Construction Contracts (Retention Money) Amendment Act 2023

1: Title
This Act is the Construction Contracts (Retention Money) Amendment Act 2023.
2: Commencement
This Act comes into force on the day that is 6 months after the date on which it receives the Royal assent.
3: Principal Act
This Act amends the Construction Contracts Act 2002 2023-10-05 Construction Contracts Act 2002
1: Amendments to Part 2 of principal Act
4: Sections 18A to 18F and cross-heading replaced
Replace sections 18A to 18F
18A: Interpretation
In this subpart,— complying instrument party A party B section 18B(1) or (5) protected amount registered bank section 2(1) of the Banking (Prudential Supervision) Act 1989 retention money section 18B(2) or (6)﻿(a) retention money trust section 18C
18B: Application of subpart and meaning of retention money
1: This subpart applies if a commercial construction contract allows one party to the contract ( party A retainable amount party B
2: A retainable amount becomes retention money
3: The retainable amount becomes retention money in accordance with subsection (2)
a: has withheld any amount from party B:
b: has complied with section 18D
c: has calculated the retainable amount (as long as it is capable of being calculated):
d: has prepared, or given to party B, a payment schedule or other record of an amount being withheld:
e: has paid any amount owing to party B under the contract.
4: Despite subsection (2)
a: party A chooses not to retain the amount and has paid it to party B; or
b: the total retainable amount under the contract is less than the de minimis amount prescribed in regulations.
5: This subpart also applies if one party to a commercial construction contract ( party A party B
6: In that case,—
a: the withheld amount referred to in subsection (5) retention money
b: a reference in this subpart to retention money retained under a contract includes retention money retained in connection with the contract referred to in that subsection.
18C: Retention money is held on trust
1: Retention money is trust property, held on trust by party A for party B, and party A must deal with it in accordance with this subpart.
2: The trust is created, by operation of this section, when the amount becomes retention money under section 18B(2) or (6)﻿(a)
3: Retention money ceases to be trust property when 1 or more of the following applies to it:
a: it is paid to party B:
b: party B, in writing, gives up any claim to it:
c: it is used to remedy defects in the performance of party B’s obligations under the construction contract, but only if—
i: the use of the money for that purpose is permitted by the contract; and
ii: any provisions of the contract relating to the use of the retention money are complied with; and
iii: at least 10 working days before using the money for that purpose, party A gives party B written notice setting out—
A: party A’s intention to use the retention money for that purpose; and
B: details of the defects to be remedied:
d: it otherwise ceases to be payable to party B.
4: To avoid doubt,—
a: if party A holds retention money for 2 or more persons (each being party B), the retention money held for each of them is the subject of a separate trust; and
b: the retention money is trust property whether or not party A complies with this subpart; and
c: all of the rules of the common law and equity relating to trusts apply to the trust, party A as trustee, the retention money as trust property, and any other person dealing with the trust property (except to the extent that this subpart provides otherwise).
18D: How retention money must be kept and used
1: Party A must deposit retention money into a bank account that complies with section 18E section 18B(2) or (6)﻿(a)
2: Party A must keep the retention money in a bank account that complies with section 18E section 18C(3)
3: Despite subsections (1) and (2)
4: If retention money ceases to be trust property under section 18C(3)﻿(b), (c), or (d)
5: Interest earned on retention money is not part of the retention money and is the property of party A (unless the construction contract provides otherwise or section 18G applies).
18DA: Failure to keep retention money as required
1: If party A fails to comply with section 18D
a: party A commits an offence and is liable on conviction to a fine not exceeding $200,000 for each offence; and
b: if party A is a body corporate, each of its directors also commits an offence and is liable on conviction to a fine not exceeding $50,000 for each offence.
2: It is a defence to a charge under subsection (1)
a: that party A took all reasonable steps to ensure that party A complied with section 18D
b: if the defendant is a director, that they took all reasonable steps to ensure that party A complied with that provision.
3: It is a defence to a charge under subsection (1) section 18D(2) section 18C(3)﻿(c)
4: In this section, director section 6(1) of the Financial Markets Conduct Act 2013
a: a member (as defined in section 5(1) of the Local Government Act 2002
b: a receiver or liquidator who is a new trustee under section 18K
18E: Bank account
1: A bank account for the purposes of section 18D(1)
a: be at a registered bank in New Zealand; and
b: comply with subsection (2) or (3)
2: A bank account complies with this subsection if—
a: the account holder is party A in their capacity as trustee of the retention money; and
b: the account is used solely for the purpose of holding retention money (and any interest earned on it even though, under section 18D(5)
i: for party B under a particular construction contract; or
ii: for party B under 2 or more construction contracts; or
iii: for 2 or more persons (each being a party B) for whom party A holds retention money under 1 or more construction contracts; and
c: party A has informed the bank that the account is for the purpose of holding retention money that party A holds on trust under this Act.
3: A bank account complies with this subsection if—
a: it is a bank account ordinarily used to hold trust money; and
b: the account holder is—
i: a practitioner or an incorporated firm (both as defined in section 6 of the Lawyers and Conveyancers Act 2006
ii: the Public Trust (as defined in section 4 of the Public Trust Act 2001
iii: a trustee company (as defined in section 2 of the Trustee Companies Act 1967
iv: a chartered accountant (as defined in section 2 of the New Zealand Institute of Chartered Accountants Act 1996
v: a person holding a licence under the Auditor Regulation Act 2011 section 6(1)
vi: in a case where party A is a council-controlled organisation (as defined in section 6 of the Local Government Act 2002
vii: a person of a kind prescribed by regulations; and
c: party A informs the account holder that the money to be held in the account is retention money that party A holds on trust under this Act.
4: If subsection (2)﻿(b)﻿(ii) or (iii) or (3) section 18FC
5: Each ledger record must identify the party B and construction contract to which it relates.
6: Each payment into or out of the bank account must be recorded in the ledger record for the party B and construction contract to which the payment relates.
18EA: Treatment of unallocated withdrawals or deposits
1: This section applies if retention money held by party A for 2 or more party Bs is (or is recorded in the ledger records as being) kept in the same bank account.
2: If—
a: retention money is withdrawn from the bank account; and
b: the ledger records do not record which party B the withdrawal is attributable to; and
c: it is not otherwise clear from the circumstances which party B the withdrawal is attributable to,— the amount withdrawn is to be apportioned between the party Bs in proportion to their respective balances in the ledger records at the time the withdrawal is made.
3: If—
a: there is a deficiency in the amount of retention money held in the bank account for 1 or more of the party Bs; and
b: an amount is deposited into the bank account; and
c: the ledger records do not record which of those party Bs the deposit is attributable to; and
d: it is not otherwise clear from the circumstances which party B the deposit is attributable to,— the amount deposited is to be apportioned between the party Bs referred to in paragraph (a)
4: If the ledger records have not been kept as required by section 18E subsections (2) and (3)
5: In this section, ledger records section 18E(4)
18F: Public Finance Act 1989 applies if party A is the Crown
If party A is the Crown,—
a: the retention money must be held and dealt with in accordance with Part 7 of the Public Finance Act 1989
b: sections 18D(1), (2), and (3), 18E,
5: Section 18FA amended (Protection of retention money)
In section 18FA Retention money held on trust Without limiting section 18C(4)﻿(b)
6: Cross-heading above section 18FB repealed
Repeal the cross-heading above section 18FB
7: Section 18FB amended (Complying instruments)
1: Replace section 18FB(3)﻿(a)
a: be issued in favour of, or endorsed with the interests of,—
i: party B; or
ii: party B and 1 or more other persons (each being a party B under a construction contract); or
iii: a class of persons (all being party Bs under construction contracts) of which party B is a member; and
2: In section 18FB(8) registered bank
8: Cross-heading above section 18FC repealed
Repeal the cross-heading above section 18FC
9: Section 18FC replaced (Accounting and records)
Replace section 18FC
18FC: Accounts and records
1: Party A must keep accounting and other records of all retention money held for party B.
2: The records must—
a: include details of—
i: all bank accounts in which retention money is held for party B ( see subsection (3)
ii: if party A relies on section 18D(3) see subsection (4)
b: be appropriate, having regard to the amount of retention money and the circumstances of the case; and
c: include any other information required by regulations; and
d: be kept in a way that complies with any requirements specified in regulations.
3: If party A keeps any of the retention money in a bank account, the records must—
a: identify the bank account as an account in which retention money is held for party B; and
b: identify the construction contracts under which that money is retained; and
c: include details of all payments into and out of the account; and
d: if the bank account holds retention money for any other party B, record that fact; and
e: comply with section 18E(4) to (6)
4: If party A relies on section 18D(3)
a: a copy of all complying instruments that relate to party B; and
b: for each instrument,—
i: a record of party B’s interest in the instrument, including the protected amount; and
ii: if the instrument also relates to 1 or more other persons (as permitted by section 18FB(3)﻿(a)﻿(ii) and (iii)
A: for each of those persons, the information specified in subparagraph (i)
B: the total of all protected amounts under the instrument; and
iii: if the issuer’s liability under the instrument is limited, details of that limitation; and
iv: evidence that the premium or other money that is, or that may become, payable to the issuer for the instrument has been fully paid by party A; and
v: a record of any failure to comply with the terms and conditions of the instrument.
5: Party A must make the accounting and other records required by this section in relation to retention money held for party B available for inspection by party B at all reasonable times and without charge.
6: If party A fails to comply with this section, party A commits an offence and is liable on conviction to a fine not exceeding $50,000 for each offence.
18FD: Party A must report on retention money
1: Party A must give the information required by subsection (2)
a: as soon as practicable after an amount becomes retention money; and
b: at least once in every 3 months until the retention money trust ends under section 18C(3)
2: The required information is—
a: each amount retained, the construction contract under which it is retained, and the date of its retention; and
b: the total amount of retention money held by party A for party B under each construction contract between party A and party B; and
c: the account details for any bank account in which any of the retention money is held; and
d: if party A relies on section 18D(3)
e: a statement that party B may inspect the accounts and records that party A is required by section 18FC
f: any other information specified in regulations.
3: The account details
a: if the account holder is party A,—
i: the name of the bank and the branch at which the account is held; and
ii: the name of the account; and
b: if the account holder is not party A,—
i: the name of the account holder; and
ii: the category of account holder under section 18E(3)﻿(b)
c: the balance in the bank account that is held for party B; and
d: if separate ledger records are required under section 18E(4)
4: The instrument details
a: the name of the issuer:
b: sufficient information to identify the instrument (such as a policy number or other unique identifier):
c: the protected amount.
5: Party A must also give any other information specified in regulations to party B at other times specified in the regulations.
6: Party A must not give information under this section that is false or misleading.
7: If party A fails to comply with this section, party A commits an offence and is liable on conviction to a fine not exceeding $50,000 for each offence.
10: Section 18G amended (Interest on late payment)
Replace section 18G(2)
2: The interest referred to in subsection (1) accrues at the rate prescribed in regulations or any higher rate specified in the construction contract.
11: Section 18I amended (Prohibited provisions)
In section 18I(1)﻿(c) a trust or an instrument under retention money or any bank account or instrument held for the purposes of
12: New sections 18J to 18L inserted
After section 18I
18J: Effect of receivership or liquidation of party A
1: This section applies if—
a: a receiver (as defined in section 2(1) of the Receiverships Act 1993
b: a liquidator is appointed under the Companies Act 1993
2: When the receiver or liquidator is appointed,—
a: party A ceases to be trustee of the retention money trust; and
b: the receiver or liquidator (or each of them if there is more than 1) becomes trustee of the retention money trust.
3: However, this section does not apply if party A has already been replaced as trustee.
18K: Receiver or liquidator as trustee
1: A person who becomes trustee of a retention money trust under section 18J or 18L new trustee
2: For the purpose of doing so, the new trustee has (in addition to their powers and duties as a trustee),—
a: if they are a receiver, all of the powers and duties that they have in their capacity as receiver; or
b: if they are a liquidator, all of the powers and duties of a liquidator under Schedule 6 of the Companies Act 1993
3: The new trustee is entitled to have their reasonable fees and costs met from the retention money trust.
4: The High Court may, on application by party B or the new trustee, review or fix the new trustee’s fees and costs and make such orders in relation to them as the court considers appropriate.
5: The new trustee must—
a: notify party B of their appointment within 10 working days of becoming trustee; and
b: give to party B all of the information that the person, in their capacity as receiver or liquidator, gives to unsecured creditors of party A when it is given to those creditors.
6: The new trustee is not liable for any unlawful or improper action taken by party A or any other person in their capacity as trustee of the retention money trust before the new trustee became trustee.
18L: Change of trustee
1: The High Court may, on application, remove or replace a receiver or liquidator as trustee of the retention money trust if it considers it appropriate to do so.
2: An application may be made by a receiver or liquidator who is a trustee of the retention money trust or by party B.
3: If a receiver or liquidator is the only trustee of the trust and is not willing or able to continue as trustee, they must apply to the court for the appointment of a replacement.
4: If a receiver or liquidator who is a trustee of the retention money trust is replaced as receiver or liquidator by another person, that other person becomes trustee of the retention money trust in place of the previous receiver or liquidator. Enforcement of retention money provisions
18M: Functions of chief executive
The chief executive has the following functions in relation to this subpart:
a: to disseminate information and provide educational programmes on matters relating to this subpart:
b: to publish guidance information on the requirements of this subpart:
c: to monitor compliance with this subpart:
d: to take enforcement action (including taking proceedings for offences) if the chief executive considers that it is desirable to do so—
i: to enforce compliance with this subpart; or
ii: to establish or clarify any matter of principle relating to this subpart or the interpretation of any provision of this subpart:
e: to provide advice to the Minister in relation to this subpart and to matters relating to retention money generally:
f: to carry out any other functions and duties specified in this subpart:
g: to take all necessary steps for the implementation and administration of this subpart:
h: to carry out any functions that are incidental and related to, or consequential upon, the functions set out in paragraphs (a) to (g)
18N: Power to require information
1: The chief executive may require any person to provide any information or document that the chief executive considers is reasonably necessary for the purposes of monitoring, investigating, or enforcing compliance with this subpart.
2: The chief executive must give written notice to the person that specifies—
a: the information or document that must be provided; and
b: how the information or document must be provided; and
c: a reasonable deadline by which the information or document must be provided.
3: The chief executive may copy or retain any information or document provided.
4: The recipient of a notice has the same privileges in relation to things required by the notice as a witness has in proceedings before a court. Guidance note
The privileges of a witness include the privilege against self-incrimination and the other privileges set out in subpart 8 of Part 2 of the Evidence Act 2006
18O: Offences relating to information and documents
1: A person given a notice under section 18N
2: A person who intentionally fails to comply with subsection (1)
a: commits an offence; and
b: is liable on conviction,—
i: in the case of an individual, to a fine not exceeding $50,000:
ii: in the case of a body corporate, to a fine not exceeding $200,000.
3: A person given a notice under section 18N
a: the information or document is false or misleading in a material particular; or
b: there is a material omission from the information or document.
4: A person who fails to comply with subsection (3)
a: commits an offence; and
b: is liable on conviction,—
i: in the case of an individual, to a fine not exceeding $50,000:
ii: in the case of a body corporate, to a fine not exceeding $200,000.
18P: Power of entry
1: The chief executive or a person authorised by the chief executive may apply for a search warrant in respect of any place.
2: The application must be made in accordance with subpart 3 of Part 4 of the Search and Surveillance Act 2012
3: An issuing officer may issue a search warrant in respect of the place if satisfied that there are reasonable grounds—
a: to suspect that an offence against this subpart has been, is being, or will be committed; and
b: to believe that there is evidential material in the place.
4: The provisions of Part 4 of the Search and Surveillance Act 2012 sections 118 and 119
5: In this section, evidential material issuing officer section 3(1) of the Search and Surveillance Act 2012
18Q: Hindering chief executive
1: A person must not obstruct, hinder, or resist the chief executive or a person authorised under section 18P
2: However, the person has the same privileges in relation to things required by the notice as a witness has in proceedings before a court. Guidance note
The privileges of a witness include the privilege against self-incrimination and the other privileges set out in subpart 8 of Part 2 of the Evidence Act 2006
3: A person who intentionally contravenes subsection (1)
a: commits an offence; and
b: is liable on conviction,—
i: in the case of an individual, to a fine not exceeding $50,000:
ii: in the case of a body corporate, to a fine not exceeding $200,000.
2: Amendments relating to transitional matters and consequential amendment
13: Cross-heading above section 11A inserted
Before section 11A Transitional, savings, and related provisions
14: New section 11B inserted (Transitional, savings, and related provisions)
After section 11A
11B: Transitional, savings, and related provisions
The transitional, savings, and related provisions set out in Schedule 1
15: New Schedule 1 inserted
Insert the Schedule 1 set out in the Schedule Consequential amendment
16: Principal Act
Section 17 Search and Surveillance Act 2012 2023-10-05 Search and Surveillance Act 2012
17: Schedule amended
In the Schedule The following table is small in size and has 4 columns. This table amends the table in the Schedule of the Search and Surveillance Act 2012 and should be read with that table to provide understanding of the context. Construction Contracts Act 2002 18P Power to enter premises to investigate offences All (except sections 118 and 119