In EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd & Ors [2024] NSWCA 162, the New South Wales Court of Appeal held that it is not a precondition to the validity of a payment claim that the payment claim be a claim for “construction work”. This decision reverses the long accepted position that a payment claim must be for “construction work”, which precluded a claimant from recovering the proceeds of a wrongfully called upon bank guarantee or bond.
Background
Acciona Infrastructure Projects Pty Ltd entered a joint venture with Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (together, Acciona) for construction of the WestConnex M4-M5 Link.
Acciona entered a subcontract with EnerMech Pty Ltd (EnerMech) for electrical installation works. Under that subcontract, EnerMech procured an Unconditional Undertaking from Hong Kong and Shanghai Banking Corporation Limited (HSBC) as security in the amount of $9,230,157.40 (Security Amount).
In May 2023, Acciona made a demand on HSBC for the Security Amount, which was subsequently paid to it. Acciona’s entitlement to make the demand was not an issue at first instance.
In June 2023, EnerMech served on Acciona a payment claim (Payment Claim) under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).
Relevantly, the Payment Claim included a claim for the amount previously certified as payable less a paid to date amount, which included progress payments made by Acciona minus $9,230,157.40 – an amount equal to the Security Amount paid to Acciona. It also included a claim for $18,611.67 in respect of a single variation claim.
Acciona accepted the variation claim but certified NIL for the claim for the Security Amount in its payment schedule. Acciona stated that the Payment Claim was not a valid payment claim under the SOP Act because it was not a claim for construction work.
EnerMech subsequently applied for adjudication of the Payment Claim under the SOP Act. In July 2023, the adjudicator determined the adjudication in EnerMech’s favour, awarding EnerMech the amount of approximately $10.1 million comprised of the full Security Amount plus interest. In reaching this decision, the adjudicator determined that the Payment Claim was valid.
Supreme Court proceedings
Acciona brought proceedings in the Supreme Court of New South Wales to set aside the adjudication decision, arguing that the Payment Claim was not a valid claim for payment on account of construction work, but instead a claim for credit in relation to the Security Amount.
In Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd [2023] NSWSC 1565, Stevenson J accepted this contention. His Honour cited and followed the decision in Grocon (Belgrave St) Developer v Construction Profile [2020] NSWSC 409, where Ball J made a similar finding.
In finding that the entire Payment Claim was invalid, Stevenson J had regard to the “substance as well as form” of the claim, based on the value of the amount claimed for the Security Amount against the value of the other claimed amounts.
It was held that the Payment Claim was not for construction work or related goods or services and was therefore not a valid payment claim under the SOP Act. Accordingly, the adjudicator’s determination in respect of the Payment Claim was set aside.
Decision of the NSW Court of Appeal
EnerMech appealed from the decision of Stevenson J. There were two issues on appeal:
- whether a payment claim was not a “payment claim” for the purposes of the SOP Act if the payment claim did not, or did not comprise, in substance a claim for “construction work”; and
- if the Payment Claim was held to be invalid, whether the adjudicator’s decision in finding there was a valid payment claim amounted to jurisdictional error that could be reviewed by a court.
Ground 1 – does a valid payment claim need to be a claim for “construction work”?
The Court of Appeal decided that a payment claim under the SOP Act did not need to be for construction work in order to be valid.
The Court of Appeal made this decision for a number of reasons.
First, the SOP Act did not expressly provide that a payment claim must be “for” construction work.
Second, the proper interpretation of a payment claim was not a claim “for construction work”; it was a claim for money owing on account of construction work (or related goods and services).
Third, there is little scope for implying unstated conditions as essential to the validity of a payment claim (or a payment schedule) when considering the purposes of the SOP Act.
Therefore, the Court of Appeal found that the primary judge’s decision that the adjudication should be set aside on grounds that the Payment Claim was not for construction work should be rejected.
Ground 2 – did the court have power to review the decision of the adjudicator about validity of the payment claim?
Having found that there was no precondition to the validity of a payment claim, it was not necessary for the Court of Appeal to make a finding on the second ground of appeal.
However, the Court commented that if the Court had found that a payment claim must be for “construction work”, and therefore the payment claim was invalid, the Court would in effect be reviewing the decision of an adjudicator for non-jurisdictional error of law (which is not permitted by the SOP Act).
Appeal Outcome
The outcome of the appeal was that Acciona was ordered to pay EnerMech the adjudicated amount of $10,160,109.77, comprised of the full Security Amount plus interest.
Key Takeaways
While this was a decision in New South Wales, we consider that the courts in other States and Territories of Australia will adopt the reasoning of the NSW Court of Appeal.
The key takeaway from this decision for claimants is that it is possible to recover the proceeds of a wrongfully called upon bank guarantee or bond provided that care is taken when preparing your payment claim. EnerMech framed its claim by deducting the amout of the bank guarantees against the previous payments made by Acciona in its payment claim.
The key takeaway for respondents is that this decision has paved the way for claimants to include claims for the proceeds of a bank guarantee or bond at adjudication. This should be a factor considered when deciding whether to have recourse to security held under the contract.
This decision also clarifies that a finding about the validity of a payment claim by an adjudicator is not a decision that can be considered by the courts. Respondents should therefore take care to ensure that any arguments about the validity of a payment claim are comprehensively set out in its payment schedule and adjudication response to ensure they are properly brought to the attention of the adjudicator.
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