Executive Summary
The judgment of Stevenson J in the New South Wales Supreme Court highlights the substance and form requirements of a payment claim under the
Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).
The case provides clarity regarding the character of claims seeking repayment of security and the jurisdiction of an adjudicator.
Factual Background
On 3 June 2020 the plaintiffs, compromising an unincorporated joint venture between Acciona Infrastructure Projects Australia Pty Ltd,
Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (the Acciona JV) entered into a subcontract with the defendant, EnerMech Pty Ltd (EnerMech) to perform electrical installation works associated with the WestConnex M4-M5 Link for an adjustable contract sum in the range of $75.6 million
(the Subcontract).
Accordingly, EnerMech was required to provide security in the amount of $9,230,157.40 under the Subcontract(the Security).
The Security was in the form of an unconditional undertaking provided by Hong Kong and Shanghai Banking Corporation Limited (HSBC).
Dispute History
In the course of the works under the Subcontract, EnerMech served two payment claims on the Acciona JV which were disputed via an adjudication, namely:
- the July 2022 payment claim in which the two parties disputed the value of the works completed. EnerMech claimed $9,900,457.99 and in response, the Acciona JV claimed that they were owed $2,266,819.03 by EnerMech. The Adjudicator determined that EnerMech was entitled to $5,629,935.01 for the balance of works completed (the First Determination); and
- the October 2022 payment claim in which EnerMech claimed $41,483,447.96 and in response, the Acciona JV certified that $7,177,517.89 was owed by EnerMech.
In May 2023, the Acciona JV had recourse to the Security. EnerMech subsequently served a payment claim, claiming $10,180,582.60 (the Payment Claim).
The Payment Claim comprised numerous amounts, including an amount of $9,230,157.40, being equal to the Security.
The Acciona JV disputed the Payment Claim, however, the subsequent adjudication determination was in favour of EnerMech (the Third Determination).
The Third Determination found that the Payment Claim validly took the ‘cash position’ of both parties into account after the recourse to the Security, therefore, finding in favour of EnerMech.
Judgment
The judgment of Stevenson J set aside the Third Determination on two grounds:
- that the Payment Claim was not a claim for ‘construction work’ under the SOP Act and therefore, the adjudicator did not have jurisdiction; and
- that the Acciona JV’s contractual right and subsequent recourse to the Security did not modify or restrict the operation of s34 of the SOP Act.
Regarding the first ground, Stevenson J held that the Payment Claim ‘was in substance and in form a claim to recover an amount equal to the Security’.
The only amounts claimed for ‘construction work’ under s13(2)(a) of the SOP Act, being a variation and interest claim, would have amounted to 0.18% of the total sought in the Payment Claim, further indicating that the character of the Payment Claim was to recover the Security, rather than as a payment claim for construction work or related goods and services under the SOP Act.
His Honour subsequently held that the adjudicator did not have jurisdiction to make the Third Determination.
The second ground related to the application of s34 of the SOP Act which stipulates that parties cannot contract out of the SOP Act. EnerMech argued that the recourse to the Security was allowing the Acciona JV to recover money that was required to be paid to EnerMech.
The Court held that the contractual mechanism allowing for the recourse of the Security was not in contravention of s34 of the SOP Act and that the Acciona JV’s decision to call upon the Security was a valid right.
Legal Implications
Contractors should note the importance of a payment claim’s substance and character. A payment claim will not be valid for the purposes of the SOP Act where it does not operate to claim unpaid amounts under a contract for ‘construction work’ and ‘related goods and services’.
This case should be distinguished from the recent Hunters Green case which held that a party can claim retention money in a payment claim for unpaid amounts and highlights the difference between retention money and bank guarantees or undertakings in their treatment under the SOP Act.
This article was written by Paul Graham, Partner, Tara Nelson, Senior Associate and Nick Jarrett, Solicitor.
