Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685

2 minute read  17.06.2019 Andrew Hales, Jessie Jagger

If you want security of payment, an 'other arrangement' must give rise to a legally binding obligation.

In Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685, Ball J has determined that an 'other arrangement' within the meaning of 'construction contract' as defined in section 4 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act), must be an arrangement that gives rise to a legally binding obligation, although it need not be contractual in nature.

This decision does not follow earlier NSWSC decisions that an 'other arrangement' is not required to be a legally enforceable arrangement in order to fall within the ambit of the SOP Act.

The Facts

In summary:

  • The unincorporated joint venture formed by Lendlease Engineering Pty Ltd and Bouygues Construction Australia Pty Ltd (the LLBJV) is the head contractor on the NorthConnex Project.
  • The LLBJV was the respondent to an adjudication application made by Timecon Pty Ltd (Timecon) relating to the disposal of tunnel spoil to a site in Somersby, NSW.
  • The adjudicator made an adjudication determination in favour of Timecon.
  • LLBJV commenced proceedings to have the adjudication determination set aside on the basis of jurisdictional error. The LLBJV contended that there was no 'contract or other arrangement' between it and Timecon, and if there was a 'contract or other arrangement', it was not one under which Timecon undertook to carry out construction work or to supply related goods and services for the LLBJV.

Decision: an arrangement must give rise to a legally binding obligation but need not be contractual in nature

Ball J considered and did not follow the relevant authorities below in which the respective courts took the view that the 'arrangement' need not be legally binding:

  • Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd [2005] NSWSC 45 (per Nicholas J);
  • Machkevitch v Andrew Building Constructions [2012] NSWSC 546 (per McDougall J); and
  • IWD No 2 Pty Ltd v Level Orange Pty Ltd [2012] NSWSC 1439 (per Stevenson J).

In any event, his Honour found that the facts of each of the above cases suggested that the relevant arrangement in each case was in fact a legally binding arrangement.

None of the above cases had considered the effect of section 32 of the SOP Act on the issue. This section renders ultimately returnable any payment made resulting from the adjudication of a payment claim where the claimant is found, in civil proceedings, to have no underlying right to be paid. In light of section 32, it makes no sense to interpret the SOP Act as creating a right to a progress claim where the claimant has no underlying right to be paid any amount at any time, as the purpose of the SOP Act would not be advanced by such an interpretation.

On the facts of the case, his Honour decided that there was no contract or other arrangement between LLBJV and Timecon for the disposal of tunnel spoil from the NorthConnex Project. Consequently, the adjudication determination was declared void.

His Honour also found, in obiter, that even if he had concluded that there was a contract or other arrangement between Timecon and the LLBJV, he would not have concluded that the contract or other arrangement was for construction work at the Somersby site, or for the supply of related goods and services in relation to construction work carried on as part of the NorthConnex Project.

Comments

The decision provides a greater degree of certainty to parties who enter into negotiations but do not conclude them by the formal execution of a contract. Care is however still required when seeking to make arrangements for the undertaking of construction work, so that the parties are aware of the rights and obligations that such arrangements may confer under the SOP Act.

Principals and contractors should carefully consider whether, in cases where there is no written or oral contract between them, any alleged arrangement gives rise to legally binding obligations. This may shape parties' decisions to make or respond to payment claims, proceed to adjudication, respond to adjudication applications or to challenge adjudication determinations, as the case may be.

Note: MinterEllison acted for the LLBJV.

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