The recent decision of the NSW Supreme Court in Kumar v Frankies Cranes Pty Ltd [2024] NSWSC 1264 serves as a timely reminder for businesses in the building and construction sector that informal agreements and casual email exchanges may not be enough to secure payment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’).
The Court found that the adjudication determination of more than $140,000 was void. There was no valid construction contract, and the payment claim was not properly served. The decision underscores the importance of formal documentation and strict adherence to the procedural requirements of SOPA.
Background to Kumar v Frankies Cranes SOPA Compliance
The dispute centred on a crane that was located on a property owned by Mr Kumar. The original arrangement was for a former builder to hire the crane from Frankies Cranes Pty Ltd (‘The Company’). When that building work concluded, the crane remained on site. Frankies Cranes later claimed that a new agreement arose from a verbal conversation with Mr Kumar. They said he agreed to pay a weekly fee for hiring and keeping the crane.
Relying on this alleged agreement, the company issued a payment claim under SOPA against the property owner. The payment claim was sent via email from the company to an address taken from the owner’s business card. An adjudicator subsequently determined that Mr Kumar was liable to pay the crane company approximately $140,000. However, Mr Kumar sought judicial review, arguing that the adjudicator had no jurisdiction because no binding construction contract ever existed between the parties.
Why the Determination Didn’t Stand Up in Court
The Supreme Court ultimately found that the adjudication determination was void. The key issue was whether a valid construction contract existed under SOPA.
The Court held that the existence of such a contract between the parties was a jurisdictional fact, meaning it must exist before an adjudicator has the power to make a determination. After reviewing the evidence, the Court was not satisfied that the alleged verbal conversation between the crane company’s director and Mr Kumar had taken place as claimed. The supposed agreement was also deemed commercially unlikely and inconsistent with the surrounding circumstances. Without a valid construction contract, there was no legal foundation for the payment claim or the adjudicator’s decision.
The Court also addressed the question of service under SOPA. The payment claim was emailed to an address printed on Mr Kumar’s business card. The Court found that he had not nominated this address to receive formal payment claims. Mr Kumar also gave evidence that he never actually received the email. As valid service is another jurisdictional requirement, the adjudicator’s determination failed on this basis as well.
Together, these findings rendered the $140,000 adjudication determination invalid and of no effect.
Lessons from Kumar v Frankies Cranes SOPA Compliance
This case is a timely reminder that the Security of Payment Act requires more than good faith or informal understanding. While the Act is designed to help contractors and subcontractors get paid quickly for their work, it also requires strict compliance with how contracts are formed and how payment claims are served.
1. Verbal agreements aren’t always enough.
Even if the parties have a working relationship or a verbal understanding, that may not be enough to create a valid construction contract under the Act. Any agreement for building work or related services should be clearly set out in writing, including the scope of work, payment terms, and the identities of the parties to the contract.
2. Be careful about how you serve payment claims.
Sending a payment claim to a general business email address is not the same as serving it properly under the Act. The email or address used must be one that the other party has nominated explicitly for receiving such documents. A simple mistake in this step can make the entire claim invalid.
3. Understand what adjudicators can and cannot do.
An adjudicator’s decision is valid only if a proper contract exists and the payment claim is served correctly. If either requirement is missing, the court can declare the adjudication void. This applies even when a large sum of money is involved.
4. Prevention is always cheaper than correction.
This dispute shows that costs escalate quickly when parties use informal agreements or overlook procedures. Taking the time to record arrangements in writing and following the correct process can save businesses significant time, money, and stress in the long run.
In short, good documentation and careful compliance are the best protection for both sides of any construction project.
Conclusion
The outcome in Kumar v Frankies Cranes shows how a single verbal conversation can turn into an expensive misunderstanding. What seemed like a simple verbal arrangement ultimately led to a void determination and a costly legal battle. For anyone working in the construction industry, the message is clear: take the time to document agreements properly and ensure that every payment claim is served in accordance with the Act. A few extra minutes spent getting it right at the start can prevent a very costly conversation later on.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
