EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd 2024 NSWCA 162

Andrew Hales | Maciej Getta  |  Cedric Barakat

Key takeouts

• Progress claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) do not need to be ‘for construction work’.  
• A claim must be for an amount due under a construction contract and could include a claim for recovery of security provided under the contract to which recourse has been had.  
• This decision also emphasises that the adjudicator’s decision on the validity of a payment claim, even if legally erroneous, cannot be considered by the court.  The practical implications are far reaching.

Facts

The adjudication

In June 2020, EnerMech Pty Ltd (EnerMech) entered into a subcontract with Acciona Infrastructure Projects Australia Pty Ltd, Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (ASBJV) to provide electrical works for part of the WestConnex project in Sydney.

In May 2023, ASBJV made a demand against the security (approximately $9 million) that EnerMech had procured by way of unconditional undertakings provided by HSBC.

On 8 June 2023, EnerMech issued a payment claim for over $10 million (PC 29), being for the amount previously certified as payable, a minor variation and what was in effect a credit for the security which EnerMech said ASBJV had wrongfully obtained.  ASBJV certified the amount payable in respect of PC 29 as $nil, save for the minor variation amount, because ASBJV said the amount claimed for the security was not ‘for construction work’ and therefore the payment claim was invalid.

On 7 July 2023, EnerMech applied for adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).  The adjudicator ruled in EnerMech’s favour.

Primary decision

ASBJV challenged the adjudicator’s determination, claiming the payment claim was invalid as it sought to recover an amount obtained through a contractual entitlement to have recourse to security rather than for construction work.

On 14 December 2023, Stevenson J ruled in favour of ASBJV.  EnerMech appealed this decision on two grounds, being that Stevenson J erred in holding that:

1.  a payment claim may be made only ‘for construction work’; and
2.  the court has jurisdiction to determine that question.

Decision  

The Court of Appeal allowed the appeal and set aside Stevenson J’s decision.

The court found that a payment claim is valid even if it is not a claim ‘for construction work’, including for example, a claim for the recovery of amounts drawn on securities said to have been wrongfully called upon.  The key point was that the claim was for an amount of money said to be payable under a construction contract.

Does a payment claim need to be ‘for construction work’?

The judgment clarified that the focus should be on payments due under the construction contract.  This interpretation aligns with section 13(1) of the Act, which states that a person claiming a progress payment must serve a claim on someone who ‘under the construction contract concerned, is or may be liable to make the payment’.  

The court emphasised that the phrases ‘under the construction contract’ and ‘for construction work’ are labels and should not determine the nature of the claim.  Fundamentally, the purpose of the Act centres on the construction contract, overlaid by a statutory entitlement to progress payments.  This reinforces previous findings in Southern Han and other cases.

Given the objectives, structure, and clear language of the Act, there is limited scope to imply unstated conditions as being necessary to make either a payment claim or payment schedule valid.  Using different ways to describe a claim creates uncertainty when trying to identify an implied condition of validity.  Even if there was more flexibility to imply limitations on the Act, it would still be problematic.  The court provided a simple summation:

‘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.’

Jurisdiction – when can a court review an adjudicator’s decision?

The court found that an adjudicator’s decision as to the validity of a payment claim is not something that the court has jurisdiction to consider.

Questions about the construction contract and the Act as a whole, as they apply to the payment claim and payment schedule, are for the adjudicator to decide.  This aligns with the Act’s purpose and operation, specifically sections 25(1) and 25(4), which confirm that the adjudicator’s interpretation of the contract, even if legally incorrect, cannot be contested.