A landmark decision by the NSW Court of Appeal, EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162, has set a significant precedent for construction disputes in New South Wales, particularly concerning the Security of Payment Act (SOPA).
The decision reached in this case finds that a payment claim need not be for “construction work” in order for a payment claim to be valid.
Background
The Appellant, EnerMech Pty Ltd (EnerMech), entered into a Major Works Subcontract with Acciona Infrastructure Projects Australia Pty Ltd (Acciona), Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (the Respondents) to supply electrical works for part of the WestConnex project.
EnerMech issued a progress payment claim to the Respondents for approximately $10 million and the Respondents served a payment schedule indicating that there was no amount owing or payable. The majority of the payment claim was for amount that had been obtained by the Respondents having recourse to security provided by EnerMech.
EnerMech pursued the matter further through an adjudication application under the SOPA following Acciona’s rejection of the payment claim. The Adjudicator found in favour of EnerMech Pty Ltd and the Respondents then commenced proceedings in the Supreme Court to have the determination quashed. The Respondents contended the payment claim was invalid on the basis that it was not a claim for construction work but rather a claim for damages for breach of contract.
The Respondent’s claim was upheld in the Supreme Court and EnerMech subsequently filed a notice of appeal to this decision, seeking for the appeal court to determine whether a payment claim may be made only “for construction work” and whether the court had jurisdiction to determine that question.
EnerMech’s appeal was allowed, and the NSW Court of Appeal overturned the Supreme Court’s decision.
The Court’s Reasoning
The Court found that:
- a payment claim must:
a. be made for an amount of money; and
b. assert that the claim is for an amount payable for work done, goods supplied, or services rendered, under a construction contract.
- The definition of “progress payment” requires that there be a “construction contract” and that there be consideration or amounts payable under it.
- When considering the objects, structure and language of the SOPA, as well as the judicial analysis since its inception, there is little scope for implying unstated conditions as essential to the validity of a payment claim or a payment schedule. The claim stated that the claimant was owed an amount for construction work undertaken under the construction contract, and it was therefore a valid payment claim. The statutory limitations on actions for enforcement and judicial review are also resistant to the implication of unexpressed conditions going to the validity of the claim.
- It is the role of the adjudicator to determine the proper construction of the contract, identification of the work already completed and whether payment has already been made for work completed for the purposes of ascertaining whether there is an amount payable under a payment claim.
- The effect of s 25(4)(a)(ii) of the SOPA is that an adjudicator’s understanding of a construction contract, even if legally erroneous, is not able be challenged.
- In these circumstances, it was inappropriate to address the appellant’s challenge to the primary judge’s finding that the payment claim “was not, or did not comprise, a claim for construction work”.
Implications for the Construction Industry
Whilst SOPA cannot be used directly to demand the return of bank guarantees, the Court’s decision now provides a mechanism under SOPA to contest and recover a call on wrongfully called guarantees. EnerMech’s strategy of claiming the full $10 million under the pretext of completed works was deemed legitimate under SOPA, allowing them to challenge Acciona’s call on the security through the adjudication process.
This decision highlights the importance of understanding the nuances of SOPA when engaging in construction contracts, particularly regarding security bonds and payment claims. For contractors and subcontractors, it highlights a viable pathway to contest a call on a bank guarantee without directly seeking its return through SOPA. Instead, the focus should be on substantiating claims for payment that correlate with the amount of the security.
For principals and head contractors, this ruling serves as a reminder of the potential challenges they might face when calling on securities. It emphasises the need to carefully assess the validity of such calls in the context of SOPA to avoid protracted legal disputes.
How We Can Help
At Keystone Lawyers, we specialise in building and construction disputes and have a deep understanding of the SOPA and its complexities. Whether you are facing an unjust call on your security or need assistance navigating payment claims, our team of experienced lawyers is here to guide you through every step of the process.