No claim “for construction work”? No problem

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Key takeaways from EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162

In this significant judgment, the Court of Appeal overturned the decision of Justice Stevenson and the previously accepted view that a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) must specifically be “for construction work”.

Background

In 2020 the appellant, EnerMech Pty Ltd (EnerMech), entered into a subcontract with the respondent, Acciona Infrastructure Projects Australia Pty Ltd (Acciona) for electrical installation works for the construction of the WestConnex M4-M5 link. Under the subcontract, EnerMech was required to provide security. In compliance with the subcontract, EnerMech procured a bank guarantee as security in the amount of $9,230,157.40 (security).

In May 2023, Acciona called upon the bank guarantee and was paid the security.

In June 2023, EnerMech served a payment claim on Acciona in which it sought to recover the security amount obtained by Acciona in exercise of its contractual entitlement, as well as variation works.

Acciona responded with a payment schedule in which it accepted the variation work and indicated that no amount was payable as there was no claim “for construction work”.

EnerMech lodged an adjudication application, and the adjudicator determined EnerMech was entitled to its claim under the Act.

Acciona then commenced proceedings in the Supreme Court to have the adjudication determine quashed. Acciona’s position was that the payment claim was invalid because it was not a claim for payment “for construction work”, rather it sought to recover the security amount which it had obtained in exercise of a contractual entitlement.

Key issues in dispute

Acciona claimed that EnerMech’s claim was invalid under the Act as it did not meet the definition of ‘progress claim’ as defined in section 4 of the Act, as follows (emphasis added):

progress payment means a payment to which a person is entitled under section 8, and includes (without affecting any such entitlement)—

(a)   the final payment for construction work carried out (or for related goods and services supplied) under a construction contract, or

(b)   a single or one-off payment for carrying out construction work (or for supplying related goods and services) under a construction contract, or

(c)   a payment that is based on an event or date (known in the building and construction industry as a “milestone payment”).

Further, Acciona contended EnerMech’s claim fell outside the operation of the Act, and therefore the Act was not engaged and the adjudicator did not have jurisdiction to determine the claim.

In December 2023, Justice Stevenson held that the payment claim was not ‘for construction work or related goods or services’ and therefore EnerMech’s claim did not fall within the ambit of the Act. Accordingly, the adjudication determination was set aside.

Appeal

In February 2023, EnerMech appealed the decision.

The issues to be determined on appeal were:

  • whether a payment claim can only be made ‘for construction work’ and
  • whether the Court had jurisdiction to review the adjudicator’s determination.

With respect to the first issue, the Court of Appeal determined that:

  • in accordance with section 9 of the Act, the amount of a progress payment to which a person is entitled “in respect of a construction contract’ (not “for construction work”) is to be calculated in accordance with the terms of the contract;
  • in relation to section 13(1) of the Act; it does not limit the amount or nature of a payment in which a party is entitled to under a construction contract and does not create an implied condition as to the validity of a payment claim; and
  • a payment claim must be for an amount of money which is payable for work done, goods supplied, or services rendered under a construction contract.

As the Court of Appeal had found EnerMech’s claim to be valid, it did not need to address the second ground on appeal. The Court, however noted that an adjudicator’s understanding of a construction contract, even if legally incorrect, and whether the amount claimed under the contract is payable, is a matter for the adjudicator and could not be challenged.

Outcome

The Court of Appeal dismissed the Supreme Court’s decision to set aside the adjudication determination.

The Court of Appeal’s decision has in some respects, overturned the status of quo and the previously accepted view that a claim under the Act was only valid “for construction work under a construction work”. Like EnerMech, this decision may benefit claimants and provide a means to claim for a reversal of   bank guarantees or other security under construction contracts. Careful consideration will need to be given in relation to how payment claims are formulated in instances where a claimant is claiming the contractual price of construction work that may include security.