In the recent decision of BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82, the New South Wales Court of Appeal questioned the validity of the "one contract rule" under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

The facts of this case, as well as the judgment of the New South Wales Supreme Court at first instance, are discussed in the April edition of our Construction Matters newsletter.

In allowing the appeal, the Court of Appeal found that as a matter of contract interpretation, the payment claim in dispute (being a payment claim founded upon multiple work orders) was made in respect of one construction contract. Critically, the Court of Appeal held that a provision of the contract that stated a separate agreement would come into existence each time a work order was issued was inconsistent with the balance of the contract.

While the work orders may have been an integral part of some aspects of the contractual relationship, they, like other directions to persons undertaking work for another, did not give rise to a separate contract. The simple fact that the contract stated that each work order would, in turn, result in a separate contract was insufficient to ascertain the real legal effect of the issuance of each work order.

In obiter, the Court of Appeal strongly intimated that there is no "one contract rule" and that the following three matters make it "inherently implausible" that there is any strict and precise notion of it:

1. The object of the SOP Act is to ensure that persons carrying out work obtain regular payments on account and aresubject to a final reckoning. However, the expansive definition of a construction contract under the SOP Act, i.e. to include both a contract and some other arrangement, directs attention to the carrying out of the work, for reward, rather than the legal characteristics of the source of the obligation to carry out the work and a party's associated liability to make a payment.

2. The stated requirements for a valid payment claim under the SOP Act do not include the identification of the source of the obligation to carry out the work or the source of payment. Notably, the Court of Appeal has been reluctant to read the SOP Act as containing implied limitations, such as permitting the conditions of the service of a payment claim to be qualified by a contract.

3. The phrase "one contract rule" conveys a degree of precision as to its meaning, which fails to capture the expansive scope of practical commercial arrangements under which goods and services may be supplied.

The decision will likely come as a relief to parties of standing order contracts, who will no longer need to incur additional administrative costs in recovering monies owed by way of separate payment claims and adjudications.