Security of Payment Case - Levadetes Pty Ltd v Iberian Artisans Pty Ltd [2009] NSWSC 641
In this decision, the NSW Supreme Court considered the meaning of 'construction contract' under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and the relevant issues to determine whether an arrangement amounts to a 'construction contract'. The decision also deals with whether a contract concerning the carrying out of 'residential building work' is excluded from the operation of the Act by section 7(2)(b).
Mr Jim Levadetes, Mrs Levadetes and their son, John, were directors of the plaintiff company (Company). John was the registered proprietor of a property in Vincentia on which Mr and Mrs Levadetes decided to demolish the existing house and build a new one, where they intended to reside on completion. Mr Jim Levadetes, in his personal capacity, obtained 3 quotations from the defendant contractor (Iberian) to supply and install marble and Iberian was instructed to proceed with the work even though the quotations were not signed or dated. John paid the deposits for the building work in two payments, from separate bank accounts of the Company, in amounts different to those set out in the quotations.
Iberian sent tax invoices to a separate entity, of which John and the Company were proprietors. Iberian later served two payment claims on the Company. In response, the Company provided two payment schedules which asserted that:
- there was no construction contract between the parties, and
- the subject work was residential building work and therefore excluded from the Act by virtue of section 7(2)(b).
McDougall J considered whether there was a construction contract to which the Act applied. The definition of 'construction contract' includes an 'arrangement' whereby work is performed for another party. In this case, there was an arrangement whereby Iberian would perform building work for Mr and Mrs Levadetes and the Company would pay. Such arrangement was caught by the definition of 'construction contract' under the Act.
McDougall J then considered whether the building work was residential building work to which the Act did not apply by virtue of section 7(2)(b). His Honour considered that the critical issue was whether the phrase 'the party for whom the work is carried out' is to be regarded as any party to the arrangement, or only as the party who makes payment. It was necessary to analyse the objective intention of the parties at the time the arrangement was made. In the circumstances, objectively viewed, the parties intended their arrangement to be that Iberian would supply and install marble at the proposed residence of Mr and Mrs Levadetes, on terms that it would be paid by the Company. His Honour noted that section 7(2)(b) did not restrict the number of parties to a construction contract and the tripartite arrangement in this case was entirely consistent with the scheme of the Act.
Contractors should draw from this case the lesson that the term 'construction contract' is interpreted broadly, so that agreements that are less than a binding contract or agreement can still be a 'construction contract' under the Act. In addition if works are residential building works they will not be afforded the protection of the NSW Act, regardless of whether such works are paid for by a company. Note that whether residential building works are excluded from the security of payment legislation in a particular State depends on provisions of the relevant legislation for that State.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
