27 August 2014 SoP challenge floats away in the breeze

By Swaab Attorneys

In Brief

A losing party to an adjudication decision is often left scrabbling around searching for reasons why the decision shouldn't be enforced and why the losing party shouldn't have to make payment. Well, no matter how ingenious the arguments, the chances are that the court will enforce the adjudicator's decision.
In the recent case of Seabreeze v Toposu the court concluded that an arrangement, where Seabreeze agreed to pay subcontractors directly, constituted a 'construction contract' for the purposes of the Security of Payment Act, therefore, the adjudicator's decision could be enforced against Seabreeze.

The Facts

Seabreeze was developing land for residential purposes and entered into a contract with a builder. In this case the builder was Castle.  As part of the contract Castle agreed to only retain subcontractors with the prior consent of Seabreeze. Where this had been done, Seabreeze agreed to pay the subcontractors direct.
Castle approached a number of subcontractors (with the approval of Seabreeze) and asked them to quote for certain works. One of those subcontractors was Toposu. Toposu was asked to quote for the supply and installation of steel and aluminium on the project. Toposu quoted for the work and was instructed to start fabricating straight away.
Castle advised Toposu that as it was the 'project manager' on the project so Toposu would have to submit its invoices to Castle but would be paid directly by Seabreeze. It was clear from the evidence that this happened in some cases and not in others. In any event, all the subcontractors' on the project understood that Seabreeze was paying them direct.
In one particular instance, Toposu made a payment claim to Castle and Castle created a payment schedule in a form that was addressed by Seabreeze to Toposu. The payment schedule approved the whole of the claimed amount. The superintended considered and approved the payment schedule. Seabreeze then paid the claimed amount direct to Toposu but sought to deduct retention.
The deduction for retention was said to reflect the contract made between Seabreeze and Castle. It did not, however, reflect the terms of the subcontract made between Castle and Toposu – the subcontract that Seabreeze agreed to make payment against. Toposu sent for the adjudicator.
The adjudicator concluded that there was a 'construction contract' between Seabreeze and Toposu and that Toposu should be paid its full claim (i.e. without any withholding for retention). Seabreeze disagreed and sought to restrain enforcement of the adjudicator's determination stating that there was no 'construction contract' in place between Seabreeze and Toposu.

The decision

The court considered a number of previous decisions on the topic and concluded that the evidence demonstrated an 'arrangement' under which Toposu undertook to perform construction work on the project for the benefit of Seabreeze.
In addition, the evidence demonstrated that Toposu undertook work on the agreed basis, Seabreeze undertook to pay for it and Seabreeze was liable to pay Toposu directly for the work done. The court found that the adjudicator's decision could be enforced against Seabreeze.

The lesson

If you are a principal and you agree to an 'arrangement' where you pay subcontractors directly, you may be caught by the Security of Payment Act and no matter how many different reasons you wish to throw at the winner as to why the adjudicator's decision should not be enforced, you will probably lose.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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