Introduction

The recent NSW Supreme Court case of Seabreeze Manly v Toposu, [1] (Seabreeze Case), is a useful reminder to the building and construction industry as to what 'arrangements' will give rise to a 'construction contract' under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA). [2]

The Seabreeze Case provides useful guidance as to what an adjudicator believes constitutes a 'construction contract', when assessing an adjudication application.

Key Points

• A 'construction contract' under the SOPA need not be a contract as understood under the general law.
• The existence of a 'construction contract' between A and B for B to carry out particular work for A will not necessarily negate the parallel existence of an "arrangement", and thereby a "construction contract", between A and C, or between A, B and C, for C to carry out part of the construction work for A.
• An 'arrangement' for a Principal to pay a subcontractor directly may give rise to a 'construction contract', under which the subcontractor may seek adjudication of payment claims against the Principal.

Facts of the Seabreeze Case

A land developer, Seabreeze, entered into a contract with a builder, Castle Projects. The contract provided that Castle Projects would only retain subcontractors with the prior consent of Seabreeze, and where this was done, Seabreeze would pay subcontractors directly.

Castle Projects engaged a subcontractor, Toposu, for the supply and installation of steel and aluminium.

The overall 'arrangement' included the following points [3].

• Toposu carried out construction work for Seabreeze's projects under the supervision of Castle Projects.
• Toposu completed the work on the basis that it invoiced Castle Projects, but Seabreeze would pay the certified amount for that work direct to Toposu.
• Once the invoice was received, Castle Projects created a payment schedule which was addressed from Seabreeze to Toposu and submitted it to the superintendent for review.
• Seabreeze paid the amount of the payment schedule, as certified by the superintendent, direct to Toposu.

After work was done, Toposu adjudicated a payment claim against Seabreeze under the SOPA, obtaining a favourable determination. Seabreeze attempted to restrain the enforcement of the adjudicator's determination on the basis that there was no 'construction contract' between Seabreeze and Toposu.

Decision
The Court found there was a 'construction contract' between Seabreeze and Toposu. [4] In particular, the court made the following points.

• For the purposes of the definition of a 'construction contract', an 'arrangement' may be multilateral [5].
• It was apparent that the true nature of the contract between Seabreeze and Castle Projects was, among other things, a conduit or medium between Seabreeze, and the various subcontractors who did the actual work building the project [6].
• It was of particular relevance that Seabreeze had instructed Castle Projects to put in place a system whereby subcontractors would look to Seabreeze for payment. Castle Projects did this, communicated that system to Toposu and Toposu took the job on that basis [7].

What this means for you

Principals and contractors: Be aware that some of your current arrangements with parties, other than the principal contract on a project, may be considered a 'construction contract'. If the arrangement is considered a 'construction contract', you should respond in accordance with the requirements set out in the SOPA.

Contractors and subcontractors: Ensure that you have a sound basis for establishing a construction contract before seeking to adjudicate a payment claim, so that the adjudicator has jurisdiction to determine the claim.

Notes:
[1] Seabreeze Manly v Toposu [2014] NSWSC 1097.

[2] As defined in s 4 of the Building and Construction Industry Security of Payment Act 1999 (NSW), a "construction contract" is "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".

[3] Seabreeze Manly v Toposu [2014] NSWSC 1097, [21].

[4] Seabreeze Manly v Toposu [2014] NSWSC 1097, [39]. McDougall J placed particular reliance on Machkevitch v Andrew Building Constructions [2012] NSWSC 546, [15] – [28]; Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45, [41] – [42], [55] (Nicholas J); Class Electrical Services v Go Electrical [2013] NSWSC 363, [34].

[5] Seabreeze Manly v Toposu [2014] NSWSC 1097, [35].

[6] Seabreeze Manly v Toposu [2014] NSWSC 1097, [36].

[7] Seabreeze Manly v Toposu [2014] NSWSC 1097, [39].