Most Read Contributor in Australia, September 2016
The recent New South Wales Supreme Court decision
Machkevitch v Andrew Building Constructions  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
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
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
The decision is at odds with Walton Construction (Qld) Pty
Ltd v Robert Salce & Ors  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
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