Expanding the Scope of Payment Claims Beyond the Traditional Definition of Construction Work
By Joshua Cross and Ziv Ben-Arie, ZBA Lawyers
EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162
FACTS:
EnerMech Pty Ltd (EnerMech) was engaged as a subcontractor by Acciona Infrastructure Projects Australia Pty Ltd, Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (together, ASBJV) to perform electrical works as part of the WestConnex project in Sydney. As part of the subcontract, EnerMech provided security in the form of unconditional undertakings from HSBC, in an amount of approximately $9 million as contractual security.
In May 2023, ASBJV called upon the contractual security, claiming an entitlement to the funds. On 8 June 2023, EnerMech issued a payment claim for approximately $10 million (PC 29), which included a sum previously certified as payable and a credit for the security that had been drawn upon by ASBJV. ASBJV responded by certifying that only the minor variation was payable, claiming that the portion of the payment claim related to the security was invalid because it was not “for construction work” under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).
Following ASBJV’s response, EnerMech sought to refer the matter to adjudication. The Adjudicator determined that EnerMech’s claim was valid, including the part relating to the security. ASBJV sought judicial review, challenging the adjudicator’s decision on the grounds that a payment claim must be exclusively “for construction work” and that the security-related claim was therefore invalid. On 14 December 2023, his Honour Stevenson J ruled in favour of ASBJV, deciding that the determination was invalid as it permitted and determined that an amount was payable for items not falling within the statutory definition of “construction work”.
EnerMech later appealed to the New South Wales Court of Appeal (the Court) on grounds that his Honour Stevenson J erred in his determination.
ISSUES:
- Whether a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) must be exclusively “for construction work”, to be valid.
FINDING & QUOTES:
The Court of Appeal allowed EnerMech’s appeal and set aside the decision of his Honour Stevenson J. The Court held that a payment claim could include amounts such for contractual security, provided they are prescribed by the contract.
The Court placed emphasis on the wording of section 13(1) of the Act, which allows a claimant to serve a payment claim for a progress payment that is due “under the construction contract”. The focus, therefore, is on the contractual obligation to pay, not necessarily the nature of the work performed.
The Court rejected the argument that terms like “under the construction contract” and “for construction work” were determinative of whether a payment claim was valid. It confirmed that claims for the return of security drawn on improperly under a contract could form part of a valid payment claim. This decision aligns with the broader purpose of the Act, which is to facilitate the resolution of payment disputes in the construction industry.
[75]… “in its simplest form, the claim and the payment schedule might be characterised as follows: “the claimant states ‘I am owed $x for construction work undertaken under the construction contract’; the respondent replies, ‘I have paid $x in full and no further amount is owing’”. In such a circumstance, the correctness of the claim and the response would be matters for determination by an adjudicator: however, that characterisation is equally apt to cover the present circumstances and the alternative characterisation provided by the respondents.”
IMPACT:
This decision clarifies that claims made under the Building and Construction Industry Security of Payment Act 1999 (NSW) are not limited to claims strictly “for construction work” but can include other amounts due under a construction contract, such as claims for the recovery of security that has been wrongfully called upon.
The Court of Appeal’s ruling also reinforces the finality of adjudicator decisions, demonstrating the importance that the Courts have limited ability to review such determinations, even where legal errors may be involved. This promotes the efficient resolution of disputes in the construction industry, which is the central aim of the Act. The case will likely influence future disputes regarding the scope of payment claims and the role of the Courts in reviewing adjudications.
HOW WE CAN HELP:
If you require legal assistance with security of payment claims, navigating construction contract disputes, or need guidance on any other construction-related legal matters, our firm is well-positioned to provide expert advice. We can help you protect your interests, mitigate risk, and ensure compliance with the relevant legislative requirements, ensuring you receive the payments you are entitled to under your contracts. Do not hesitate to contact us for support in managing your construction disputes effectively and efficiently.
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