September 2014
Practice Group:
Real Estate Construction
NSW Supreme Court Confirms Definition of a
'Construction Contract' Under the Building and
Construction Industry Security of Payment Act
1999 (NSW)
By Sandra Steele, Marcel Marquardt, Matthew Sier
Introduction
The recent NSW Supreme Court case of Seabreeze Manly v Toposu, 1
(Seabreeze Case), is a useful reminder to the building and construction
industry as to what 'arrangements' will give rise to a 'construction contract'
under the Building and Construction Industry Security of Payment Act 1999
(NSW) (SOPA).2
The Seabreeze Case provides useful guidance as to what an adjudicator
believes constitutes a 'construction contract', when assessing an adjudication
application.
Key Points

A 'construction contract' under the SOPA need not be a contract as
understood under the general law.

The existence of a 'construction contract' between A and B for B to
carry out particular work for A will not necessarily negate the parallel
existence of an "arrangement", and thereby a "construction contract",
between A and C, or between A, B and C, for C to carry out part of the
construction work for A.

An 'arrangement' for a Principal to pay a subcontractor directly may
give rise to a 'construction contract', under which the subcontractor
may seek adjudication of payment claims against the Principal.
Facts of the Seabreeze Case
A land developer, Seabreeze, entered into a contract with a builder, Castle
Projects. The contract provided that Castle Projects would only retain
subcontractors with the prior consent of Seabreeze, and where this was done,
Seabreeze would pay subcontractors directly.
1
Seabreeze Manly v Toposu [2014] NSWSC 1097.
As defined in s 4 of the Building and Construction Industry Security of Payment Act 1999 (NSW), a "construction
contract" is "a contract or other arrangement under which one party undertakes to carry out construction work, or to
supply related goods and services, for another party".
2
NSW Supreme Court Confirms Definition of a 'Construction Contract' Under the Building
and Construction Industry Security of Payment Act 1999 (NSW)
Castle Projects engaged a subcontractor, Toposu, for the supply and
installation of steel and aluminium.
The overall 'arrangement' included the following points3.

Toposu carried out construction work for Seabreeze's projects under
the supervision of Castle Projects.

Toposu completed the work on the basis that it invoiced Castle
Projects, but Seabreeze would pay the certified amount for that work
direct to Toposu.

Once the invoice was received, Castle Projects created a payment
schedule which was addressed from Seabreeze to Toposu and
submitted it to the superintendent for review.

Seabreeze paid the amount of the payment schedule, as certified by
the superintendent, direct to Toposu.
After work was done, Toposu adjudicated a payment claim against Seabreeze
under the SOPA, obtaining a favourable determination. Seabreeze attempted
to restrain the enforcement of the adjudicator's determination on the basis that
there was no 'construction contract' between Seabreeze and Toposu.
Decision
The Court found there was a 'construction contract' between Seabreeze and
Toposu.4 In particular, the court made the following points.

For the purposes of the definition of a 'construction contract', an
'arrangement' may be multilateral5.

It was apparent that the true nature of the contract between Seabreeze
and Castle Projects was, among other things, a conduit or medium
between Seabreeze, and the various subcontractors who did the actual
work building the project6.

It was of particular relevance that Seabreeze had instructed Castle
Projects to put in place a system whereby subcontractors would look to
3
Seabreeze Manly v Toposu [2014] NSWSC 1097, [21].
Seabreeze Manly v Toposu [2014] NSWSC 1097, [39]. McDougall J placed particular reliance on Machkevitch v
Andrew Building Constructions [2012] NSWSC 546, [15] – [28]; Okaroo Pty Ltd v Vos Construction and Joinery Pty
Ltd [2005] NSWSC 45, [41] – [42], [55] (Nicholas J); Class Electrical Services v Go Electrical [2013] NSWSC 363,
[34].
5
Seabreeze Manly v Toposu [2014] NSWSC 1097, [35].
6
Seabreeze Manly v Toposu [2014] NSWSC 1097, [36].
4
2
NSW Supreme Court Confirms Definition of a 'Construction Contract' Under the Building
and Construction Industry Security of Payment Act 1999 (NSW)
Seabreeze for payment. Castle Projects did this, communicated that
system to Toposu and Toposu took the job on that basis7.
What this means for you
Principals and contractors: Be aware that some of your current
arrangements with parties, other than the principal contract on a project, may
be considered a 'construction contract'. If the arrangement is considered a
'construction contract', you should respond in accordance with the
requirements set out in the SOPA.
Contractors and subcontractors: Ensure that you have a sound basis for
establishing a construction contract before seeking to adjudicate a payment
claim, so that the adjudicator has jurisdiction to determine the claim.
Authors:
Sandra Steele
sandra.steele@klgates.com
+61.2.9513.2528
Marcel Marquardt
marcel.marquardt@klgates.com
+61.2.9513.2524
Matthew Sier
matthew.sier@klgates.com
+61.2.9513.2534
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7
Seabreeze Manly v Toposu [2014] NSWSC 1097, [39].
3