Payment claims – whether there was a 'construction contract' in accordance with the Building and Construction Industry Security of Payments Act 1999 (NSW), section 4 – definition and construction of 'construction contract' and 'arrangement'
An arrangement under which one party undertakes to carry out construction work for another party is a 'construction contract' for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). The arrangement does not need to be a legally enforceable contract.
Seabreeze Manly (plaintiff) contracted with Castle Projects as builder. It was a term of the contract that Castle Projects could only retain subcontractors with the consent of the plaintiff and that the plaintiff would pay any subcontractors directly. The plaintiff also instructed Castle Projects to ensure that all subcontractors would address their invoices to the plaintiff.
Toposu (defendant) was engaged by Castle Projects to perform construction work in relation to the plaintiff's project. The defendant submitted its invoices to Castle Projects and Castle Projects created a payment schedule which appeared to be addressed from the plaintiff to the defendant. These payment schedules were submitted by Castle Projects to the superintendent and then subsequently passed on to the plaintiff by the superintendent as part of the process for certification of payment. The plaintiff made four direct payments to the defendant.
Following a determination by an adjudicator in relation to a payment dispute, the plaintiff argued that there was no construction contract (as defined under the Act, namely, a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party) between the plaintiff and the defendant, and, on that basis, it sought to restrain enforcement of the adjudicator's determination.
McDougall J confirmed the meaning of 'arrangement' in the context of the Act as a transaction or relationship which would not in law be regarded as a contract. An arrangement may be described as an engagement or state of affairs between two parties which, although not legally enforceable if the arrangement is one under which one party undertakes to carry out construction work for another party, will satisfy the definition of 'construction contract' in section 4 of the Act. An arrangement may be multilateral.
In this case, the plaintiff instructed Castle Projects to implement a system whereby subcontractors would look to the plaintiff to pay them directly, and the defendant undertook the work on the basis that the plaintiff was liable to pay it for the work done. The court found that in this circumstance there was a trilateral arrangement under which the defendant undertook to perform construction work for the plaintiff and such arrangement amounted to a construction contract for the purposes of the Act.