Australia: Clarity or confusion on 'other arrangements' to which Security for Payments Act applies?

Last Updated: 20 June 2012
Article by Joshua Kemp

Most Read Contributor in Australia, September 2016

The recent New South Wales Supreme Court decision Machkevitch v Andrew Building Constructions [2012] NSWSC 546 may have caused more confusion than clarity in understanding the scope of "other arrangements" to which the Queensland and New South Wales Security for Payments Acts will apply.

The builder entered into a written building contract and "bonus deed" with the proprietor.

The builder applied for an adjudication of its payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The adjudicator made a determination in favour of the builder. The proprietor then went into liquidation. The builder subsequently issued a payment claim to Mr Machkevitch, with whom it dealt with on behalf of the proprietor.

The builder asserted that, in addition to the written building contract and the bonus deed, the construction contract included an oral undertaking, given by Mr Machkevitch to, and relied upon by, the builder, that Mr Machkevitch would ensure that the builder was paid if the proprietor did not pay.

The Court accepted the evidence of the builder concerning the oral undertaking and that the builder acted on Mr Machkevitch's assurance in entering into the building contract.

Consistent with Okaroo Pty Limited v Vos Constructions and Joinery Pty Limited, McDougall J found that the term "construction contract" could include both a "contract" (as that concept is known to and understood in the law) and some "other arrangements" that would not in law be regarded as contracts.

His Honour compared the Act with the intention underlying s 10 of the Home Building Act 1989 (NSW), under which a builder is not entitled to enforce a contract unless it is licensed, and carries out work pursuant to a written contract.

His Honour observed that the only express limitation on the "arrangement" was that it must be one under which one party to it undertakes to carry out construction work for another party to it. His Honour then noted that there be something more than a mere undertaking; or something which can be said to give rise to an engagement, although not a legally enforceable engagement, between two parties; or a state of affairs under which one party undertakes to the other to do something; or an arrangement between parties to like effect. The Court must look for a "concluded state of affairs".

His Honour concluded that the conversation between Mr Machkevitch and the builder amounted to an engagement, or agreement (not legally enforceable), under which Mr Machkevitch assured the builder that he had sufficient personal resources to pay it if the proprietor did not; that he would do so; and that the builder accepted and acted on this assurance by executing the building contract and the bonus deed.

Another contentious issue was whether the second payment claim would amount to an abuse of process if the builder applied for adjudication. His Honour stated that it was reasonable for the builder to have its claim against the proprietor adjudicated, and to see whether it would get paid. Once it became clear that it would not be paid (because the proprietor, after transferring out an asset at a very significant undervalue, went into liquidation and was unable to pay) it could not be unreasonable for the builder to seek to enforce what it said was the secondary or alternative liability of Mr Machkevitch. In doing so, the builder would not be seeking to reagitate any matters that were decided by the first adjudicator

The summons was dismissed with costs.

It is remarkable that it was not argued by the builder that the Act did not apply to the "arrangement" on the basis that section 7(3)(c)(ii) of the Act excludes the operation of the Act to a construction contract to the extent to which it contains provisions under which a party undertakes to guarantee payment of money owing.

The decision is at odds with Walton Construction (Qld) Pty Ltd v Robert Salce & Ors [2008] QSC 235 and arguably would not be applied in Queensland, as section 3(3)(c)(ii) of the Queensland Act also excludes the operation of the Act to guarantees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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