised in a timely way.

It was found in this case that communication of the decision to elect is required. This was because the contract did not automatically deem a late claim to have been received on the next monthly date for submission, and it was improbable that the parties would have intended that Watts & Hughes would not need to communicate its election to Complete Siteworks.

Further, as the Court found that communication of the election was required, it then found that this communication did not occur. Communication could not be inferred by the previous conduct, as Watts & Hughes argued. The weighty consequences of not complying with the CCA payment regime left no room for inference.

This case is another reminder of the stringent nature of the CCA, and the need to always consider the requirements of the Act, especially when assessing payment.

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