SOPA Update

May, 2012

A recent case has widened the interpretation of what can constitute a “construction contract” within the meaning of the Building and Construction Industry Security of Payment Act (SOPA).

In the case of Machkevitch v Andrew Building Constructions [2012] NSWSC 546 an individual of a developer company gave an oral guarantee to the builder regarding a bonus deed.  The NSW Supreme Court found that this promise gave rise to liability under the related construction contract and formed part of an “arrangement” sufficient to form a “construction contract” for the purposes of making a claim under the SOPA.

His Honour McDougall J held that there was a sufficiently reciprocal “arrangement” between the individual guarantor, the builder and the developer for the written building contract, the bonus deed and the oral undertaking (which the court regarded as amounting to the “guarantee”) to be construed as a “construction contract” under the SOPA.  It did not matter that the guarantee may not have been enough to create a legally enforceable personal guarantee.

This is a cautionary tale for developers to exercise caution when dealing with builders and a potential alternate route for builders to enforce their claims under the SOPA.

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Ziv Ben-Arie | Partner
T: +61 2 8289 5854

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