Sun Engineering (Qld) Pty Ltd v Ravenswood Gold Pty Ltd [2024] QSC 68

Sian Keast | Sarah Cahill | Max Rylance

Key takeouts

• This update focuses on the interpretation of the notice requirements under s 67J of the QBCC Act and how it interacts with security provisions in Queensland construction contracts. Our Western Australian team have recently published a note on the notice requirements in the Building and Construction Industry (Security of Payment) Act 2021 (WA).  See: Illustrating the differences between WA and Qld’s security notice requirements       – Construction Law Made Easy

• The written notice requirement under section 67J of the Queensland Building and Construction Commission Act 1991 (QBCC Act) does not restrict a party’s right to call on security for an amount owed, nor is it the source of such a right. Section 67J assumes the existence of a contractual right in relation to an amount owed and regulates that right by requiring notice to be given.  Contractual provisions that entitle a party to have recourse to security to obtain an amount merely claimed are not inconsistent with s 67J, nor do they amount to ‘contracting out’ of the provisions of the QBCC Act. 

• The court also favoured a wide and practical approach when considering exclusions to ‘building work’ and what constitutes ‘work of a kind’ that falls within the term ‘construction work in mining’ as described in the Queensland Building and Construction Commission Regulation 2018 (QBCC Regulation). In this case the work was integral to the activity of mining and therefore fit that description.

Facts

Sun Engineering (Qld) Pty Ltd (Sun) and Ravenswood Gold Pty Ltd (Ravenswood)entered a contract under which Sun performed construction work for Ravenswood as part of the expansion of a gold mine near Townsville (contract).  Under the contract, Sun was required to provide two bank guarantees as security, each approximately $542,000.

In compliance with the contract, Ravenswood returned first bank guarantee after the final supply date.  Following completion of the defects liability period, Sun sought to have the remaining bank guarantee returned in accordance with the contract.  Ravenswood asserted it was entitled to retain and have recourse to the bank guarantee because Sun had failed or refused to repay alleged overpayments in the order of $10M, to partly satisfy Ravenswood’s demand for that amount.  Ravenswood concurrently provided notice under s 67J, without prejudice to its primary position that notice was not required under the QBCC Act. 

Sun applied to restrain Ravenswood from having recourse to the bank guarantee, to compel its return and to declare the purported s 67J notice void.  

Ravenswood contended:

• the contract was not a ‘building contract’ within the meaning of Part 4A of the QBCC Act, and therefore notice under s 67J was not required; and
• it was entitled to have recourse to the bank guarantee at any time in respect of any amount payable under the contract, including any claim under the terms of contract.

The court was required to consider whether the contract was a ‘building contract’ for the purposes of s 67J of the QBCC Act and its proper construction.

Decision  

The court ruled in favour of Ravenswood.  The contract was not a ‘building contract’ for the purposes of s 67J of the QBCC Act and, on its proper construction, the contract permitted resource to security for an amount merely claimed by Ravenswood.

Statutory issues

Under s 67J of the QBCC Act, a party to a ‘building contract’ may use security to obtain ‘an amount owed under the contract’.  A contract is a ‘building contract’ if it is for ‘building work’.  However, under the QBCC Regulation ‘work of a kind’ relating to ‘construction work in mining’ is excluded from the definition of ‘building work’.  The court held that for work to be ‘of a kind’ described in the QBCC Regulation, it did not need to be precisely the work described.  The exclusion should not be given an ‘unduly narrow interpretation’.  If the relevant work was ‘integral’ to mining, the exclusion will apply.

On the facts, the relevant work was conducted close to where the ore (the rock containing the gold) was being won.  The infrastructure that Sun constructed would allow Ravenswood to separate the gold from its natural state in the rock.  The court held that this work was ‘integral’ to Ravenswood’s mining operation – without it, Ravenswood would be simply extracting rock, not mining gold.  Therefore, the contract was not a ‘building contract’ under the QBCC Act, and Ravenswood was not required to give notice under s 67J.

The court also addressed Sun’s submission that s 67J of the QBCC Act covers the field as to when a party is entitled to convert bank guarantees under building contracts. The court did not accept this argument.  It concluded that s 67J does not provide that a security or retention amount may only be used where there is an amount owed under the contract. The provision assumes the existence of a right of a contracting party to have recourse to the security for an amount owed and regulates that right by requiring notice to be given within 28 days of the contracting party becoming aware (or when it reasonably ought to have become aware) of a right to recourse accruing.  Contractual provisions that entitle a party to use security to obtain an amount that is not an amount owed under the contract (as opposed to merely claimed) are not inconsistent with s 67J, nor do they ‘contract out’ of s 67J.  Section 67J does not apply to regulate use of a security for an amount claimed.

Contractual issues

Ravenswood submitted that it was entitled to retain and have recourse to the bank guarantee because the contract provided for it to have recourse in respect of any ‘Claim’, which included its claim for restitution for the alleged overpayment.

Sun contended that the entitlement to have recourse to the security was limited to the recovery of a liquidated amount that was owed as a debt (eg pursuant to a judgment or arbitral determination).

The court determined that, reading the contract as a whole, the words ‘including any Claim’ included a claim for unliquidated damages or a claim for restitution.  The contract was to be construed to permit recourse to the bank guarantees in respect of the claim for overpayment.  The provisions about recourse and release of security in the contract were a risk allocation device, designed to protect Ravenswood against the risk of a claim which results in a judgment that cannot be satisfied.  The contract allocated the risk of litigating a disputed claim to Sun.  Sun’s narrow interpretation of the relevant clauses of the contract would not achieve that result.