Important Considerations for Contractors

The Court of Appeal’s decision confirms the SOP Act does not have the requirement to identify one contract; it only requires that the payment claim refers to one reference date. A contractor can now serve a payment claim that includes amounts payable under several contracts, if there is one reference date for the works performed.

The decision reflects the refusal to take a rigid approach to claims under the SOP Act, and instead, it prioritises the object of the SOP Act of maintaining the money flow and relieving subcontractors from undue financial pressures.

What Happened?

In BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82, Ventia Australia (Ventia) entered a subcontract with BSA Advanced Property Solutions (BSA) for BSA to provide services at multiple properties. BSA performed periodic works under various work orders, which were subject to the terms of one subcontract.

BSA submitted a payment claim which Ventia contended did not comply with the SOP Act because it was made with respect to multiple construction contracts and did not identify a single reference date. The adjudicator found the claim to be valid.

Ventia then sought orders in the NSW Supreme Court alleging a payment claim made under the SOP Act can only be made in relation to one contract. The Supreme Court quashed the adjudicator’s determination. The primary judge found that:

1. Each work order constituted a separate agreement, and
2. The SOP Act precluded the service of a payment claim in relation to construction work performed under more than one contract.

BSA appealed to the NSW Court of Appeal.

What was the Court of Appeal’s Decision?

The Court of Appeal effectively held that there is no “one contract rule”. The Court denied there was any strict and exact notion of the rule.

Firstly, in respect of the SOP Act, the object is to ensure people carrying out construction work obtain regular payments on account. According to the SOP Act, the expansive definition of a construction contract (to include both a contract and some other arrangement) directs attention to the carrying out of the work, rather than the legal characteristics of the source of the obligation to carry out the work and the source of the liability of the respondent to make a payment.

Secondly, the stated requirements for a valid payment claim do not include the identification of the source of the obligation to carry out the work or the source of the entitlement to payment. In addition, the adjudicator has categories of material they are to take into account in their decision. The adjudicator is not limited to the terms or obligations of the contract, but is required to determine the validity of the payment by its reference date.

Thirdly, the phrase “one contract rule” is imprecise in its meaning. In practice, the scope of commercial arrangements under which goods and services may be supplied for construction work is expansive.

Fourthly, a payment claim is valid as long as the claim states one reference date. The SOP Act does not have the requirement to identify one contract. Overall, the ‘one contract rule’ is not a pre-requisite for a valid payment claim under the SOP Act. A claimant may now claim amounts due and payable under multiple contracts where there is a singular reference date for the works performed.

Further information / assistance regarding the issues raised in this article is available from the authors, Patrick Kaluski, Partner, James Davis, Paralegal or your usual contact at Moray & Agnew.