Security of Payment - Contracts or 'Other Arrangements'

17 DEC 2019


Under the Building & Construction Industries Security of Payment Act 1999 (NSW) (SOPA) –

“Let’s shake on it” and ‘other arrangements’ that may give rise to a construction contract under the SOPA – how to protect yourself and know your rights

In a recent decision of the Supreme Court of New South Wales, the Court determined that a “contractor other arrangement” within the meaning of the SOPA must give rise to a legally binding obligation by which the party doing the works in accordance with an agreement or arrangement (as the case may be) is entitled to be paid by the other negotiating party, for the services provided in the building and construction industry. This may apply even in circumstances where a written contract has not been signed and the ‘arrangements’ are not expressly contractual, which in turn broadens the scope of the application of the SOPA in certain circumstances where for example, there is a ‘handshake’ arrangement or oral negotiations between parties.

The case of Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685 highlights the importance of the SOPA and how it can be both a benefit of and a burden to all parties involved in informal arrangements for the provision of goods and services in the construction industry.

The case concerned a joint venture formed by Lendlease Engineering and Bouygues Construction Australia (the LLBJV), the principal contractor for the NorthConnex Project. The LLBJV was the Respondent to an adjudication application which was commenced by Timecon Pty Ltd (Timecon) which related to a dispute regarding the disposal of natural material (tunnel spoil).  

Timecon attempted to prove that the “contract or other arrangement” came into effect as a result of a conversation on 24 February 2017 between the parties. Whilst Timecon was unsuccessful, the case provides important guidance on what parties must prove to rely on the protection under SOPA.

In this particular case, what Timecon failed to do was to clearly identify the construction work or related goods and services it was said to have supplied/provided to the LLBJV, and it was determined that there was no “contract or other arrangement” between Timecon and the LLBJV. The Judgment also noted that even if the Court had recognised a “contract or other arrangement” to have existed, it was not one for the carrying out of construction work or the supply of goods and services in accordance with the definition of “construction work” under the SOPA.

What does this mean for me as a Head Contractor/Principal/Developer/Builder?

This decision has a significant impact on parties who are looking to negotiate for the provision of goods and/or services in the building and construction industry. Even if there is no written contract, there may be circumstances where the provisions of the SOPA will apply – either to your detriment or benefit depending on whether you are looking to recover monies or not. This decision will not however affect contracting or negotiating parties falling outside of the SOPA sphere, so does not otherwise apply to residential building disputes.

Ultimately, there are provisions of the SOPA which are intended to act as a safety blanket for negotiating commercial parties in instances where even less formal ‘arrangements’ result in the imposition of legally binding obligations. What this means for you is that it is important to be aware that even as head contractor or principal, you are clear on your rights and liabilities to each other party to a negotiation including subcontractors, and that even absent a written contract, you might still be liable to pay or be paid by another party for works undertaken or goods provided, in circumstances where you can prove an ‘arrangement’ existed.

As soon as agreements are reached between parties, it is important to document the terms of such agreements either in an email, letter etc., in order to ensure that rights are protected, especially with respect to rights to payment, and each party’s liabilities are crystallised. Otherwise, parties run the risk of disputes arising and the prospect of litigation becomes a real risk.

Similarly, should you wish to obtain advice on how to protect yourself in circumstances where there is no written contract, or where you have found yourself in a dispute with another party, or simply wish to know what your rights and obligations are, please do not hesitate to contact Grant Butterfield, Aaran Johnson or Bharath Balasubramanian in our Dispute Resolution Department on (02) 9233 1133.

You should always be mindful that time limits may apply to the circumstances of your case, so we would recommend acting promptly. 

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication

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