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

Tom French | Penny Bond | Alicia Harries

Key takeouts

• In Western Australia parties must give 5 business days’ written notice to have recourse to performance security under a construction contract entered into on or after 1 February 2023.
• Western Australia’s requirement to give notice appears significantly broader than Queensland’s equivalent, which is limited to recourse to security for ‘amounts owed under the contract’.
• Unlike Queensland, in Western Australia the notice requirement is not limited to an ‘amount owed under the contract’. It is required in respect of any recourse to performance security under a construction contract and would likely capture recourse for unliquidated amounts and amounts under the general law.
• In Western Australia, parties should be cautious and seek legal advice prior to calling on security under contracts entered into on or after 1 February 2023 to ensure the right to call has crystallised and the statutory notice requirements have been complied with.

Facts

Sun Engineering (Qld) Pty Ltd (Sun) was performing construction work for Ravenswood Gold Pty Ltd (Ravenswood) under a contract. The contract required Sun to provide performance security (two bank guarantees). Ravenswood claimed it had overpaid Sun and sought to have recourse to one of the guarantees to meet its claim for overpayment. Sun commenced proceedings to restrain Ravenswood from having recourse to the bank guarantee and to compel the return of the guarantee. This update focuses on the court’s reasoning relevant to the notice requirements in Western Australia’s Building and Construction Industry (Security of Payment) Act 2021 (WA SOPA).

Decision  

One of the issues that arose in the proceedings was the meaning and effect of section 67J of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act). Section 67J provides that a party to a building contract may only use security to obtain an amount owed under the contract if the party has given notice in writing to the other party advising of the proposed use and the amount owed under the contract.

As Ravenswood’s claim arose out its overpayment of Sun and not ‘an amount owed under the contract’, the court considered whether section 67J affected Ravenswood’s recourse to the guarantee (that is, whether Ravenswood was required to give notice under section 67J of the QBCC Act).

The court concluded that a notice under section 67J was not required because (amongst other things) the section only applies to the use of security to obtain ‘an amount owed under the building contract’. The notice requirement in the QBCC Act does not arise in circumstances where a party is entitled to have recourse to recover amounts not ‘under the contract’, such as unliquidated amounts and amounts under the general law, for example, restitution, as in the case of Sun’s overpayment.

Critically, under the QBCC Act where security is held under a contract, and the contract permits a party to have recourse for amounts other than ‘amounts owed under the contract’, notice under section 67J would not be required prior to having recourse. 

Key legislative differences: Western Australia & Queensland

Western Australia’s new security of payment legislation, the WA SOPA, introduced a notice requirement for security similar to the QBCC Act. The notice requirement commenced on 1 February 2023 and applies to construction contracts entered into after this date. For more information read our detailed update on the reforms: Introduction of Stage 2 of Security of Payment in WA – Technical update – MinterEllison

In summary, under section 57 of the WA SOPA, a party is not entitled to have recourse to security under the contract unless the party has given at least 5 business days’ written notice to the other party to the contract. That written notice must identify the provisions of the construction contract and the circumstances that entitled the party to recourse.

In our view, section 57 of the WA SOPA is drafted in broader terms than section 67J of the QBCC Act.

Critical to the court’s reasoning in Sun Engineering was that section 67J requires notice before a contracting party has recourse to security to obtain ‘an amount owed under the contract’.

Section 57 requires a notice whenever a party intends to have ‘recourse to performance security under the contract’; unlike section 67J, the notice requirement applies to any recourse and would, in our opinion, capture recourse not ‘under the contract’ such as recourse to satisfy unliquidated amounts and amounts under the general law.

Had Sun Engineering concerned notice under the WA SOPA and not the QBCC Act, the outcome may have been different.

In Western Australia, parties should be cautious when calling on security under contracts executed after 1 February 2023. As section 57 is a new legal requirement and there is currently no Western Australian case law directly on point, we recommend parties seek legal advice before having recourse to ensure the right to call has crystallised and the statutory notice requirements have been complied with.