Crown Green Square Pty Ltd v Transport for NSW [2021] NSWSC 1557

Andrew Hales  |  Tom Kearney  |  Isobel Carmody

Key takeouts

There is inconsistent authority in NSW as to whether an ‘other arrangement’ for the purposes of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) requires the existence of a legally binding obligation.

In this case, Henry J opined in obiter comments, (comments not essential to the decision) that an ‘other arrangement’ does not necessarily need to involve legally binding obligations, but does require some element of reciprocity or acceptance of mutual rights and obligations relating to payment for works between the parties.  By this reasoning, it is possible that even though a party may not have a legally enforceable right to payment, a party could, via the Act, obtain interim payment for construction work under an ‘other arrangement’. 

This is in contrast to the finding of Ball J in Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685 that the arrangement must give rise to a legally binding obligation, although that obligation need not be contractual in nature.

Legislation

Under s 8 of the Act a party has a right to progress payments if is engaged ‘under a construction contract‘.

Under s 4 of the Act a construction contract means ‘a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services‘.

Facts

Three of the plaintiffs and the defendants were parties to a development agreement for works relating to a development linked to a train station via an underground pedestrian tunnel.  The fourth plaintiff (Crown Construction), who was not a party to the development agreement but was a related entity to the first three plaintiffs and who had carried out works to design and install certain electronic, mechanical and fire safety services as part of the development of the tunnel, issued an invoice for payment for some of that work to one of the defendants.  The relevant defendant failed to provide a payment schedule in response to that payment claim, and Crown Construction sought judgment in the amount claimed in the payment claim under the Act for that failure to provide a payment schedule.

The defendants argued that there was no construction contract between Crown Construction and the relevant defendant and, therefore, the payment claim was not a payment claim that engaged the operation of the Act.  The plaintiffs argued that there was an ‘other arrangement’ within the meaning of s 4(1) of the Act, which could support a valid payment claim that engaged the operation of the Act.

Decision

There was no ‘other arrangement’ between Crown Construction and the relevant defendant, and therefore the payment claim was not able to engage the operation of the Act.  This was because the requirement to carry out the works arose only as part of and as required by the development agreement (to which Crown Construction was not a party), and there was no evidence to support the existence of an ‘other arrangement’ to which Crown Construction was a party.

What is an ‘other arrangement’?

The court said in obiter that:

• an ‘arrangement’ does not need to be legally enforceable in that it must give rise to legally binding obligations in order to be captured by the inclusion of the words ‘other arrangement’ in the Act; but

• an ‘arrangement’ for the purposes of the definition of ‘construction contract’ in the Act will involve some element of reciprocity or acceptance of mutual rights and obligations (whether legally enforceable or not). This would also typically require communication or dealing between the parties on the subject matter of payment for the works (most likely the final price) and a recognition or acceptance of some ultimate right to be paid.

Claim in respect of two construction contracts

The court opined in obiter that, if a payment claim purports to be made and seeks payment under one construction contract but in fact relates to the works under two contracts, the payment claim is invalid and would not enliven the Act and an adjudicator’s jurisdiction under the Act. 

It is not a matter which simply gives rise to a valuation exercise to be undertaken by the adjudicator, but rather is a matter for a court to determine as it goes to an issue of validity and jurisdiction.  The court suggested that there needs to be common identity of the parties to the payment claim and construction contracts in question for this principle to apply.