High Court upholds 'pay now, argue later' principle in construction dispute

The High Court has upheld the principle of “pay now, argue later,” finding that a continuous flow of payments is crucial for the timely and efficient completion of projects.

The origins of the dispute in Kitchener & Co (1989) Limited v Concrete Solutions Limited [2024] NZHC 653 trace back to a contractual agreement between Kitchener & Co, a developer working on an apartment complex in Christchurch, and Concrete Solutions, a contractor specialising in concrete repair and strengthening works. Despite a clear written contract governed by the Construction Contracts Act 2002, Kitchener failed to honour two payment claims, leading to a payment agreement with a stringent “no set-off” clause. Kitchener’s subsequent failure to meet the agreed payment schedule resulted in Concrete Solutions taking legal action to recover the owed amount alongside contractual interest and additional costs.

Kitchener and its directors, the Hendersons, challenged the District Court's decision, bringing forth several arguments. They contended that the summary judgment was influenced by Concrete Solutions’ failure to serve witness statements for a scheduled trial, thus preventing a merits-based decision. Additionally, they argued against Concrete Solutions' entitlement to rely on the act's default provisions and the “no set-off” clause, alleging that the company had breached the payment agreement itself.

However, the High Court dissected these claims, reaffirming the validity of the “no set-off” clause and the applicability of the “pay now, argue later” principle as stipulated in the Construction Contracts Act 2002. The court underscored the absence of total failure of consideration and dismissed the appellants' claims regarding their inability to fulfil the financial obligations outlined in the judgment.

The court underscored the imperative nature of contractual adherence, particularly within the construction industry, where the continuous flow of payments is crucial for the timely and efficient completion of projects. The High Court’s ruling highlighted the binding nature of “no set-off” clauses in commercial contracts, reinforcing that parties must be fully aware of and prepared to comply with the terms to which they agree.

Moreover, the court dismissed the appellants' notion that the summary judgment application was improperly granted due to the unavailability of a scheduled trial, emphasising that the summary judgment process was correctly utilised in the interest of both parties, promoting a just, speedy, and inexpensive determination of the proceedings.