EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162
In EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162, the New South Wales Court of Appeal ruled in a way that permits payment claims to seek payment not specifically "for construction work". The ruling overturns the previously accepted view that a payment claim must explicitly pertain to construction work.
Background
In 2020, EnerMech Pty Ltd (EnerMech) entered into a subcontract with Acciona Infrastructure Projects Australia Pty Ltd (ASBJV) that required EnerMech to perform electrical installation works associated with the WestConnexM4-M5 Link (Subcontract).
Under the Subcontract, EnerMech was obliged to provide security. Pursuant to that obligation, EnerMech procured the issue of an unconditional undertaking from Hong Kong and Shanghai Banking Corporation Limited (HSBC) in the sum of $9,230,157.40 (Security Amount).
In May 2023, ASBJV made a demand upon HSBC for the Security Amount. HSBC paid ASBJV the Security Amount.
In June 2023, EnerMech issued its payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) (PC 29). PC 29 included a claim for the previously certified amount payable minus the amount paid to date, minus $9,230,157.40 – an amount coincidentally equivalent to the Security Amount paid to ASBJV. Additionally, it included a claim of $18,611.67 for variation works.
While ASBJV acknowledged the variation claim, it indicated nil for the $9,230,157.40 in its payment schedule in respect of PC 29.
In July 2023, EnerMech submitted PC 29 for adjudication under the SOP Act. The adjudicator found in favour of EnerMech in the sum of approximately $10.1 million (inclusive of GST). A practical consequence of the adjudication determination was that ASBJV was obliged to pay EnerMech the value of $9,230,157.40 which just so happened to be equivalent to the Security Amount.
Supreme Court Proceedings
ASBJV initiated proceedings in the Supreme Court of New South Wales to overturn the adjudication determination, arguing that PC 29 did not constitute a valid claim for payment for construction work, but rather sought credit regarding the Security Amount.
In Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd [2023] NSWSC 1565, Stevenson J upheld ASBJV's argument. Stevenson J determined that PC 29 lacked validity, both in its substance and form. The court ruled that PC 29 did not concern construction work or related goods and services, rendering it invalid under the SOP Act. Consequently, the adjudicator's determination regarding PC 29 was overturned.
Appeal Proceedings
EnerMech appealed Stevenson J's decision, focusing on two discrete grounds:
- whether a valid payment claim needs to be "for construction work"; and
- whether the adjudicator's determination was reviewable by the court.
Ground 1 – does a valid payment claim need to be "for construction work"?
The Court of Appeal held that it is not a condition of validity that a payment claim be "for construction work", it is sufficient that it be for an amount due under a construction contract. Whether the amount was in fact due under the construction contract was a matter to be determined by the adjudicator.
Consequently, the Court of Appeal concluded that the Supreme Court's decision to set aside the adjudication based on PC 29 not being explicitly for construction work should be dismissed.
Ground 2 – was the adjudicator's determination reviewable by the Court?
Since the Court determined that PC 29 was valid, it did not need to address the second ground raised on appeal. Nonetheless, the Court noted that the adjudicator's determination was not reviewable by the Court.
Key takeaways
The decision of the New South Wales Court of Appeal benefits contractors and subcontractors by allowing them to submit broader payment claims for an amount due and payable under a construction contract. Whether the payment is due (if not agreed by the principal or contractor and subsequently submitted for adjudication) is a matter for the adjudicator.
The ruling will have practical implications for principals or contractors holding or entitled to access security under construction contracts. It raises concerns about whether this could weaken the security rights under such contracts if contractors and subcontractors can reclaim security amounts in subsequent payment claims.
This is not the first time Vincent Young has explored the boundaries of the SOP Act legislation for its clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.