The NSW Court of Appeal in EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] has confirmed the right to claim under the NSW Building and Construction Industry Security of Payment Act (Act) is not limited to just construction work but also extends to any other right to claim under the construction contract. This includes the right to claim for contract security. It is up to an adjudicator to determine the nature and extent of the entitlement.
Contract security can be claimed under the Act and again it is up to the adjudicator to make a decision about the amount of a progress claim. The Court will not interfere with an adjudicator’s decision if even if the adjudicator misunderstands the terms of the construction contract.
Background
Acciona Infrastructure Projects Australia Pty Ltd (Acciona) was one of three partners in a joint venture (the ASBJV) responsible for delivering Stage 3 of the WestConnex program of works (the 7.5 km M4-M5 Link twin tunnels, valued at approximately $3.9 billion).
As part of the joint venture’s works, in June 2020, ASBJV entered into a major works subcontract with EnerMech Pty Ltd (EnerMech), for the supply of electrical installation works (M&E Subcontract).
In May 2023 (approximately 3 years into the subcontract term), Acciona sought to have recourse to security provided by EnerMech under the M&E Subcontract (a ~$9.2 million bank guarantee with HSBC).
The payment claim
In June 2023, EnerMech served a payment claim on Acciona for just over $10 million, comprising of amounts claimed for work in the previous month, a variation claim and predominantly, an amount equal to the ~$9.2 million security amount which had been paid to Acciona when they called upon their bank guarantees in May 2023 (the Payment Claim).
Acciona served a payment schedule within time, certifying that the ~$9.2 million was not owing or payable to EnerMech and that the Payment Claim had not been validly submitted under the Act, as it was not a claim “for construction work”.
Adjudication and court hearings
EnerMech subsequently applied for adjudication of the Payment Claim and in July 2023, the adjudicator determined the Payment Claim was valid, finding in EnerMech’s favour and awarding the full amount of the Payment Claim plus interest.
The Supreme Court of NSW found differently, setting aside the adjudicator’s determination and holding that the Payment Claim was not for construction work or related goods or services and was therefore not a valid payment claim under the Act.
EnerMech appealed. The premise underlying EnerMech’s challenge was twofold: first that a valid payment claim under the Act need not be “for construction work”; and secondly, in any event, determinations as to validity of payment claims fall within the ambit of the adjudicator and are not matters to be determined by the Courts¹ (which are limited to reviewing the decisions of adjudicators of jurisdictional errors of law).
The Court of Appeal allowed EnerMech’s appeal, accepting EnerMech’s contention that a payment claim under the Act did not need to be ‘for construction work‘ in order for it to be valid.
In particular, at [58] Basten AJA stated plainly that “neither the primary judge, nor the respondents in this court, identified any provision in the [Act] which required a payment claim to be made “for construction work”.
Emphasising the linguistic features of the Act, Basten AJA stated that “use of the word “for” to describe the required relationship between the amount and the basis of liability to pay is not a reason to substitute that word for the language of the statute, let alone to create a novel precondition to engagement”.
A payment claim must be for an amount of money, and the claim must assert that the amount is ‘for work done, goods supplied, or services rendered, under a construction contract’.²
It is up to the adjudicator to assess the payment claim and determine the amount to be paid by reference the contract. An error about the terms of the contract will not invalidate that determination.
If the contract does not contain terms for the assessment of the amount to be paid, the Act provides the adjudicator with the machinery to make that determination.
Key takeaways
- Claimants can claim back drawn down bank guarantees (and possibly other forms of security) if there is a contractual entitlement to do so.
- Principals may wish to reconsider the approach to security to also require parent or related company guarantees that may be outside of the reach of the Act.
HWL Ebsworth’s National Construction and Infrastructure Team are experts in major infrastructure procurement and delivery. If you have any questions in relation to this case, the Act, or construction matters generally, please contact the authors.
This article is written by David Jury, Partner, Simon Walsh, Partner, Alice Greenwood, Special Counsel, and Tom Dickinson, Solicitor.
¹ Ibid at [70].
² Ibid at [61].
