July 6, 2022

The Court of Appeal of the New South Wales Supreme Court recently considered the application of the so-called ‘one contract rule’ under the Building and Construction Industry Security of Payment Act 1999 (NSW), in BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82.

Ventia Australia Pty Ltd entered into an agreement with the NSW Land and Housing Corporation to provide services for social housing properties. Ventia subcontracted the provision of fire protection and maintenance services at the properties to BSA Advanced Property Solutions (Fire) Pty Ltd. The subcontract between Ventia and BSA contained a clause which said that a ”separate Agreement” would be created each time Ventia issued BSA a work order under the subcontract.

During the works, BSA sought to serve Ventia with a progress payment claim under the Act, which included invoices issued through five separate work orders. In response, Ventia issued a payment schedule declining to pay the claimed amount, in part based on the assertion that the claim was invalid.

In the adjudication process provided under the Act, the adjudicator found the claim was not invalid.

Ventia sought orders in the New South Wales Supreme Court to prevent BSA from enforcing the adjudicator’s decision. It alleged that the payment claim was invalid primarily on the basis that a payment claim under the Act can only be made in respect of one construction contract (i.e. the ‘one contract rule’), whereas this payment claim related to five separate work orders and therefore five agreements. The Supreme Court agreed with Ventia that:

  •   in accordance with the terms of the subcontract, each work order issued by Ventia constituted a separate agreement; and
  •   the Act at least impliedly precluded BSA from serving a payment claim for construction work performed under more than one contract.

BSA appealed to the Court of Appeal, arguing that:

  •   there was no requirement under the Act that a payment claim must be for work performed under a single construction contract; and
  •   in any event, in this case the payment claim did relate to construction work done under a single construction contract, being the subcontract between Ventia and BSA.

In relation to the above, the Court of Appeal observed that:

the legislative purpose of the Act is to ensure that persons carrying out construction work or supplying related goods and services obtain regular payments, and imposition of an imprecise ‘one contract rule’ would be contrary to the objects of the Act;

  •   “it is strongly arguable that there is no “one contract” rule as such”;
  •   in determining whether each work order constituted a separate agreement, the Court must interpret the relevant wording in the context of the whole subcontract, and cannot rely only on the parties’ own description of their relationship in that subcontract; and
  •   taking into account the substantive provisions of the subcontract, read as a whole, the work orders did not give rise to a separate contract each time a work order was issued, at least in respect of the category of works to which the payment claim related.

The Court of Appeal’s decision casts doubt over the future application of the ‘one contract rule’ in NSW. Accordingly, it will be interesting to see how this decision is applied in future judgments concerning payment claims made pursuant to one or more construction contracts under the Act.

The full decision can be found here.

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