When parties to a construction contract fall into dispute, and settle those disputes by means of a deed of settlement, is that deed of settlement a construction contract which can found a payment claim under the Security of Payment legislation?

In this case the settlement deed proved for an initial payment, and then payment of $137,500 upon the completion of certain remedial works. That further payment was not made.

In Romeo v TQM Design and Construct Pty Limited [2013] NSWCA 72 it was found – on appeal – to be at least arguable that the deed of settlement was not a construction contract for the purpose of the security of payment legislation – it was not a mere variation of the original construction contract, but was a new contract which brought the original construction contract to an end, and the payments to be made under it were not calculated by reference to the value of any work done under the deed of settlement.

According, the first instance summary judgment was set aside.

It might have been possible to have drafted the settlement in different terms in this case, in such a way as to be a variation of the construction contract, but it may not have served any useful purpose here to have done so, because of the the 12 month time limit for making payment claims under the Act.

The moral is that settlement arrangements should be so drafted as to readily enforceable without recourse to the Security of Payment legislation.