Section Spotlight: s 79 Construction Contracts Act 2002

79 Proceedings for recovery of debt not affected by counterclaim, set-off, or cross-demand

In any proceedings for the recovery of a debt under section 23 or section 24 or section 59, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—

(a) judgment has been entered for that amount; or

(b) there is not in fact any dispute between the parties in relation to the claim for that amount.

Section 79 of the Construction Contracts Act 2002 bars counterclaims, set-offs and cross-demands in debt recovery proceedings initiated due to:

  • A failure to pay a payment claim where no payment schedule was provided.
  • A failure to pay a scheduled amount in a manner indicated by a payment schedule.
  • Non-compliance with an adjudicator’s determination on whether a party is liable to make a payment under a construction contract.

This provision plays an important part in carrying out the Act’s purpose of facilitating regular and timely payments and providing remedies for the recovery of payments. Once a contractor establishes a right to payment, the principal must ‘pay now and argue later’ or at least that is the intention. However, a number of submissions to the select committee considering the recent Construction Contracts Amendment Act 2015 pointed out that once the creditor went to court, the court’s processes proved difficult to recover debts due under the Act.

Section 79 recently came into the spotlight regarding whether it prevents a party to a construction contract from seeking a stay of liquidation proceedings against it. The decision of the High Court in Haley Construction Limited v Evolving Projects Limited [2015] NZHC 2490 casts doubt on whether s 79 is as big of a ‘trump card’ as previously believed.

The Court identified two stages to liquidation. The first, the issuing of a statutory demand, had been previously ruled to fall within the ambit of s 79, meaning that counterclaims, set-offs and cross-demands were not allowed. However, courts had refrained from expressing an opinion on the relationship between s 79 and the second stage: the liquidation proceedings themselves.

Associate Judge Osborne’s guarded opinion presents the first guidance in relation to this second stage. In his view,

‘… there is room for argument against the proposition that the stay application has been trumped by s 79 of the [Construction Contracts] Act. The argument is that, when the second stage is reached, the usual primary purpose of the statutory demand (debt collection) falls away with the focus now on liquidation (or bankruptcy). The argument would thus run that the liquidation proceeding is not a proceeding for the recovery of a debt.’

As it happens, Evolving Projects Limited’s application was dismissed on its merits, and Judge Osborne emphasised that he was not basing his judgment on a conclusion as to stay jurisdiction. Despite this, Haley Construction Limited provides a glimmer of hope for parties facing the daunting task of avoiding s 79 and a further devaluing of the principles of the Act.

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