BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82

Andrew Hales  |  Tom Kearney  |  Isobel Carmody

Key takeout

The NSW Court of Appeal doubted the existence of the ‘one contract’ rule, ie a requirement that a payment claim be made in respect of one construction contract only such that a payment claim offending that requirement in invalid under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).

Ultimately the Court of Appeal found that the payment claim under consideration in the present matter was made in relation to only one construction contract, and accordingly the so-described ‘one contract’ rule (to the extent it exists) had no application to the disputed payment claim and adjudication determination.

Facts

The key facts and the decision of the NSW Supreme Court at first instance in this matter is explained in our previous MinterEllison Case Update available here.

Decision

The Court of Appeal allowed the appeal on the basis that, as a matter of interpretation of the relevant contract, the payment claim was made in relation to only one construction contract (as the provision in the contract that stated that each work order issued would give rise to a separate contract was inconsistent with the other terms of that contract). 

The fact that the contract itself stated that each work order would give rise to a separate contract (ie it affixed a particular ‘label’ to the effect of the issuance of work orders) was not sufficient to determine the legal relationship of the parties – rather, courts need to look to the true legal effect of the issue of a work order.

Further, in obiter dicta (the part of the judgment not essential to the decision in the case), the Court of Appeal considered that it is ‘strongly arguable‘ that there is no ‘one contract’ rule as its existence is ‘inherently implausible‘ – that is, arguably there is no requirement for a payment claim to be made only for work carried out under one construction contract.  The Court’s concerns with the existence of a ‘one contract’ rule were:

• the authorities which courts have relied upon to contend that such a rule exists are cases that have ‘limited precedential value‘ either because the ‘one contract’ issue did not arise, the reasoning was obiter dicta or the proposed ‘one contract’ rule was relied upon without challenge in the relevant case;
• the focus of the legislation is on entitlement to payment for the carrying out of construction work, rather than the source of the obligation to carry out that construction work, as demonstrated by the legislation defining ‘construction contract’ as including both a ‘contract’ and some ‘other arrangement’;
• identification of the source of the obligation to carry out the relevant work, or the source of the entitlement to payment, is not among the ‘basic requirements‘ of a valid payment claim – rather, the fact that the adjudicator is required by s 22(2)(b) of the Act to take into account ‘the provisions of the construction contract from which the application arose‘ and in doing so determine whether the claim is ‘made good‘ under the construction contract suggests that the validity of a payment claim is not constrained by reference to the terms of any particular construction contract (including an ‘arrangement‘);  
• the meaning and scope for application of the suggested ‘one contract’ rule is imprecise, as the scope of commercial arrangements under which goods and services may be supplied is ‘expansive‘; and
• the imposition of such a rule as a precondition to jurisdiction (especially in light of its ‘indeterminate scope‘) is likely to lead to increased litigation and greater scope for intervention of the courts, which would undermine the tight timetables imposed on the parties by the Act and risk undermining the object of the Act of ‘transferring the risk of insolvency from the subcontractor to the contractor‘ and maintaining the money flow throughout the contracting chain.

While the Court’s discussion regarding the existence (or non-existence) of the ‘one contract’ rule was in obiter dicta, this obiter may support later challenges to the existence of the ‘one contract’ rule.

Related decisions

Payment claims for works under more than one construction contract – Construction Law Made Easy

Security of Payment: ‘Other arrangements’ not required to be legally binding – Construction Law Made Easy

Payment claims for works under more than one construction contract – Construction Law Made Easy